<PAGE> 1
================================================================================
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 MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission file number 0-23012
NEXSTAR PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1173453
-------- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
2860 Wilderness Place
Boulder, Colorado 80301
(Address of principal executive offices)
Registrant's telephone number: (303) 444-5893
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of the registrant's Common Stock, par value $.01 per
share, outstanding as of April 30, 1996 was 26,071,370.
<PAGE> 2
NEXSTAR PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -- March 31, 1996 and December 31, 1995 . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations -- Three Months Ended March 31, 1996 and 1995 . . . 4
Condensed Consolidated Statements of Cash Flows -- Three Months Ended March 31, 1996 and 1995 . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . 8
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,807,000 $ 20,893,000
Marketable securities 23,356,000 5,841,000
Accounts receivable 19,788,000 18,315,000
Inventories 10,372,000 9,469,000
Prepaid expenses and other 1,620,000 1,948,000
------------- -------------
Total current assets 77,943,000 56,466,000
Equipment and leasehold improvements at cost - net of
accumulated depreciation and amortization 42,321,000 43,001,000
Investments in life science enterprises 3,950,000 3,950,000
Patent and trademark costs, net of accumulated amortization 3,949,000 3,732,000
Purchased technology, net of accumulated amortization 2,764,000 3,015,000
Other noncurrent assets 2,114,000 2,285,000
------------- -------------
Total assets $ 133,041,000 $ 112,449,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 5,000,000 $ 3,500,000
Accounts payable 4,907,000 6,789,000
Accrued compensation and employee benefits 2,543,000 2,805,000
Other accrued expenses 4,256,000 3,890,000
Current portion of capital lease obligations 4,451,000 4,313,000
------------- -------------
Total current liabilities 21,157,000 21,297,000
Capital lease obligations 9,689,000 9,848,000
Commitments and contingencies
Stockholders' equity:
Common stock 261,000 244,000
Additional paid-in capital 211,431,000 184,290,000
Deferred compensation (207,000) (235,000)
Accumulated deficit (109,290,000) (102,995,000)
------------- -------------
Total stockholders' equity 102,195,000 81,304,000
------------- -------------
Total liabilities and stockholders' equity $ 133,041,000 $ 112,449,000
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Product revenues $17,545,000 $11,894,000
Collaborative agreements and contracts 579,000 751,000
Interest income 433,000 555,000
----------- -----------
Total revenues 18,557,000 13,200,000
----------- -----------
Expenses:
Cost of goods sold 3,819,000 2,569,000
Research and development 11,176,000 8,242,000
Selling, general and administrative 9,463,000 7,280,000
Interest expense 285,000 337,000
----------- -----------
Total expenses 24,743,000 18,428,000
----------- -----------
Net loss before provision for income taxes (6,186,000) (5,228,000)
Provision for income taxes 110,000 52,000
----------- -----------
Net loss $(6,296,000) $(5,280,000)
=========== ===========
Net loss per share $ (0.25) $ (0.23)
=========== ===========
Shares used in computing net loss per share 25,065,000 22,941,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
NEXSTAR PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1996 1995
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (6,296,000) $(5,280,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 3,103,000 2,181,000
Compensation expense related to grant
of options and sales of stock, including
amortization of deferred compensation 28,000 30,000
Other (60,000) (330,000)
Changes in operating assets and liabilities:
Accounts receivable (1,480,000) (1,812,000)
Inventories (903,000) (1,390,000)
Prepaid expenses and other 395,000 1,264,000
Other noncurrent assets 142,000 (40,000)
Short-term borrowings 1,500,000 (400,000)
Accounts payable (1,082,000) 2,686,000
Accrued compensation and employee benefits (266,000) (244,000)
Other accrued expenses 366,000 (68,000)
------------ -----------
Net cash used in operating activities (4,553,000) (3,403,000)
INVESTING ACTIVITIES
Maturities (purchases) of marketable securities, net (17,515,000) 11,094,000
Additions to equipment and leasehold improvements (2,837,000) (3,656,000)
Deletions to investments in life science enterprises, net -- 87,000
Additions to patent costs (322,000) (161,000)
Additions to other noncurrent assets -- (333,000)
------------ -----------
Net cash provided by (used in) investing activities (20,674,000) 7,031,000
FINANCING ACTIVITIES
Proceeds from sale-leaseback transactions 1,091,000 614,000
Payments on capital lease obligations (1,112,000) (823,000)
Proceeds from sales of common stock, net of offering costs 27,162,000 26,000
------------ -----------
Net cash provided by (used in) financing activities 27,141,000 (183,000)
------------ -----------
Net increase in cash and cash equivalents 1,914,000 3,445,000
Cash and cash equivalents at beginning of period 20,893,000 7,605,000
------------ -----------
Cash and cash equivalents at end of period $ 22,807,000 $11,050,000
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
NEXSTAR PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
NOTE 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the
three-month period ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31, 1995.
Certain reclassifications have been made to prior year amounts to
agree with the current year presentation.
NOTE 2: Net Loss Per Share
Net loss per share is computed using the weighted average number of
shares of common stock outstanding.
NOTE 3: Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Finished Goods $ 3,110,000 $2,804,000
Work in Process 5,806,000 4,846,000
Raw Materials 1,456,000 1,819,000
----------- ----------
$10,372,000 $9,469,000
=========== ==========
</TABLE>
NOTE 4: Patent Matters
On May 17, 1993, the Company filed a complaint in the United States
District Court for the District of Delaware against The Liposome
Company ("TLC") asking the court to declare a patent owned by TLC
(U.S. Patent No. 4,880,635) (the "TLC '635 Patent") invalid,
unenforceable, and not infringed following allegations by TLC that
AmBisome infringes the TLC '635 Patent. On December 20, 1993, the
court stayed this action pending the outcome of a reexamination of
the TLC '635 Patent instituted by TLC in the U.S. Patent and
Trademark Office. Upon reexamination, the U.S. Patent and Trademark
Office found that all of the TLC '635 Patent claims were
unpatentable. While TLC has appealed this determination, the Company
believes that there is not a substantial likelihood that the TLC '635
patent will survive the reexamination proceeding or present a
material risk to the Company's business. In addition, the Company has
opposed the grant to TLC of the European counterpart of the TLC '635
Patent.
6
<PAGE> 7
NOTE 5: Impairment of Long-Lived Assets
Effective January 1, 1996, the Company adopted Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("Statement No. 121"), which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present. Implementation of Statement No. 121 was
immaterial to the financial statements of the Company.
NOTE 6: Sale of Common Stock
On February 13, 1996, the Company completed a private sale of
1,425,000 shares of its common stock to a group of private investors
(the "Private Investors"). The net proceeds to the Company from the
sale were approximately $24.9 million. In connection with the
transaction, the Company filed a "shelf" registration statement on
Form S-3 registering for resale the shares acquired by the Private
Investors. Pursuant to its agreement with the Private Investors, the
Company is required to keep the "resale" registration statement
effective for up to three years. In addition to the Private
Investors, a holder of 297,619 shares of the Company's common stock
and two holders of warrants to acquire 250,481 shares of the
Company's common stock exercised registration rights granted to them
by the Company and had their shares of common stock, or the shares of
common stock which relate to their warrants, included in the
registration statement.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
NeXstar Pharmaceuticals is a leading biopharmaceutical company engaged in
the discovery, development, manufacture and marketing of proprietary products
to treat life-threatening and other serious diseases.
The Company currently markets AmBisome, a liposomal formulation of
amphotericin B, for the treatment of life-threatening fungal infections when
conventional treatment fails and DaunoXome, a liposomal formulation of the
anticancer agent daunorubicin, which is used as a first line cytotoxic therapy
for the treatment of advanced, HIV-associated Kaposi's sarcoma. The Company has
relied on sales of AmBisome in Europe for a significant portion of its product
revenues and expects sales of AmBisome in Europe to account for a majority of
its revenues in 1996. AmBisome has been approved for sale by the regulatory
authorities in 22 countries for the treatment of life threatening fungal
infections, including Australia and Ireland where it has been approved as a
primary therapy. Sales in Germany, the U.K. and Spain together accounted for
47% of AmBisome revenues for the three months ended March 31, 1996. In April
1996, the Company received approval for DaunoXome as a first line treatment for
Kaposi's sarcoma from the U.S. Food and Drug Administration and in late April
the Company began marketing DaunoXome in the U.S. In addition, DaunoXome has
been approved for sale by the regulatory authorities in Canada and seven
Western European countries and has received a formal indication that final
marketing authorization will be received in five additional Western European
countries as primary therapy for Kaposi's sarcoma. Revenue growth will be
substantially dependent upon increased penetration of existing markets,
establishing new markets, development of new indications for AmBisome and
DaunoXome and introduction of new products.
In connection with most of its European sales, the Company prices its
products in the currencies of the country into which they are sold (the
"Payment Currencies"), and revenues in the past have been and in the future
could be adversely affected by currency fluctuations. A significant majority of
the Company's manufacturing costs are in U.S. dollars. Therefore, any fall in
the value of the Payment Currencies relative to the U.S. dollar is likely to
negatively impact gross margins for the Company's products since the Company's
manufacturing costs would stay approximately the same while its revenue in
terms of U.S. dollars would decline.
NeXstar Pharmaceuticals hedges certain of its foreign currency exposures,
with respect to its outstanding trade accounts receivable and accounts payable,
through the use of forward contracts. In the future, the Company may begin
currency hedging in connection with anticipated revenues and expenses and may
use options in addition to forward contracts. Such hedging will be done solely
for the purpose of protecting the Company from foreign currency fluctuations.
NeXstar Pharmaceuticals does not enter into speculative foreign currency
transactions and does not write speculative options. The Company recognizes a
gain or loss for each forward contract for the difference between the contract
rate and the market rate on each balance sheet date which is recorded as a
selling, general and administrative expense. Accordingly, no deferred
accounting is used in connection with the Company's hedging activities.
Notwithstanding its hedging activities (which have not always included fully
hedging against potential gains or losses), the Company has in the past
recognized significant foreign exchange gains and losses. There can be no
assurance that significant gains or losses will not be incurred in the future.
8
<PAGE> 9
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 Change 1995
----------- ---------- -----------
<S> <C> <C> <C>
Product revenues $17,545,000 $5,651,000 $11,894,000
</TABLE>
The increase is primarily due to the increased unit sales from AmBisome in
existing markets.
<TABLE>
<CAPTION>
1996 Change 1995
--------- --------- ---------
<S> <C> <C> <C>
Collaborative agreements and contracts $ 579,000 $(172,000) $ 751,000
</TABLE>
Collaborative agreement and contract revenue fluctuations are generally
the result of changes in the number of funded research projects as well as the
timing and performance of contract benchmarks. Contract revenues consisted of
payments by corporate or federal sponsors for work performed to develop
products. A number of the Company's collaborative research agreements with
corporate partners have expired, or the Company anticipates that they will
expire, in 1996.
<TABLE>
<CAPTION>
1996 Change 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest income $ 433,000 $(122,000) $ 555,000
</TABLE>
Interest income generally fluctuates as a result of cash available for
investment and prevailing interest rates.
<TABLE>
<CAPTION>
1996 Change 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cost of goods sold $3,819,000 $1,250,000 $2,569,000
Percentage of product revenues 22% -- 22%
</TABLE>
Cost of goods sold consists primarily of raw materials, allocations of
overhead, labor and equipment costs, and charges associated with lyophilization
services provided by outside vendors. For the three months ended March 31,
1996, the Company recorded charges of $391,000 for certain AmBisome lots
produced in prior years which subsequently failed to pass certain of the
Company's stringent internal quality control specifications.
