CONFIDENTIAL TREATMENT PROCESSING SERVICES AGREEMENT

 

1.1           “Affiliate(s)” means any corporation, firm, partnership or other entity which controls, is controlled by or is under common control with a party.  For purposes of this definition, “control” shall mean the ownership of at least fifty percent (50%) of the voting share capital of such entity or any other comparable equity or ownership interest.

 

1.2           “API” means the active pharmaceutical ingredient set forth in Exhibit A which has been released by Cubist and provided to Cardinal Health, along with a Certificate of Analysis, as provided in this Agreement.

 

1.3           “Applicable Laws” means all laws, ordinances, rules and regulations within the Territory applicable to the Processing of the Product or any aspect thereof and the obligations of Cardinal Health or Cubist, as the context requires under this Agreement, including, without limitation, (i) all applicable federal, state and local laws and regulations of each Territory; (ii) the U.S. Federal Food, Drug and Cosmetic Act, and (iii) the Good Manufacturing Practices for Finished Pharmaceuticals promulgated by the Regulatory Authorities, as amended from time to time (“GMPs”).

 

1.4           “Batch” means a defined quantity of formulated bulk drug solution which has been or is in the process of being packaged into Dosage Containers in accordance with the Specifications.

 

1.5           “Batch Record” means a document consisting of master manufacturing formula, appropriate packaging bill of materials and instructions, and exception documentation, such as non-conforming material reports, deviations, variance reports, and additional documentation which may have been processed as part of the production record of a Batch.

 

1.6           “Calendar Quarter” means a period of three (3) consecutive months commencing on January 1, April 1, July 1 or October 1 of any calendar year.

 

1.7           “Cardinal Health Materials” shall have the meaning set forth in Article 12.

 

1.8           “Certificate of Analysis” or “COA” means a document certifying that the Product was manufactured in a GMP compliant facility and was tested in accordance with, and meets the applicable Specifications.  COAs for Product will contain at least the following information: (a) date; (b) list number; (c) lot number; (d) name of Product; (e) name of test; (f) Specification limit; (g) test result as a numerical value unless designated pass/fail in the specification limit; and (h) Cardinal Health Quality Assurance department approval.  .

 

1.9           “Change Order” shall have the meaning set forth in Section 4.5(a).

 

1.10         “Commencement Date” means the first date upon which a Regulatory Authority approves Cardinal Health as a manufacturer of the Product.

 

1.11         “Confidential Information” is as defined in Section 11.2.

 

2

 

1.12         “Contract Year” means each consecutive twelve (12) month period beginning on the Commencement Date.

 

1.13         “Cubist Materials” shall have the meaning set forth in Article 12.

 

1.14         “Cubist’s Marks” shall mean Cubist’s name, any trademark, trade name, service name, and any other names for which Cubist has rights or for which application has been made, or may be made during the term of this Agreement, to the applicable Regulatory Authority for recognition as a registered trademark or service mark of Cubist or the Product, including, without limitation, the mark CUBICIN.

 

1.15         “Defective Product “ shall have the meaning set forth in Section 5.3.

 

1.16         “Dispute” shall have the meaning set forth in Section 18.9.

 

1.17         “Dosage Container” means any final dosage form container(s) the parties may agree upon in writing from time to time.

 

1.18         “Effective Date” means the date set forth on page 1 of this Agreement.

 

1.19         “Estimated Commitment” shall have the meaning set forth in Section 4.1.

 

1.20         “Facilities” means Cardinal Health’s facilities located in Albuquerque, New Mexico or such other facility as agreed to in writing by the parties.

 

1.21         “FDA” means the United States Food and Drug Administration.

 

1.22         “Firm Commitment” shall have the meaning set forth in Section 4.1.

 

1.23         “Latent Defect” means a defect that Cubist could not reasonably have discovered upon inspection and testing of samples from each Batch of Product and that is conclusively determined to be attributable to Cardinal Health prior to delivery of such Batch of Product in accordance with Section 6.1.

 

1.24         “Intellectual