<TABLE>
<CAPTION>
1996 Change 1995
----------- ----------- -----------
<S> <C> <C> <C>
Research and development $11,176,000 $ 2,934,000 $ 8,242,000
Percentage of product revenues 64% (5%) 69%
</TABLE>
The increase is primarily attributable to increases in product development
and clinical trials and an increase in personnel as a result of the acquisition
of Supragen, Inc. in September 1995. For the three months ended March 31, 1996,
$360,000 of research expenses was sponsored by third parties. Research and
development expenses consist primarily of salaries and benefits for scientific,
regulatory, quality control and pilot manufacturing personnel, consultants,
supplies, occupancy costs and depreciation of laboratory equipment and
facilities. The Company expects research and development expenses to continue
to increase as a result of ongoing and future preclinical and clinical trials
and as research and development facilities are expanded.
<TABLE>
<CAPTION>
1996 Change 1995
----------- ----------- -----------
<S> <C> <C> <C>
Selling, general and administrative $ 9,463,000 $ 2,183,000 $ 7,280,000
Percentage of product revenues 54% (7%) 61%
</TABLE>
The Company had increased expenses of $3.4 million for the three months
ended March 31, 1996 compared to the corresponding period in 1995 which related
primarily to (i) the expansion of the Company's worldwide sales and marketing
distribution network, including the establishment of a sales force in the U.S.
for the sales and marketing of DaunoXome and (ii) a worldwide increase in
administrative personnel to support the Company's expanding operations. These
increases were partially offset by $2.0 million of non-recurring merger-related
costs in the three months ended March 31, 1995. During the three months ended
March 31, 1996, the Company had foreign exchange losses of $74,000 compared to
a gain of $726,000 for the corresponding period in 1995.
9
<PAGE> 10
<TABLE>
<CAPTION>
1996 Change 1995
-------- -------- --------
<S> <C> <C> <C>
Interest expense $285,000 $(52,000) $337,000
</TABLE>
The decrease is primarily due to a reduction in the average short-term
borrowings outstanding for the three months ended March 31, 1996 as compared to
the corresponding period in 1995.
<TABLE>
<CAPTION>
1996 Change 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net loss $ 6,296,000 $ 1,016,000 $ 5,280,000
Net loss per share $ 0.25 $ 0.02 $ 0.23
</TABLE>
PATENT MATTERS
The Company is currently involved in litigation matters and interference
proceedings involving patent and infringement claims with respect to the
Company's products. To date, the outcomes of these litigation matters and
interference proceedings have generally been favorable to the Company although
they have resulted in significant litigation expenses. The Company believes
that there will continue to be significant litigation in the pharmaceutical
industry regarding patents and other intellectual property rights, but cannot
predict the likelihood of it being involved in any additional disputes. Any
additional litigation could consume a substantial portion of the Company's
resources regardless of the outcome of such litigation.
On May 17, 1993, the Company filed a complaint in the United States
District Court for the District of Delaware against The Liposome Company
("TLC") asking the court to declare a patent owned by TLC (U.S. Patent No.
4,880,635) (the "TLC '635 Patent") invalid, unenforceable, and not infringed
following allegations by TLC that AmBisome infringes the TLC '635 Patent. On
December 20, 1993, the court stayed this action pending the outcome of a
reexamination of the TLC '635 Patent instituted by TLC in the U.S. Patent and
Trademark Office. Upon reexamination, the U.S. Patent and Trademark Office
found that all of the TLC '635 Patent claims were unpatentable. While TLC has
appealed this determination, the Company believes that there is not a
substantial likelihood that the TLC '635 Patent will survive the reexamination
proceeding or present a material risk to the Company's business. In addition,
the Company has opposed the grant to TLC of the European counterpart of the TLC
'635 Patent.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents and marketable securities position
at March 31, 1996 was $46.1 million compared to $26.7 million on December 31,
1995. The $19.4 million increase in cash and marketable securities position was
primarily the result of the following:
<TABLE>
<S> <C>
Net cash used in operating activities $ (4,553,000)
Investment in equipment and leasehold improvements (2,837,000)
Proceeds from sale-leaseback transactions 1,091,000
Payments on capital lease obligations (1,112,000)
Proceeds from sale of common stock, net 27,162,000
Other (322,000)
------------
$ 19,429,000
============
</TABLE>
The Company invests its cash and cash equivalents and marketable
securities in interest-bearing investment grade securities.
<TABLE>
<CAPTION>
March 31, December 31,
1996 Change 1995
----------- ----------- -----------
<S> <C> <C> <C>
Accounts receivable $19,788,000 $ 1,473,000 $18,315,000
</TABLE>
The growth in receivables was primarily due to increased sales of
AmBisome. The Company considers the credit risk of its customers to be low.
However, payment practices between countries vary significantly and increased
sales in countries in which payments tend to be slower may increase the average
length that accounts
10
<PAGE> 11
receivable are outstanding. The Company continually seeks improvements in its
collection process to maximize its cash flow from product sales in a timely
manner.
As of March 31, 1996, the Company's inventory value was $10.4 million
compared to $9.5 million as of December 31, 1995 which represents a 9% increase
for the period ended March 31, 1996. The increase resulted primarily from an
overall increase in inventory to meet product demand. If the Company is
successful in increasing its product revenues, the Company expects to gain
manufacturing efficiencies from increased production thereby decreasing cost of
goods sold per unit of product.
For the three months ended March 31, 1996, the Company had proceeds from
sales and leaseback transactions of $1.1 million related to the purchase of
capital equipment. As of March 31, 1996, $391,000 was available under equipment
lease agreements relating to the lease of manufacturing equipment, general
laboratory and scientific equipment, office equipment, furniture and fixtures.
At March 31, 1996, the Company had borrowings of $5.0 million under a $5.0
million unsecured line of credit, which expires on September 1, 1996.
On February 13, 1996, the Company completed a private sale of 1,425,000
shares of its common stock to a group of private investors (the "Private
Investors"). The net proceeds to the Company from the sale were approximately
$24.9 million. In connection with the transaction, the Company filed a "shelf"
registration statement on Form S-3 registering for resale the shares acquired
by the Private Investors. Pursuant to its agreement with the Private Investors,
the Company is required to keep the "resale" registration statement effective
for up to three years. In addition to the Private Investors, a holder of
297,619 shares of the Company's common stock and two holders of warrants to
acquire 250,481 shares of the Company's common stock exercised registration
rights granted to them by the Company and had their shares of common stock, or
the shares of common stock which relate to their warrants, included in the
registration statement.
NeXstar Pharmaceuticals believes that the anticipated revenues from sales
of its existing products, together with the Company's existing cash and the
proceeds from the February 13, 1996 private sale of common stock, should permit
the Company to implement currently planned research and development programs
and marketing and manufacturing activities and to otherwise finance its
operations for several years. However, there can be no assurance that increased
costs associated with developing and obtaining regulatory approval of any
future drugs or other currently unanticipated expenses will not require NeXstar
Pharmaceuticals to access the capital markets. Such capital may be raised
through additional public or private financing, as well as collaborative
relationships, borrowings and other available sources. The Company's future
capital requirements will be substantial and will depend on, and could increase
as a result of, many factors, including progress of the Company's research,
drug discovery and development programs, the results and costs of preclinical
and clinical testing of the Company's products, if developed, the time and
costs involved in obtaining regulatory approvals, the costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market
developments, payments received under collaborative agreements, changes in
collaborative research relationships, the costs associated with potential
commercialization of its products, if any, including the development of
additional manufacturing, marketing and sales capabilities, the cost and
availability of third-party financing for capital expenditures and
administrative and legal expenses. There can be no assurance that additional or
sufficient financing will be available, or, if available, that it will be
available on acceptable terms. If additional funds are raised by issuing equity
securities of the Company, dilution to then existing stockholders may result.
If adequate funds are not available, the Company may be required to
significantly curtail one or more of its research and development programs or
commercialization efforts or obtain funds through arrangements with
collaborative partners or others on less favorable terms than might otherwise
be available.
11
<PAGE> 12
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See "Management's Discussion and Analysis of Financial Condition and
Results Of Operations--Patent Matters".
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Pharmaceutical Pricing Agreement Between the Secretary
of Veterans Affairs and the Registrant, dated April
30, 1996.
10.2 Master Agreement Between the Secretary of Veterans
Affairs and the Registrant, dated April 30, 1996.
10.3 Pharmaceutical Pricing Agreement Between the Secretary
of Health and Human Services and the Registrant, dated
April 30, 1996.
10.4 Rebate Agreement Between the Secretary of Health and
Human Services and the Registrant, dated April 30,
1996.
27.1 Registrant's Financial Data Sheet
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated April 8,
1996, which reported the approval by the U.S. Food and Drug
Administration of the Company's anticancer drug DaunoXome
as a first line cytotoxic therapy for the treatment of
advanced, HIV-associated Kaposi's sarcoma.
12
<PAGE> 13
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.
NEXSTAR PHARMACEUTICALS, INC.
May 15, 1996 By: /s/ PATRICK J. MAHAFFY
-----------------------------------
Patrick J. Mahaffy
President and Chief
Executive Officer
By: /s/ MICHAEL E. HART
-----------------------------------
Michael E. Hart
Vice President and Chief Financial
Officer (Principal Financial
Officer and Principal
Accounting Officer)
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- - ------ ----------- ----
<S> <C>
10.1 Pharmaceutical Pricing Agreement Between the Secretary of Veterans
Affairs and the Registrant, dated April 30, 1996. . . . . . . . . . . .
10.2 Master Agreement Between the Secretary of Veterans Affairs and the
Registrant, dated April 30, 1996 . . . . . . . . . . . . . . . . . . . .
10.3 Pharmaceutical Pricing Agreement Between the Secretary of Health
and Human Services and the Registrant, dated April 30, 1996 . . . . . .
10.4 Rebate Agreement Between the Secretary of Health and Human Services
and the Registrant, dated April 30, 1996 . . . . . . . . . . . . . . . .
27.1 Registrant's Financial Data Sheet . . . . . . . . . . . . . . . . . . .
</TABLE>
14
<PAGE> 1
EXHIBIT 10.1
PHARMACEUTICAL PRICING AGREEMENT
Between
The Secretary of Veterans Affairs
(Hereinafter Referred To As "The Secretary")
And
The Manufacturer Identified In Section IX Of This Agreement
(Hereinafter Referred To As "The Manufacturer")
The Secretary, on behalf of the United States Department of Veterans Affairs,
the Department of Defense, the Public Health Service, the Indian Health Service
collectively "the Federal Agencies" and the Manufacturer, on its own behalf,
for purposes of Section 603 of the Veterans Health Care Act of 1992, Public Law
No. 102-585 (hereinafter referred to as the "Act") and Section 1927 of the
Social Security Act, hereby agree to the following:
PROVISIONS INCORPORATED BY REFERENCE
The parties hereby incorporate into this Pharmaceutical Pricing Agreement
("PPA") by reference the following provisions of that certain Master Agreement
of even date between the parties, said provisions to have the same force and
effect as if they had been fully set forth herein:
Sections: I. DEFINITIONS; II. MANUFACTURERS' RESPONSIBILITIES; III. SECRETARY'S
RESPONSIBILITIES; IV. PENALTY PROVISIONS; V. DISPUTE RESOLUTION; VI.
NON-RENEWAL AND TERMINATION; and VII. GENERAL PROVISIONS.
VIII. ADDITIONAL TERMS
A. The annual Federal ceiling prices specified for the covered drugs
listed in Addendum A to this Agreement will be effective only for a one-year
period beginning on January 1, 1993. Addendum A will be amended annually on or
before January 1 of each succeeding year when the Manufacturer submits a new
list that contains the Manufacturer's covered drugs subject to the Agreement and
specifies the annual Federal ceiling price for each such covered drug for the
coming year. As stated in General Provisions paragraph VII.F above, the annual
amendment must be signed by representatives of the Secretary and the
Manufacturer before becoming effective.
<PAGE> 2
2.
B. The prices charged Federal agencies for the Manufacturer's covered
drugs listed in Addendum A (and in all amendments to Addendum A) during the
one-year periods beginning on the dates on which this PPA and any subsequent
amendments become effective will not exceed the annual Federal ceiling prices
specified for such drugs, i.e., will not exceed.76 of the appropriate annual
non-FAMP, minus any additional discount [(.76 x non-FAMP) minus additional
discount]. The above described prices charged for covered drugs which are the
subject of multiyear Government contracts, in the second or subsequent years of
such contracts, will also not exceed the actual contract prices charged during
the preceding year increased by the annual increase in the CPI-U, as set forth
in 8126(d)(1). See Section II.B.3. of the Master Agreement.
C. Notwithstanding the incorporated provisions of the Master Agreement,
the term of this Agreement is intended to be congruent with the term of the
Master Agreement between the Secretary and the Manufacturer. If for any reason
the Master Agreement between the parties is terminated or suspended, then this
Agreement will automatically be suspended or terminated as of the effective
date of the termination or suspension of the Master Agreement. This Agreement
shall not be effective for any period during which there is no effective
Master Agreement under the Veterans Health Care Act of 1992 between the
Secretary and the Manufacturer.
D. The parties agree that a violation of this Agreement by the
Manufacturer with respect to one or more covered drugs may result either in
striking from this Agreement the covered drug or drugs for which the violation
occurred or cancellation of this entire Agreement, depending on the seriousness
of the circumstances surrounding the violation and the damages suffered by the
Government as determined by the Secretary.
E. All different package units of the covered drugs of the Manufacturer
that are subject to this Agreement are separately listed in the attached
Addendum A (which is incorporated herein as if it were a part of this
paragraph) by product name and eleven-digit NDC number with the 1993 annual
Federal ceiling price specified for each. Annual amendments to Addendum A will
contain the same categories of information as the Addendum, and will be
incorporated herein.
F. The parties agree that the annual Federal ceiling prices of covered
drugs specified above and in any and all addenda to this Agreement constitute
the maximum prices that may be charged Federal agencies for the respective
covered drugs during the year for which the ceiling prices are effective. The
actual prices of covered drugs charged by the Manufacturer under a FSS or other
Government contract will be determined by the normal procurement
<PAGE> 3
3.
contract bidding or negotiation process, subject to the ceiling prices.
G. The Manufacturer certifies to the best of its knowledge and belief the
accuracy of the covered drug information and the specified annual Federal
ceiling price contained in Addendum A and all annual amendments to Addendum A.
IX. SIGNATURES
FOR THE SECRETARY OF VETERANS AFFAIRS
BY:
TITLE:
DATE:
ACCEPTED FOR THE MANUFACTURER. I certify I have made no alterations, amendments
or other changes to this Pharmaceutical Pricing Agreement.
NAME OF MANUFACTURER:
BY: /s/ George B. Herron
TITLE: Vice President Sales and Marketing
MANUFACTURER'S ADDRESS: 2860 Wilderness Place
Boulder, CO 80303
MANUFACTURER'S LABELER CODE(s): 56146
DATE: 4/30/96
<PAGE> 4
ADDENDUM A
<TABLE>
<CAPTION>
FEDERAL CEILING PRICE
PRODUCT BRAND NAME NDC NUMBER PER PACKAGE UNIT (NDC)
------------------ ---------- ----------------------
<S> <C> <C> <C>
1. DaunoXome 56146-0301-1 $ 160.13
2. DaunoXome 56146-0301-4 $ 640.53
3. DaunoXome 56146-0301-0 $ 1,601.32
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
</TABLE>
<PAGE> 1
EXHIBIT 10.2
MASTER AGREEMENT
BETWEEN
THE SECRETARY OF VETERANS AFFAIRS
(HEREINAFTER REFERRED TO AS "THE SECRETARY")
AND
THE MANUFACTURER IDENTIFIED IN SECTION VIII OF THIS AGREEMENT
(HEREINAFTER REFERRED TO AS "THE MANUFACTURER")
The Secretary, on behalf of the United States Department of Veterans Affairs,
the Department of Defense, the Public Health Service, the Indian Health Service
(collectively "the Federal agencies" as identified in Section 8126(b) of title
38, U.S.C.) and State homes receiving funds under Section 1741 of Title 38
U.S.C., and The Manufacturer, on its own behalf, for purposes of Sections 601
and 603 of the Veterans Health Care Act of 1992, Public Law No. 102-585,
(hereinafter referred to as the "Act"), and Section 1927 of the Social Security
Act, hereby agree to the following:
1. DEFINITIONS
The terms defined in this section will, for the purposes of this Agreement,
have the meanings specified in Section 603 of the Act (which creates a new
Section 8126 in Chapter 81 of 38 U.S.C.) and Section 1927(k) of the Social
Security Act, as interpreted and applied herein.
A. "Consumer Price Index for all urban consumers (U.S. city average)"
(hereinafter CPI-U) means the index of consumer prices developed and updated by
the U.S. Department of Labor for all urban consumers.
B. "Covered drug" will have the meaning set forth in Section 8126(h)(2)
and with respect to the Manufacturer includes all drug products meeting the
definitions in Section 8126(h)(2). Said definitions include insulin certified
under Section 506 of the Federal Food Drug and Cosmetic Act, any biological
product identified in Section 600.3 of Title 21, CFR, any innovator multiple
source drug and any single source drug as defined in Section 1927(k)(7)(A) of
the Social Security Act. The limiting definitions in Section 1927(k)(3) of the
Social Security Act do not apply. For purposes of coverage under any
pharmaceutical pricing agreement entered into by the Manufacturer under this
Agreement, all of those covered drugs are to be identified by the Manufacturer's
eleven-digit NDC number with labeler code segment.
<PAGE> 2
2.
C. "Change in non-Federal price" will have the meaning set forth in
Section 8126(h)(1).
D. "New non-FAMP" means the result of the computation set forth in
Section 8126(h)(1)(A).
E. "Old non-FAMP" means the result of the computation set forth in
Section 8126(h)(1)(B)
F. "Depot" will have the meaning set forth in Section 8126(h)(3), and
this definition will be interpreted to include Prime Vendor contractors of the
Federal Government and direct vendor distribution arrangements.
G. "Manufacturer" will have the meaning set forth in Section 8126(h)(4),
except, for purposes of this Agreement, it also shall mean the entity holding
legal title to or possession of the NDC number for the covered drug.
H. "Marketed" means when a Covered Drug was made available for sale by a
manufacturer in the United States after FDA approval.
I. "National Drug Code (NDC)" is the identifying drug number maintained
by the Food and Drug Administration (FDA). For the purposes of any
pharmaceutical pricing agreement made pursuant to this Agreement, the complete
eleven-digit NDC number will be used including labeler code (which is assigned
by the FDA and identifies the establishment), product code (which identifies
the specific product or formulation), and package size code.
J. "Non-Federal Average Manufacturer Price (non-FAMP)" shall have the
meaning set forth in Section 8126(h)(5). "Nominal prices" excluded from the
non-FAMP calculation means any price less than 10% of the non-FAMP in the
previous quarter. For the first annual non-FAMP report, "nominal prices" will
be determined based upon the non-FAMP for the fourth calendar quarter of 1991.
K. "Quarter" means calendar quarter unless otherwise specified.
L. "Single form and dosage unit of the drug" as used in the above
definition of non-FAMP means a single package unit of the drug as identified by
the eleven-digit NDC. The Manufacturer will specify each package unit utilized
for each covered drug as part of the submission of its reporting data and will
submit separate non-FAMP and ceiling data an each package unit of a covered
drug.
M. "Secretary" means the Secretary of Veterans Affairs, or any successor
<PAGE> 3
3.
thereto, or any officer or employee of the Department of Veterans Affairs or
successor agency in whom the authority to implement this Agreement has been
delegated.
N. "Weighted average price" with respect to the calculation of any
non-FAMP will have the meaning set forth in Section 8126(h)(6).
O. "Wholesaler" means merchant middleman, including a prime vendor or
similar distribution system, who sells chiefly to retailers, other merchants,
or industrial, institutional, and commercial users mainly for resale or
business use. For drugs only sold directly to the retailer, other merchants,
industrial, institutional, or commercial users, the buyer will be considered to
be the wholesaler.
P. "Federal Supply Schedule of the General Services Administration" means
the Federal Supply Schedule for drugs, biologicals and pharmaceuticals
negotiated, awarded and administered by the Department or Veterans Affairs.
11. MANUFACTURERS' RESPONSIBILITIES
In consideration for the Secretary entering into this Agreement and reporting
to the Secretary of Health and Human Services the Manufacturer's execution of
this Master Agreement (requirements for the Manufacturer to receive payment for
the purchase of drugs or biologicals by the Federal agencies and other entities
described in Section 8126(a)(4)), the Manufacturer agrees to the following:
A. Beginning January 1, 1993, the Manufacturer shall make available for
procurement on the Federal Supply Schedule ("FSS") of the General Services
Administration each covered drug of the Manufacturer. To meet the requirement
that it make available its covered drugs for procurement on the FSS, the
Manufacturer must negotiate in good faith with VA to enter into a FSS contract
or modification for any covered drug not already on FSS within the prescribed
framework of the Federal Acquisition Regulation, the General Services
Acquisition Regulation, the Veterans Affairs Acquisition Regulations and the
GSA Handbook.
B 1. With respect to any covered drug of the Manufacturer procured by a
Federal agency described in Section 8126(b) on or after January 1, 1993, that
is purchased under Depot contracting systems or listed on the Federal Supply
Schedule, the Manufacturer will have in effect a Pharmaceutical Pricing
Agreement ("PPA") with the Secretary under which the price charged during the
one-year period beginning on the date on which the PPA takes effect may not
<PAGE> 4
4.
exceed 76 percent of the non-Federal Average Manufacturer Price ("non-FAMP")
(less the amount of any additional discount required under Section 8126(c))
i.e., "the annual Federal ceiling price", during the one-year periods as
designated by the Secretary in this Agreement. The PPA will specify the annual
Federal ceiling price for each covered drug of the Manufacturer, calculated
as .76 of the non-FAMP for the appropriate one-year period minus any additional
discount [(.76 x non-FAMP) - additional discount].
2. The annual Federal ceiling price (including any additional discount)
will be computed once each calendar year (beginning in 1992 for existing
covered drugs), and it will be inserted into the Manufacturer's amended or new
PPA for each covered drug on or before January 1 of the following year. The
requirement that the Manufacturer enter into a PPA for each covered drug
applies equally to new covered drugs not previously purchased by the Federal
Government and covered drugs that are the subject of existing Government
contracts.
3. All multiyear contracts for covered drugs, including those entered
into prior to January 1, 1993, are subject to the annual Federal ceiling price
calculation under Sections 8126(a)(2) and (c). For purposes of this agreement
only, existing multiyear contracts, regardless of when entered into, will be
deemed to be entered into on January 1, 1993. In the second and subsequent years
of a multiyear Government contract for a covered drug, if the Manufacturer
wishes to raise the contract price, the annual Federal price ceiling will be
calculated by two methods. First, Section 8126(d)(1) calls for the actual FSS
contract price charged during the preceding one-year period to be increased by
the annual percentage increase in the CPI-U, and, second, Section 8126(d)(2)
calls for the reported annual non-FAMP for the preceding year to be multiplied
by .76, minus any additional discount. The method of calculation that yields the
lowest price ceiling will determine the Federal ceiling price ceiling for the
second year or a subsequent year of such a contract. If the manufacturer
chooses not to raise the contract price, the Federal ceiling price for the
second and subsequent years will be calculated only under the second method
above.
4. For purposes of calculating the 1992 annual non-FAMP in PPA's to be
entered into as of January 1, 1993, the Manufacturer will utilize the
Secretary's designated year-long period for computation, October 1, 1991
through September 30, 1992. The Manufacturer will utilize the Secretary's
designated period for calculation of the New non-FAMP under Section
8126(h)(1)(A), July 1, 1992 through September 30, 1992, for PPA's to be entered
into as of January 1, 1993. The Secretary has designated the period for
calculation of the old non-FAMP as July 1, 1991 through September 30, 1991, and
has designated the months for computing the percentage increase in the CPI-U
under Section 8126(c) as
<PAGE> 5
5.
September 1991 and September 1992. For purposes of calculating the additional
discount on covered drugs that are the subject of existing multiyear contracts
with the Government, the Manufacturer will utilize for its New non-FAMP
calculation the third quarter of 1992 and for its old non-FAMP the third
quarter of 1991. For the purposes of calculating the increase in the CPI-U, the
annual non-FAMP and the additional discount in 1993 and subsequent years, the
same time periods identified in this paragraph, advanced by one year annually,
will be used.
5. All non-FAMP's will be calculated based upon net prices paid by
wholesalers as that term is defined above. In other words, all weighted average
price computations will be net of all cash discounts and similar price
reductions including rebates, charge backs and incentive use based reductions
or credits (where a buyer realizes a net reduced price with increased
utilization of a product). All such computations may exclude sales returns, but
these must be supported by records of returns and the value of those returns as
realized by the customer. The Manufacturer's non-FAMP calculations will be
based on the annual accrual method whenever that data is available, and they
will reflect generally accepted accounting principles.
C. Beginning on January 1, 1993, the Manufacturer's price charged for
each of its covered drugs sold to a State home receiving funds under Section
1741 of Title 38, U.S.C., will not exceed the price charged by the Manufacturer
under the FSS at the time said covered drugs are procured.
D. In compliance with Section 8126(e), the Manufacturer will report to
the Secretary for each covered drug the price of which is determined in
accordance with a PPA the following information at the times specified:
1) not later than December 7, 1992, the non-FAMP for each such covered
drug during the one-year period that ends on September 30, 1992, along
with the non-FAMP information necessary to calculate the additional
discount under Section 8126(c); and
2) not later than 30 days after the last day of each quarter for which
a PPA is in effect, the non-FAMP for each such covered drug during
such quarter, and
3) not later than November 15, 1993, and November 15 of each succeeding
year during which a PPA is in effect, the non-FAMP for each such
covered drug during the one-year period that ends on the last day of
the quarter previous to November 15, i.e., the one-year period that
ends on September 30, 1993, and on September 30 of each succeeding
year during which a PPA is in effect.
<PAGE> 6
6.
The Manufacturer will retain all records relevant to generation of the above
reports and the calculations of annual Federal price ceilings for not less than
five years from the date of their creation. Pursuant to Section 8126(e)(3), the
Secretary or his designee will be afforded unrestricted access to said records
of the Manufacturer as necessary to audit the records to determine the accuracy
of the Manufacturer's non-FAMP data and ceiling price calculations.
E. In a case in which a new FSS contract or a modification to an existing
contract that adds the Manufacturer's covered drugs to FSS and is signed
subsequent to January 1, 1993, the three-month period used to calculate the New
non-FAMP for purposes of calculating the change in the non-Federal price under
Section 8126(h)(1)(A) will be the calendar quarter preceding the month when the
new FSS contract or modification adding covered drugs is signed.
F. The weighted average price computation each covered drug of the
Manufacturer in any period is to be done in accordance with Section 8126(h)(6).
This Section requires that the Manufacturer determine all of the prices at
which a package unit, as identified by the eleven-digit NDC of a covered drug,
was sold to wholesalers, that each of these prices be multiplied by the
quantity of package units sold at each price during the period and that the
products of these multiplications for each class of trade be added together and
then divided by the total quantity of package units sold during the period.
G. The Manufacturer will submit all reports under this Agreement to the
Secretary or his designee in the electronic format described in Appendix A,
which is attached to this Agreement and incorporated herein. If during a
particular reporting period a Manufacturer is unable to generate and transmit
the required reporting in said electronic form, the Manufacturer will so inform
the Secretary prior to the deadline for submitting its report and the Secretary
will determine a reporting format.
H. If during the life of this Agreement the Manufacturer adds to its
PPA's a new covered drug or a new package unit (new NDC number item) for which
there exists no data or data insufficient to calculate any non-FAMP or
additional discount, the Manufacturer will so inform the Secretary and the
Secretary will determine a method for calculating the annual non-FAMP used to
determine the Federal price ceiling for the new drug or new item during the
first year that it is marketed. For new covered drugs marketed for less than
one year, all data available will be used.
<PAGE> 7
7.
III. THE SECRETARY'S RESPONSIBILITIES
A. Pursuant to Section 8126(e)(4), any proprietary information contained
in a report submitted to the Secretary under paragraph (1) of Section 8126(e)
or obtained by the Secretary through any audit conducted under paragraph (3)
of said Section which has been disclosed by the Manufacturer in connection with
this Agreement shall remain confidential, except as the Secretary determines
necessary to carry out the provisions of Section 8126 and to permit the
Comptroller General and the Director of the Congressional Budget Office to
review the information provided.
B. Pursuant to Section 8126(f) the Secretary will supply to the Secretary
of Health and Human Services, upon the execution or termination of this Master
Agreement, the name of the Manufacturer and the fact that it has entered into or
terminated this Agreement.
C. The Secretary will supply to the Federal agencies named in the
preamble to this Agreement which purchase the Manufacturer's covered drugs,
upon execution or termination of this Master Agreement, the name of the
Manufacturer and the fact that it has executed or terminated this Agreement.
The Secretary will also supply said Federal agencies with the annual Federal
ceiling price for each covered drug purchased by them from the Manufacturer.
The Secretary will adopt measures designed to prevent the unauthorized
dissemination by any Federal employee of the Manufacturer's confidential
information to the Manufacturers competitors, members of the public or
Governmental officials not involved in Federal procurement of the
Manufacturer's covered drugs.
D. Notwithstanding the non-renewal or termination of this Agreement for
any reason, the above confidentiality provisions will remain in full force and
effect.
IV. PENALTY PROVISIONS
A. As set forth in Section 1927(b)(3)(B) of the Social Security Act, the
Secretary may survey wholesalers and manufacturers that directly distribute
covered drugs, when necessary, to verify the Manufacturer's non-FAMP and
ceiling prices reported under Section 8126(e)(1). The Secretary may impose a
civil monetary penalty in an amount not to exceed $100,000.00 on a wholesaler,
Manufacturer, or direct seller, if the wholesaler, Manufacturer, or direct
seller of a covered drug refuses a request for information about charges or
prices by the Secretary in connection with doing such a survey or knowingly
provides false information.
<PAGE> 8
8.
B. Pursuant to Section 1927(b)(3)(C) of the Social Security Act, if the
Manufacturer fails to provide information required under Section 8126(e)(1) of
title 38, U.S.C., on a timely basis, the amount of the penalty shall be
$10,000.00 per day for which such information has not been provided and such
amount shall be paid to the Treasury, and if such information is not reported
within 90 days of the deadline imposed, this Agreement shall be suspended after
the end of such 90-day period and until the date such information is reported
(but in no case shall such suspension be for a period of less than 30 days).
C. Pursuant to Section 1927(b)(3)(C) of the Social Security Act, if the
Manufacturer knowingly provides false information in discharging its obligations
under this Agreement, it will be subject to a civil money penalty in an amount
not to exceed $100,000.00 for each item of false information. Such civil money
penalty(s) is (are) in addition to any other penalties that may be prescribed by
law.
D. Notice and hearing procedures, if any, required by the Social Security
Act for imposition of the above penalties will be afforded by the Secretary of
Veterans Affairs.
V. DISPUTE RESOLUTION
A. If a dispute arises between the Manufacturer and the Secretary
concerning the amount to be specified in a PPA as the annual Federal ceiling
price of any covered drug and the Manufacturer in good faith believes that the
amount specified by the Secretary is erroneous under the terms, the
Manufacturer will so notify the Secretary in writing within five working days
after discovering the alleged error.
B. The Secretary and the Manufacturer will devote their best efforts in
order to resolve any dispute concerning the correct annual Federal price
ceiling for a covered drug within 30 days of the Secretary's receipt of the
Manufacturer's notification of the alleged error. In the event that the
Secretary and the Manufacturer are not able to resolve the dispute concerning
the Federal ceiling price, the Secretary will make available to the
Manufacturer the hearing mechanism set forth in the Contract Disputes Act or,
if the VA Board of Contract Appeals declines jurisdiction, a similar hearing
mechanism established by the Secretary for rendering a decision on the correct
annual Federal price ceiling to be used in the Manufacturer's PPA.
C. During the time in which the Secretary and the Manufacturer are
attempting to resolve a good faith dispute concerning the correct annual Federal
price ceiling
<PAGE> 9
9.
under the above provisions, if the Manufacturer is in compliance with all other
provisions of the Veterans Health Care Act of 1992, entities listed in Section
8126(a)(4) may continue to purchase a covered drug which is the subject of a
dispute. Payments for said purchases will be limited to the price determined by
the VA. Disputed amounts will be suspended until 15 working days after the
dispute is resolved by the parties or by the VA Board of Contract Appeals or
other administrative entity hearing the dispute.
VI. NON-RENEWAL AND TERMINATION
A. Unless terminated by either party pursuant to the terms of this
Agreement, the Agreement shall be effective for an initial period of one year
beginning on January 1, 1993 and shall be automatically renewed for additional
successive terms of one year unless the Manufacturer gives written notice of
intent not to renew the Agreement at least 90 days before the end of the then
current period.
B. The Manufacturer may terminate this Agreement for any reason, and such
termination shall become effective the later of the first day of the first
calendar quarter beginning 60 days after the Manufacturer gives written notice
requesting termination, or the ending date of the then-current term of this
Agreement if notice has been given in accordance with Paragraph A, above.
C. The Secretary may terminate this Agreement for a violation of the
Agreement, violation of a PPA entered into pursuant to this Agreement, or for
other good cause upon 60 days prior written notice to the Manufacturer of the
existence of such violation or other good cause. The Secretary shall provide
the Manufacturer, upon its written request, with a hearing concerning such a
termination, but such hearing shall not delay the effective date of the
termination.
D. If this Agreement is not renewed or is terminated, the Manufacturer
will be prohibited from entering into another such Agreement until a period of
at least one calendar quarter has elapsed from the effective date of the
termination, unless the Secretary finds good cause for early reinstatement.
E. Any non-renewal or termination of this Agreement will not affect
payments to the Manufacturer for covered drugs purchased or ordered before the
effective date of the termination.
<PAGE> 10
10.
VII. GENERAL PROVISIONS
A. Any notice required to be given pursuant to the terms and provisions
of this Agreement will be sent in writing via certified mail. Notice to the
Secretary will be sent to:
Deputy Assistant Secretary for Acquisition and Material Management (90)
Department of Veterans Affairs
810 Vermont Ave. N.W.
Washington, D.C. 20420
Notices to the Secretary concerning data transfer and information systems
issues are to be sent to:
Chief, Drugs and Pharmaceuticals Products Management Section
P.O. Box 126
Hines, Il. 60141
Addresses listed above may be updated upon written notice to the Manufacturer.
Notice to the Manufacturer will be sent to the address specified by it in the
authorized contact portions of its annual non-FAMP report submitted to the
Secretary, as updated by any Manufacturer's written notification to the
Secretary at the first address specified above.
B. In the event of transfer of ownership of the Manufacturer, this
Agreement is automatically assigned to the new owner, subject to the new owner
meeting the requirements and this Agreement.
C. Nothing in this Agreement will be construed to require or authorize
the commission of any act contrary to law. If any provision of this Agreement
is found to be invalid by a court of law, this Agreement will be construed in
all respects as if any invalid or unenforceable provision were eliminated, and
without any effect on any other provision.
D. This Agreement shall be construed in accordance with the Federal
common law and ambiguities shall be interpreted in the manner which best
effectuates the statutory scheme.
E. Except for changes in the notification addresses as specified in
paragraph VII (A) above, this Agreement will not be altered except by an
amendment in writing signed by both parties. No person is authorized to alter
or vary the terms unless the alteration appears by way of a written amendment,
signed by duly appointed
<PAGE> 11
11.
representatives of the Secretary and the Manufacturer.
F. In the event that a due date falls on a weekend or Federal holiday,
the report or other item required by this Agreement will be due on the first
business day following that weekend or Federal holiday.
G. The Manufacturer agrees that all reports submitted to the Secretary as
required under this Agreement will be considered certified as accurate to the
best knowledge and belief of the Manufacturer, regardless of which of the
Manufacturer's employees has approved and authorized the report.
H. Appendix A attached hereto is a part of this Agreement.
I. Except as otherwise indicated, all references herein to a section will
be deemed to be references to a section of title 38, U.S.C.
VIII. SIGNATURES
FOR THE SECRETARY OF VETERANS AFFAIRS
BY:
TITLE:
DATE:
ACCEPTED FOR THE MANUFACTURER. I certify that I have made no alterations,
amendments or other changes to this Master Agreement.
NAME OF MANUFACTURER: NeXstar Pharmaceuticals Inc.
BY: /s/ George B. Herron
TITLE: Vice President Sales and Marketing
MANUFACTURER'S ADDRESS: 2860 Wilderness Place
Boulder, CO 80303
MANUFACTURER'S LABELER CODE(s): 56146
DATE: 4/30/96
<PAGE> 1
EXHIBIT 10.3
PHARMACEUTICAL PRICING AGREEMENT
(HEREINAFTER REFERRED TO AS THE "AGREEMENT")
BETWEEN
THE SECRETARY OF HEALTH AND HUMAN SERVICES
(HEREINAFTER REFERRED TO AS THE "SECRETARY")
and
THE MANUFACTURER
IDENTIFIED IN SECTION X OF THIS AGREEMENT
(HEREINAFTER REFERRED TO AS THE "MANUFACTURER")
The Secretary, on behalf of the Department of Health and Human Services, and
the Manufacturer for purposes of section 602 of the Veterans Health Care Act of
1992, Pub. L. No.102-585, which enacted section 340B of the Public Health
Service Act (hereinafter referred to as "the Act"), 42 U.S.C. 256b, and section
1927 of the Social Security Act, hereby agree to the following:
I. DEFINITIONS
The terms defined in this section will, for the purposes of this agreement,
have the meanings specified in the Act and section 1927(k) of the Social
Security Act, as interpreted and applied herein:
(a) "AVERAGE MANUFACTURER PRICE (HEREINAFTER REFERRED TO AS THE "AMP")"
means the average unit price paid to the Manufacturer for the drug in
all states by wholesalers for drugs distributed to the retail pharmacy
class of trade, after deducting customary prompt pay discounts
(excluding direct sales to hospitals, health maintenance organizations
and to wholesalers where the drug is relabeled under the distributor's
national drug code number). Federal Supply Schedule prices are not
included in the calculation of AMP. AMP includes cash discounts
allowed and all other price reductions (other than rebates under
section 1927 of the Social Security Act), which reduce the actual
price paid. It is calculated as a weighted average of each drug of
prices for all the Manufacturer's package sizes for each calendar
quarter. Specifically, it is calculated as net sales divided by the
numbers of units sold, excluding free goods (i.e., drugs or any other
items given away, but not contingent on any purchase requirements).
For bundled sales, the allocation of the discount is made
<PAGE> 2
2
proportionately to the dollar value of the units of each drug sold
under the bundled arrangements. The AMP for a calendar quarter must be
adjusted by the Manufacturer, if cumulative discounts or other
arrangements subsequently adjust the prices actually realized.
(b) "BEST PRICE" has the meaning given it in section 1927(c)(1)(C) of the
Social Security Act, and section I(d) of the Medicaid Rebate
Agreement.
(c) "BUNDLED SALE" refers to the packaging of drugs of different types
where the total price for the package is less than the purchase price
of the drugs if purchased separately.
(d) "COVERED DRUG" means an outpatient drug as set forth in section
1927(k) of the Social Security Act. For purposes of coverage under
the Agreement, all covered outpatient drugs are identified by the
Manufacturer's labeler code segment of the NDC number.
(e) "COVERED ENTITY" means:
(1) certain Public Health Service grantees, "look alike" Federally
Qualified Health Centers and disproportionate share hospitals
as described in section 340B(a)(4) of the Act; and
(2) in the case of a covered entity that is a distinct part of a
hospital, the hospital shall not be considered a covered
entity unless the hospital is otherwise considered a covered
entity, i.e., it meets the requirements of section
340B(a)(4)(L) of the Act, as determined by the Secretary.
(f) "HEALTH CARE FINANCING ADMINISTRATION (HCFA)" means the agency of the
Department of Health and Human Services having the delegated authority
to administer the Medicaid and Medicare Programs.
(g) "MANUFACTURER" has the meaning as set forth in section 1927(k)(5) of
the Social Security Act except that, for purposes of the Agreement, it
shall also mean the entity holding legal title to or possession of the
NDC number for the covered outpatient drug. The term includes:
<PAGE> 3
3
(1) any manufacturer who sells outpatient drugs to covered
entities, whether or not the Manufacturer participates in the
Medicaid rebate program; and
(2) any contractors which fulfill the responsibilities pursuant to
the Agreement unless specifically agreed to by the Secretary.
(h) "MEDICAID REBATE PROGRAM AND MEDICAID REBATE AGREEMENT" mean,
respectively, the program, and a signed agreement between the
Secretary and the Manufacturer, to implement the provisions of section
1927 of the Social Security Act.
(i) "NATIONAL DRUG CODE (NDC)" means the identifying drug number
maintained by the Food and Drug Administration (FDA). For purposes of
the Agreement, the NDC number will be used including labeler code
(which is assigned by the FDA and identifies the establishment),
product code (which identifies the specified product or formulation),
and package size code when reporting requested information.
(j) "OVER THE COUNTER DRUG" means a drug that may be sold without a
prescription and which is prescribed by a physician (or other persons
authorized to prescribe such drugs under State law).
(k) "QUARTER" means a calendar quarter unless otherwise specified.
(l) "REBATE PERCENTAGE" means an amount (expressed in a percentage) equal
to the average total rebate required under section 1927(c) of the
Social Security Act with respect to each dosage, form, and strength of
a single source or innovator multiple source drug during the preceding
calendar quarter; divided by the AMP for such a unit of the drug
during such quarter.
(m) "THE SECRETARY" means the Secretary of Health and Human Services, or
any successor thereto, or any officer or employee of the Department of
Health and Human Services or successor agency to whom the authority to
implement this agreement has been delegated.
(n) "UNIT OF THE DRUG" means a drug unit in the lowest identifiable amount
(e.g., tablet or capsule for solid
<PAGE> 4
4
dosage forms, milliliter for liquid forms, gram for ointments or
creams). The Manufacturer will specify the unit associated with each
covered outpatient drug, as part of the submission of data, in
accordance with the Secretary's instructions provided pursuant to
Section II of the Agreement.
(o) "WHOLESALER" means any entity, having a wholesale distributor's
license, to which a manufacturer sells the covered outpatient drug,
but which does not relabel or repackage the covered outpatient drug.
II. MANUFACTURER'S RESPONSIBILITIES
Pursuant to requirements under section 340B of the Act, the Manufacturer agrees
to the following:
(a) for single source and innovator multiple source drugs, to charge
covered entities a PRICE for each unit of the drug that DOES NOT
EXCEED an amount equal to the AMP for the covered outpatient drug
reported (or which would have been reported had the manufacturer
participated in the Medicaid rebate program) to the Secretary in the
previous quarter in accordance with the manufacturer's
responsibilities under section 1927(b)(3) of the Social Security Act,
REDUCED BY THE REBATE PERCENTAGE.
(b) for multiple source, noninnovator multiple source, and over the
counter drugs, the AMP is reduced by 11%, as described in 1927(c)(4)
of the Social Security Act;
(c) for those manufacturers that do not have a reporting requirement under
section 1927(b)(3) of the Social Security Act for covered outpatient
drugs, to submit to the Secretary upon request, a list of such covered
outpatient drugs, and the Average Manufacturer Price (AMP), baseline
AMP, and the Best Price of such covered outpatient drugs.
(d) to retain all records that may be necessary to provide the information
described in paragraph (c) of this section for not less than three
years from the date of their creation.
<PAGE> 5
5
(e) to afford the Secretary or his designee reasonable access to records
of the Manufacturer relevant to the Manufacturer's compliance with the
terms of the Agreement.
(f) to permit HCFA to share AMP and unit rebate amount submitted under the
Medicaid Rebate Agreement on covered outpatient drugs with the
Secretary or her designee for purposes of carrying out the Agreement.
III. SECRETARY'S RESPONSIBILITIES
Pursuant to the requirements under section 340B of the Act, the Secretary
agrees to the following:
(a) to make available a list of covered entities on an electronic bulletin
board, or otherwise, for access by participating manufacturers,
covered entities, State Medicaid agencies, and the general public.
This information will be updated, to the extent practicable, quarterly
and will include a notification of additions to and deletions from the
list of covered entities.
(b) With respect to a covered entity that bills Medicaid using a cost
basis for drug purchases, to require the entity to submit its pharmacy
Medicaid provider number. The Secretary will provide respective State
Medicaid agencies with the list of such entities and their Medicaid
provider numbers. Based on these provider numbers, the State agencies
will create an exclusion file which will exclude data from these
entities when generating Medicaid rebate requests.
(c) to notify each covered entity of its eligibility to purchase covered
outpatient drugs under the Agreement.
(d) to require each covered entity to retain records of purchases of
covered outpatient drugs under the Agreement and of any claims for
reimbursement submitted for such drugs under Title XIX of the Social
Security Act for not less than three years.
IV. PENALTY PROVISIONS
(a) If the Secretary determines, after notice and hearing, that a covered
entity is in violation of the prohibition on
<PAGE> 6
6
duplicate discounts, provided in section 340B(a)(5)(A) of the Act, or
the prohibition on resale or transfer of a drug to a person who is not
a patient of the entity, provided in section 340B(a)(5)(B) of the Act,
the covered entity shall be liable to the Manufacturer of the covered
drug that is the subject of the violation in an amount equal to the
reduction in the price of the drug as described in section II(a) of
the Agreement.
(b) If the Secretary determines, after notice and hearing, that the
Manufacturer has failed to comply with the requirements of the
Agreement, has refused to submit reports, or has submitted false
information pursuant to the Agreement, the Secretary may require the
manufacturer to reimburse the entity for discounts withheld and can
also terminate the Agreement. A manufacturer who does not have an
agreement with the Secretary pursuant to the Act, will no longer be
deemed to meet the requirements of section 1927(a)(5)(A) of the Social
Security Act.
V. EFFECTIVE DATE
The Agreement between the Secretary and the Manufacturer shall be effective
retroactive to the later of December 1, 1992, or the date when the manufacturer
began selling covered outpatient drugs to covered entities. If the Manufacturer
finds that a price adjustment is required, the Manufacturer shall calculate any
rebate (or credit) necessary to account for sales and remit the rebate to the
entity (or provide for the credit).
VI. DISPUTE RESOLUTION
(a) If the Manufacturer believes that a covered entity has violated the
prohibition against resale or transfer of covered outpatient drugs,
section 340B(a)(5)(B), or the prohibition against duplicate discounts
or rebates, section 340B(a)(5)(A), and the Manufacturer and the
covered entity are unable in good faith to resolve the matter, the
Manufacturer may provide written notice of the discrepancy to the
Secretary. The Secretary will initiate an informal dispute resolution
process. Nothing in this paragraph shall preclude the Manufacturer or
the Secretary from exercising such other remedies as may be available
by law.
(b) The Manufacturer may challenge the presence of an entity on the list
of eligible entities issued by the Secretary. Upon
<PAGE> 7
7
presentation of appropriate information documenting the entity's
ineligibility, the Secretary shall take such steps as may be necessary
to carry out her obligations under paragraph III(a).
(c) If the Secretary believes that the Manufacturer has not complied with
the provisions of the Agreement, or has refused to submit reports, or
has submitted false information pursuant to the Agreement, the
Secretary, in her discretion, may allow the Manufacturer 60 days to
resolve the dispute. If, at the termination of the 60 day period, no
resolution has been forthcoming, the Secretary will initiate the
notice and hearing process, section IV(b) of the Agreement.
(d) A covered entity's failure to comply with the audit requirement
pursuant to section 340B(a)(5)(C) of the Act shall be cause for the
Manufacturer to notify the Secretary or his designee and for the
Secretary to initiate the dispute resolution process. Such action will
not relieve the Manufacturer from its obligation to conform to the
pricing requirements as provided in section 340B(a) of the Act and the
Agreement.
VII. CONFIDENTIALITY PROVISIONS
(a) Information disclosed by the Manufacturer in connection with the
Agreement, except as otherwise required by law, will not be disclosed
by the Secretary or her designee in a form which reveals the
Manufacturer, except as necessary to carry out the provisions of
section 340B of the Act, and to permit review by the Comptroller
General.
(b) The Manufacturer will hold audit information obtained from the covered
entities confidential. If the Manufacturer receives further
information on such data, that information shall also be held
confidential. Nothing in this paragraph shall preclude the
Manufacturer from making such information available to the Secretary
to enable the Secretary to carry out the provisions of section 340B of
the Act.
VIII. NONRENEWAL AND TERMINATION
(a) Unless otherwise terminated by either party pursuant to the terms of
the Agreement, the Agreement shall be effective for
<PAGE> 8
8
an initial period of one year, beginning on the date specified in
section X of this agreement. It shall be automatically renewed for
additional successive terms of one year unless the Manufacturer gives
written notice of intent not to renew the Agreement at least 90 days
before the end of the applicable period.
(b) The Manufacturer may terminate the Agreement for any reason. Such
termination shall become effective the later of the first day of the
first calendar quarter beginning 60 days after the Manufacturer gives
written notice requesting termination, and the ending date of the term
of the Agreement, if notice has been given 90 days before the end of
the term.
(c) The Secretary may terminate the Agreement for a violation of the
Agreement or other good cause upon 60 days prior written notice to the
Manufacturer of the existence of such violation or other good cause.
The Secretary shall provide, the Manufacturer, upon request, a hearing
concerning the termination, but such hearing shall not delay the
effective date of the termination. Disputes arising under a contract
between a manufacturer and a covered entity should be resolved
according to the terms of that contract. Actions taken by the parties
in such disputes are not grounds for termination of the Agreement with
the Secretary, except to the extent that there is a violation of the
provisions of the Agreement.
(d) If the Agreement is not renewed or is terminated, the Manufacturer is
prohibited from entering into another Agreement as provided in section
340B of the Act until a period of one complete calendar quarter has
elapsed from the effective date of the termination, unless the
Secretary finds good cause for earlier reinstatement.
(e) Any nonrenewal or termination will not affect the ceiling price under
paragraph II(a) for any covered outpatient drug purchased before the
effective date of termination.
IX. GENERAL PROVISIONS
(a) Any notice required to be given pursuant to the terms and provisions
of the Agreement will be sent in writing.
(1) Notice to the Secretary will be sent to:
<PAGE> 9
9
Health Resources and Services Administration
Attn: Drug Pricing Program
4350 East West Highway, Room 10-1A1
Bethesda, Maryland 20814
(2) Notice concerning data transfer and information systems issues
is to be sent to the same address as listed above (section
IX(a)(1) of this Agreement).
(3) Notice to the Manufacturer will be sent to the address as
provided with the Agreement and updated upon Manufacturer
notification to the Secretary at the address in the Agreement.
(b) The Manufacturer will be permitted to audit the records of each
covered entity -
(1) that directly pertain to the entity's compliance with the
prohibition on -
(A) the resale or other transfer of covered outpatient
drugs to persons not patients of the entity, section
340B(a)(5)(B), and
(B) duplicate discounts pertaining to the rebate under
section 1927 of the Social Security Act, section
340B(a)(5)(A);
(2) in accordance with procedures established by the Secretary
relating to the number, duration, and scope of audits; and
(3) at the Manufacturer's expense.
(c) After receiving a list of eligible disproportionate share hospitals,
the Manufacturer may verify that the hospital does not purchase
covered outpatient drugs through a group purchasing organization or
other group purchasing arrangement, as prohibited by section
34OB(a)(4)(L)(iii) of the Act. Subject to verification by the
Secretary, any hospital identified as such will not be eligible for
the discounted price while participating in such a purchasing
arrangement.
(d) No provision in the Agreement shall prohibit the Manufacturer from
charging a price for a drug that is lower than the ceiling price as
described in section II(a) of the Agreement.
<PAGE> 10
10
(e) In the event of a transfer in ownership of the Manufacturer, the
Agreement is automatically assigned to the new owner.
(f) Nothing in the Agreement will be construed to require or authorize the
commission of any act contrary to law. If any provision of the
Agreement is found to be invalid by a court of law, the Agreement will
be construed in all respects as if any invalid or unenforceable
provisions were eliminated, and without any effect on any other
provision.
(g) Nothing in the Agreement shall be construed as a waiver or
relinquishment of any legal rights of the Manufacturer or the
Secretary under the Constitution, the Act, or Federal laws, or State
laws.
(h) The Agreement shall be construed in accordance with Federal common
law, and ambiguities shall be interpreted in the manner which best
effectuates the statutory scheme.
(i) Except for changes of addresses, the Agreement will not be altered
except by an amendment in writing signed by both parties. No person is
authorized to alter or vary the terms unless the alteration appears by
way of a written amendment, signed by duly appointed representatives
of the Secretary and the Manufacturer.
(j) In the event that a due date falls on a weekend or Federal holiday,
items will be due on the first business day following that weekend or
Federal holiday.
<PAGE> 11
11
X. SIGNATURES
FOR THE SECRETARY OF HEALTH AND HUMAN SERVICES
By: /s/ CIRO V. SUMAYA
---------------------------------------------------------------------
TITLE: Ciro V. Sumaya, M.D., M.P.H.T.M.
Administrator
Health Resources and Services Administration
DATE:
----------------------------------------------------------
ACCEPTED FOR THE MANUFACTURER
I certify that I have made no alterations, amendments, or other changes
to this pricing agreement.
BY: /s/ George B. Herron
---------------------------------------------------------------------
TITLE: Vice President Sales and Marketing
-----------------------------------------------------------------
NAME OF MANUFACTURER: Nexstar Pharmaceuticals Inc.
--------------------------------------------------
MANUFACTURER ADDRESS: 2860 Wilderness Place
--------------------------------------------------
Boulder, CO 80301
--------------------------------------------------
PHONE NUMBER: (303) 546-7676
----------------------------------------------------------
MANUFACTURER LABELER CODE(s): 56146
------------------------------------------
CONTACT PERSON: Anne Hill
-----------------------------------------------------
TITLE: Sr. Treasury Analyst
-----------------------------------------------------
PHONE NO: (303) 546-7863
-----------------------------------------------------
DATE: 4/30/96
------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.4
Enclosure A
REBATE AGREEMENT
Between
The Secretary of Health and Human Services
(hereinafter referred to as "the Secretary") and
The Manufacturer Identified in Section XI of this Agreement
(hereinafter referred to as "the Manufacturer")
The Secretary, on behalf of the Department of Health and Human Services and all
States and the District of Columbia (except to the extent that they have in
force an Individual State Agreement) which have a Medicaid State Plan approved
under 42 U.S.C. section 1396a, and the Manufacturer, on its own behalf, for
purposes of section 4401 of the Omnibus Budget Reconciliation Act of 1990, Pub.
L. No. 101-508, and section 1927 of the Social Security Act (hereinafter
referred, to as "the Act"), 42 U.S.C. 1396s, hereby agree to the following:
I DEFINITIONS
The terms defined in this section will, for the purposes of this agreement,
have the meanings specified in section 1927 of the Act as interpreted and
applied herein:
(a) "Average Manufacturer Price (AMP)" means, with respect to a Covered
Outpatient Drug of the Manufacturer for a calendar quarter, the average unit
price paid to the Manufacturer for the drug in the States by wholesalers for
drugs distributed to the retail pharmacy class of trade (excluding direct sales
to hospitals, health maintenance organizations and to wholesalers where the
drug is relabeled under that distributor's national drug code number). Federal
Supply Schedule prices are not included in the calculation of AMP. AMP includes
cash discounts allowed and all other price reductions (other than rebates under
section 1927 of the Act), which reduce the actual price paid. It is calculated
as a weighted average of prices for all the Manufacturer's package sizes for
each Covered Outpatient Drug sold by the Manufacturer during that quarter.
Specifically, it is calculated as Net Sales divided by numbers of units sold,
excluding free goods (i.e. drugs or any other items given away, but not
contingent on any purchase requirements). For Bundled Sales, the allocation of
the discount is made proportionately to the dollar value of the units of each
drug sold under the bundled arrangement. The Average Manufacturer Price for a
quarter must be adjusted by the Manufacturer if
<PAGE> 2
cumulative discounts or other arrangements subsequently adjust the prices
actually realized.
(b) "Base Consumer Price Index-Urban (CPI-U)" is the CPI-U for September, 1990.
For drugs approved by FDA after October 1, 1990, "Base CPI-U" means the CPI-U
for the month before the month in which the drug was first marketed.
(c) "Base Date AMP" means the AMP for the 7/1/90-9/30/90 quarter for purposes
of computing the AMP as of 10/1/90. For drugs approved by FDA after October 1,
1990, "Base Date AMP" means the AMP for the first day of the first month in
which the drug was marketed. In order to meet this definition, the drug must
have been marketed on that first day. If the drug was not marketed on that
first day, "Base Date" means the AMP for the first day of the month in which
the product was marketed for a full month.
(d) "Best Price" means, with respect to Single Source and Innovator Multiple
Source Drugs, the lowest price at which the manufacturer sells the Covered
Outpatient Drug to any purchaser in the United States in any pricing structure
(including capitated payments), in the same quarter for which the AMP is
computed. Best price includes prices to wholesalers, retailers, nonprofit
entities, or governmental entities within the States (excluding Depot Prices
and Single Award Contract Prices of any agency of the Federal Government).
Federal Supply Schedule prices are included in the calculation of the best
price.
The best prices shall be inclusive of cash discounts, free goods, volume
discounts, and rebates, (other than rebates under Section 1927 of the Act).
It shall be determined on a unit basis without regard to special packaging,
labeling or identifiers on the dosage form or product or package, and shall not
take into account prices that are Nominal in amount. For Bundled Sales, the
allocation of the discount is made proportionately to the dollar value of the
units of each drug sold under the bundled arrangement. The best price for a
quarter shall be adjusted by the Manufacturer if cumulative discounts, rebates
or other arrangements subsequently adjust the prices actually realized.
(e) "Bundled Sale" refers to the packaging of drugs of different types where
the condition of rebate or discount is that more than one drug type is
purchased, or where the resulting discount or rebate is greater than that which
would have been received had the drug products been purchased separately.
(f) "Consumer Price Index-Urban (CPI-U)" means the index of consumer prices
developed and updated by the U.S. Department of Commerce. As referenced in
section 1927(c) of the Act, it is the CPI for all urban consumers (U.S.
Average) and, except for the base CPI-U, it
2
<PAGE> 3
shall be the index for the month before the beginning of the calendar quarter
for which the rebate is made.
(g) "Covered Outpatient Drug" will have the meaning as set forth in Section
1927(k)(2),(k)(3) and (k)(4) of the Act, and with respect to the Manufacturer
includes all such drug products meeting this definition. For purposes of
coverage under this agreement, all of those Covered Outpatient Drugs are
identified by the Manufacturer's labeler code segment of the NDC number.
Certain Covered Outpatient Drugs, such as specified by Section 1927(d)(1)-(3)
of the Act, may be restricted or excluded from Medicaid payment at State option
but shall be included by the Manufacturer for purposes of this agreement.
(h) "Depot Price" means the price(s) available to any depot of the federal
government, for purchase of drugs from the Manufacturer through the depot
system of procurement.
(i) "Health Care Financing Administration (HCFA)" means the agency of the
Department of Health and Human Services having the delegated authority to
operate the Medicaid Program.
(j) "Individual State Agreement" means an agreement between a State and a
Manufacturer authorized or approved by HCFA as meeting the requirements
specified in Section 1927(a)(1) or (a)(4) of the Act. Amendments or other
changes to agreements under 1927(a)(4) shall not be included in this definition
unless specifically accepted by HCFA.
An existing agreement that met these requirements as of the date of enactment
of P.L. No. 101-508 (November 5, 1990), can be modified to give a greater rebate
percentage.
(k) "Innovator Multiple Source Drug" will have the meaning set forth in Section
1927(k)(7)(A)(ii) of the Act and shall include all Covered Outpatient Drugs
approved under a New Drug Application (NDA), Product License Approval (PLA),
Establishment License Approval (ELA) or Antibiotic Drug Approval (ADA). A
Covered Outpatient Drug marketed by a cross-licensed producer or distributor
under the approved NDA shall be included as an innovator multiple source drug
when the drug product meets this definition.
(l) "Manufacturer" will have the meaning set forth in Section 1927(k)(5) of the
Act except, for purposes of this agreement, it shall also mean the entity
holding legal title to or possession of the NDC number for the Covered
Outpatient Drug.
(m) "Marketed" means that a drug was first sold by a manufacturer in the States
after FDA approval.
3
<PAGE> 4
(n) "Medicaid Utilization Information" means the information on the total
number of units of each dosage form and strength of the Manufacturer's Covered
Outpatient Drugs reimbursed during a quarter under a Medicaid State Plan. This
information is based on claims paid by the State Medicaid Agency during a
calendar quarter and not drugs that were dispensed during a calendar quarter
(except it shall not include drugs dispensed prior to January 1, 1991). The
Medicaid Utilization Information to be supplied includes: 1) NDC number; 2)
Product name; 3) Units paid for during the quarter by NDC number; 4) Total
number of prescriptions paid for during the quarter by NDC number; and 5) Total
amount paid during the quarter by NDC number. A State may, at its option,
compute the total rebate anticipated, based on its own records, but it shall
remain the responsibility of the manufacturer to correctly calculate the rebate
amount based on its correct determination of AMP and, where applicable, Best
Price.
(o) "National Drug Code (NDC)" is the identifying drug number maintained by the
Food and Drug Administration (FDA). For the purposes of this agreement the
complete 11 digit NDC number will be used including labeler code (which is
assigned by the FDA and identifies the establishment), product code (which
identifies the specific product or formulation), and package size code. For the
purposes of making Rebate Payments, Manufacturers must accept the NDC number
without package size code from States that do not maintain their records by
complete NDC number.
(p) "Net Sales" means quarterly gross sales revenue less cash discounts allowed
and all other price reductions (other than rebates under section 1927 of the
Act) which reduce the actual price paid; and as further defined under the
definition of AMP.
(q) "New Drug" means a Covered Outpatient Drug approved as a new drug under
section 201(p) of the Federal Food, Drug, and Cosmetic Act.
(r) "New Drug Coverage" begins with the date of FDA approval of the NDA, PLA,
ELA or ADA, for a period of six months from that date, with the exception of
drugs not under the rebate agreement or classes of drugs States elect to
exclude.
(s) "Nominal Price", for purposes of excluding prices from the Best Price
calculation, means any price less than 10% of the AMP in the same quarter for
which the AMP is computed.
(t) "Noninnovator Multiple Source Drug" shall have the meaning as set forth in
Section 1927(k)(7)(A)(iii) of the Act. It also includes Covered Outpatient
Drugs approved under an ANDA or AADA.
(u) "Quarter" means calendar quarter unless otherwise specified.
4
<PAGE> 5
(v) "Rebate Payment" means, with respect to the Manufacturer's Covered
Outpatient Drugs, the quarterly payment by the Manufacturer to the State
Medicaid Agency, calculated in accordance with Section 1927 of the Act and the
provisions of this agreement. The terms "Base CPI-U" and "Base Date AMP" will
be applicable to the calculations under 1927(c).
(w) "Secretary" means the Secretary of the United States Department of Health
and Human Services, or any successor thereto, or any officer or employee of the
Department of Health and Human Services or successor agency to whom the
authority to implement this agreement has been delegated.
(x) "Single-Award Contract" means a contract between the Federal Government and
a Manufacturer resulting in a single supplier for a Covered Outpatient Drug
within a class of drugs. The Federal Supply Schedule is not included in this
definition as a single-award contract.
(y) "Single-Award Contract Price" means a price established under a
Single-Award Contract.
(z) "Single Source Drug" will have the meaning set forth in Section
1927(k)(7)(A)(iv) of the Act. It also includes a Covered Outpatient Drug
approved under a PLA, ELA or ABA.
(aa) "States" means the 50 states and the District of Columbia.
(bb) "State Medicaid Agency" means the agency designated by a State under
Section 1902(a)(5) of the Act to administer or supervise the administration of
the Medicaid program.
(cc) "Unit" means drug unit in the lowest identifiable amount (e.g. tablet or
capsule for solid dosage forms, milliliter for liquid forms, gram for ointments
or creams). The Manufacturer will specify the unit associated with each Covered
Outpatient Drug, as part of the submission of data, in accordance with the
Secretary's instructions provided pursuant to Appendix A.
(dd) "Unit Rebate Amount" means the unit amount computed by the Health Care
Financing Administration to which the Medicaid utilization information may be
applied by States in invoicing the Manufacturer for the rebate payment due.
(ee) "Wholesaler" means any entity (including a pharmacy or chain of
pharmacies) to which the manufacturer sells the Covered Outpatient Drug, but
that does not relabel or repackage the Covered Outpatient Drug.
5
<PAGE> 6
II MANUFACTURER'S RESPONSIBILITIES
In order for the Secretary to authorize that a State receive payment for the
Manufacturer's drugs under Title XIX of the Act, 42 U.S.C. Section 1396 et
seq., the Manufacturer agrees to the following:
(a) To calculate and, except as provided under section V(b) of this agreement,
to make a Rebate Payment to each State Medicaid Agency for the Manufacturer's
Covered Outpatient Drugs paid for by the State Medicaid Agency during a
quarter.
A separate listing of all Covered Outpatient Drugs and other information, in
accordance with HCFA's specifications pursuant to Appendix A, must be submitted
within 30 calendar days of entering into this agreement and be updated
quarterly. The Manufacturer's quarterly report is to include all new NDC
numbers and continue to list those NDC numbers for drugs no longer marketed.
(b) Except as provided under V(b), to make such rebate payments for each
calendar quarter within 30 days after receiving from the State the Medicaid
Utilization Information defined in this agreement. Although a specific amount
of information has been defined in I(n) of this agreement, the Manufacturer is
responsible for timely payment of the rebate within 30 days of receiving, at a
minimum, information on the number of units paid, by NDC number.
(c) To comply with the conditions of 42 U.S.C. section 1396s, changes thereto
and implementing regulations as the Secretary deems necessary and specifies by
actual prior notice to the manufacturer.
(d) That rebate agreements between the Secretary and the Manufacturer entered
into before March 1, 1991 are retroactive to January 1, 1991. Rebate agreements
entered into on or after March 1, 1991 shall be effective the first day of the
calendar quarter that begins more than 60 days after the date the agreement is
entered into.
(e) To report to the Secretary, in accordance with specifications pursuant to
Appendix A, that information on the Average Manufacturer Price and, in the case
of Single Source and Innovator Multiple Source Drugs, the Manufacturer's Best
Price for all Covered Outpatient Drugs. The Manufacturer agrees to provide such
information within 30 days of the last day of each quarter beginning with (1)
the January 1, 1991-March 31, 1991 quarter or (2) the quarter in which any
subsequent effective date of this agreement lies. Other information in Appendix
A shall also be required within 30 days of the last day of the quarter.
Adjustments to AMP or Best Price for prior quarters shall also be reported on
this quarterly basis.
6
<PAGE> 7
(f) In the case of Single Source and Innovator Multiple Source drugs, to report
to the Secretary, in a manner prescribed by the Secretary, the information in
Appendix A on the Base Date AMP. The Manufacturer agrees to provide such
information within 30 days of the date of signing this agreement.
(g) To directly notify the States of a New Drug's Coverage.
(h) To continue to make a Rebate Payment on all of its Covered Outpatient Drugs
for as long as an agreement with the Secretary is in force and State Medicaid
Utilization Information reports that payment was made for that drug, regardless
of whether the Manufacturer continues to market that drug. If there are no
sales by the Manufacturer during a quarter, the AMP and Best Price last
reported continue to be used in calculating rebates.
(i) To keep records (written or electronic) of the data and any other material
from which the calculations of AMP and Best Price were derived. In the absence
of specific guidance in section 1927 of the Act, Federal regulations and the
terms of this agreement, the Manufacturer may make reasonable assumptions in its
calculations of AMP and Best Price, consistent with the intent of section 1927
of the Act, Federal regulations and the terms of this agreement. A record
(written or electronic) outlining these assumptions must also be maintained.
III SECRETARY'S RESPONSIBILITIES
(a) The Secretary will use his best efforts to ensure that the State agency
will report to the Manufacturer, within 60 days of the last day of each
quarter, and in a manner prescribed by the Secretary, Medicaid Utilization
Information paid for during the quarter.
(b) The Secretary may survey those Manufacturers and Wholesalers that directly
distribute their covered outpatient drugs to verify manufacturer prices and may
impose civil monetary penalties as provided in section 1927(b)(3)(B) of the Act
and IV of this agreement.
(c) The Secretary may audit Manufacturer calculations of AMP and Best Price.
IV PENALTY PROVISIONS
(a) The Secretary may impose a civil monetary penalty under III(b), up to
$100,000 for each item, on a wholesaler, manufacturer, or direct seller of a
Covered Outpatient Drug, if a wholesaler, manufacturer or direct seller of a
Covered Outpatient Drug refuses a request for information about charges or
prices by the Secretary
7
<PAGE> 8
in connection with a survey or knowingly provides false information. The
provisions of section 1128A of the Act (other than subsection (a) (with respect
to amounts of penalties or additional assessments) and (b)) shall apply as set
forth in section 1927(b)(3)(B).
(b) The Secretary may impose a civil monetary penalty, in an amount not to
exceed $100,000, for each item of false information as set forth in
1927(b)(3)(C)(ii).
(c) The Secretary may impose a civil monetary penalty for failure to provide
timely information on AMP, Best Price or Base Date AMP. The amount of the
penalty shall be increased by $10,000 for each day in which such information
has not been provided, as set forth in 1927(b)(3)(C)(i).
V DISPUTE RESOLUTION -- MEDICAID UTILIZATION INFORMATION
(a) In the event that in any quarter a discrepancy in Medicaid Utilization
Information is discovered by the Manufacturer, which the Manufacturer and the
State in good faith are unable to resolve, the Manufacturer will provide
written notice of the discrepancy, by NDC number, to the State Medicaid Agency
prior to the due date in II(b).
(b) If the Manufacturer in good faith believes the State Medicaid Agency's
Medicaid Utilization Information is erroneous, the Manufacturer shall pay the
State Medicaid Agency that portion of the rebate amount claimed which is not
disputed within the required due date in II(b). The balance due, if any, plus
a reasonable rate of interest as set forth in section 1903(d)(5) of the Act,
will be paid or credited by the Manufacturer or the State by the due date of
the next quarterly payment in II(b) after resolution of the dispute.
(c) The State and the Manufacturer will use their best efforts to resolve the
discrepancy within 60 days of receipt of such notification. In the event that
the State and the Manufacturer are not able to resolve a discrepancy within 60
days, HCFA shall require the State to make available to the Manufacturer the
State hearing mechanism available under the Medicaid Program (42 Code of
Federal Regulations section 447.253 (c)).
(d) Nothing in this section shall preclude the right of the Manufacturer to
audit the Medicaid Utilization Information reported (or required to be
reported) by the State. The Secretary shall encourage the Manufacturer and the
State to develop mutually beneficial audit procedures.
8
<PAGE> 9
(e) Adjustments to Rebate Payments shall be made if information indicates that
either Medicaid Utilization Information, AMP or Best Price were greater or less
than the amount previously specified.
(f) The State hearing mechanism is not binding on the Secretary for purposes of
his authority to implement the civil money penalty provisions of the statute or
this agreement.
VI DISPUTE RESOLUTION -- PRESCRIPTION DRUGS ACCESS AND STATE SYSTEMS
ISSUES
(a) A State's failure to comply with the drug access requirements of section
1927 of the Act shall be cause for the Manufacturer to notify HCFA and for HCFA
to initiate compliance action against the State under section 1904 of the Act.
A request for compliance action may also occur when the Manufacturer shows a
pattern or history of inaccuracy in Medicaid Utilization Information.
(b) Such compliance action by HCFA will not relieve the Manufacturer from its
obligation of making the Rebate Payment as provided in section 1927 of the Act
and this agreement.
VII CONFIDENTIALITY PROVISIONS
(a) Pursuant to Section 1927(b)(3)(D) of the Act and this agreement,
information disclosed by the Manufacturer in connection with this Agreement is
confidential and, not withstanding other laws, will not be disclosed by the
Secretary or State Medicaid Agency in a form which reveals the Manufacturer, or
prices charged by the Manufacturer, except as necessary by the Secretary to
carry out the provisions of section 1927 of the Act, and to permit review under
section 1927 of the Act by the Comptroller General.
(b) The Manufacturer will hold State Medicaid Utilization Information
confidential. If the Manufacturer audits this information or receives further
information on such data, that information shall also be held confidential.
Except where otherwise specified in the Act or agreement, the Manufacturer will
observe State confidentiality statutes, regulations and other properly
promulgated policy.
(c) Notwithstanding the nonrenewal or termination of this Agreement for any
reason, these confidentiality provisions will remain in full force and effect.
VIII NONRENEWAL AND TERMINATION
(a) Unless otherwise terminated by either party pursuant to the terms of this
Agreement, the Agreement shall be effective for an
9
<PAGE> 10
initial period of one year beginning on the date specified in section II(d) of
this agreement and shall be automatically renewed for additional successive
terms of one year unless the Manufacturer gives written notice of intent not to
renew the agreement at least 90 days before the end of the current period.
(b) The Manufacturer may terminate the agreement for any reason, and such
termination shall become effective the later of the first day of the first
calendar quarter beginning 60 days after the Manufacturer gives written notice
requesting termination, or the ending date of the term of the agreement if
notice has been given in accordance with VII(a).
(c) The Secretary may terminate the Agreement for violations of this agreement
or other good cause upon 60 days prior written notice to the Manufacturer of
the existence of such violation or other good cause. The Secretary shall
provide, upon request, a Manufacturer with a hearing concerning such a
termination, but such hearing shall not delay the effective date of the
termination.
(d) If this rebate agreement is nonrenewed or terminated, the Manufacturer is
prohibited from entering into another rebate agreement as provided in section
1927(b)(4)(C) of the Act until a period of one calendar quarter has elapsed
from the effective date of the termination, unless the Secretary finds good
cause for earlier reinstatement.
(e) Any nonrenewal or termination will not affect rebates due before the
effective date of termination.
IX GENERAL PROVISIONS
(a) Any notice required to be given pursuant to the terms and provisions of
this Agreement will be sent in writing.
Notice to the Secretary will be sent to:
Chief, Non-Institutional Payment Policy Branch
Office of Medicaid Policy, Medicaid Bureau
Post Office Box 26686
Baltimore, MD 21207-0486
Notices to HCFA concerning data transfer and information systems issues are to
be sent to:
Chief, Program Quality and Evaluation Branch
Office of Medicaid Management, Medicaid Bureau
Post Office Box 26686
Baltimore, MD. 21207-0486
10
<PAGE> 11
The HCFA address may be updated upon written notice to the Manufacturer.
Notice to the Manufacturer will be sent to the address as provided with this
agreement and updated upon Manufacturer notification to HCFA at the address in
this agreement.
(b) In the event of a transfer in ownership of the Manufacturer, this agreement
is automatically assigned to the new owner subject to the conditions specified
in section 1927 and this agreement.
(c) Nothing in this Agreement will be construed to require or authorize the
commission of any act contrary to law. If any provision of this Agreement is
found to be invalid by a court of law, this Agreement will be construed in all
respects as if any invalid or unenforceable provision were eliminated, and
without any effect on any other provision.
(d) Nothing in this Agreement shall be construed as a waiver or relinquishment
of any legal rights of the Manufacturer or the Secretary under the
Constitution, the Act, other federal laws, or State laws.
(e) The rebate agreement shall be construed in accordance with Federal common
law and ambiguities shall be interpreted in the manner which best effectuates
the statutory scheme.
(f) The terms "State Medicaid Agency" and "Manufacturer" incorporate any
contractors which fulfill responsibilities pursuant to the agreement unless
specifically provided for in the rebate agreement or specifically agreed to by
an appropriate HCFA official.
(g) Except for the conditions specified in II(c) and IX(a), this Agreement will
not be altered except by an amendment in writing signed by both parties. No
person is authorized to alter or vary the terms unless the alteration appears
by way of a written amendment, signed by duly appointed representatives of the
Secretary and the Manufacturer.
(h) In the event that a due date falls on a weekend or Federal holiday, the
report or other item will be due on the first business day following that
weekend or Federal holiday.
X APPENDIX
Appendix A attached hereto is part of this agreement.
11
<PAGE> 12
XI SIGNATURES
FOR THE SECRETARY OF HEALTH AND HUMAN SERVICES
By: [ILLEGIBLE]
------------------------------------------------------------
Title: Deputy Director, Medicaid Bureau
Health Care Financing Administration
Department of Health and Human Services
Date: 2-11-91
----------------------------------------------------------
ACCEPTED FOR THE MANUFACTURER
I certify that I have made no alterations, amendments or other changes to this
rebate agreement.
By: /s/ GEORGE B. HERRON
------------------------------------------------------------
Title: V.P., Sales & Marketing
---------------------------------------------------------
Name of Manufacturer: Nexstar Pharmaceuticals, Inc.
------------------------------------------
Manufacturer Address 2860 Wilderness Place
------------------------------------------
Boulder, CO 80301
- - ----------------------------------------------------------------
Manufacturer Labeler Code(s):
----------------------------------
Date: 4/30/96
----------------------------------------------------------
12
<PAGE> 13
APPENDIX A
MEDICAID DRUG REBATE DATA ELEMENTS
DATA SUBMISSION FROM MANUFACTURERS TO HCFA
* Indicates field left blank for initial submission of baseline
data.
** Indicates that these fields are zero-filled for non-innovator
multiple source drugs.
<TABLE>
<CAPTION>
Description Size
----------- ----
<S> <C>
Labeler Code, first segment of NDC (05)
Product Code, second segment of NDC (04)
Package Size Code, third segment of NDC (02)
Period Covered, Calendar Quarter and Year (03)
FDA Product Registration Name (63)
Drug Category: (S)ingle Source,
(I)nnovator Multiple Source,
(N)on-innovator Multiple Source (01)
DESI Drug Indicator (01)
FDA Therapeutic Equivalence Explanation Code (02)
Unit Type: gm, ml, tab, etc. (03)
Units Per Package Size Code (10)
* Average Manufacturer's Price (11)
** Baseline AMP (11)
*/** Best Price (11)
FDA Approval Date (06)
Date Drug Entered Market (06)
Drug Termination Date (06)
Drug Type (Rx or OTC) Indicator (01)
Correction Record Flag (01)
</TABLE>
NOTE: The Labeler Name is to be supplied in Enclosure B, the data systems
information form that is to be completed for each labeler code and
returned with the signed rebate agreement.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 22,807,000
<SECURITIES> 23,356,000
<RECEIVABLES> 20,295,000
<ALLOWANCES> 507,000
<INVENTORY> 10,372,000
<CURRENT-ASSETS> 77,943,000
<PP&E> 62,160,000
<DEPRECIATION> 19,839,000
<TOTAL-ASSETS> 133,041,000
<CURRENT-LIABILITIES> 21,157,000
<BONDS> 0
<COMMON> 261,000
0
0
<OTHER-SE> 102,141,000
<TOTAL-LIABILITY-AND-EQUITY> 133,041,000
<SALES> 17,545,000
<TOTAL-REVENUES> 18,557,000
<CGS> 3,819,000
<TOTAL-COSTS> 3,819,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21,000
<INTEREST-EXPENSE> 285,000
<INCOME-PRETAX> (6,186,000)
<INCOME-TAX> 110,000
<INCOME-CONTINUING> (6,296,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,629,000)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
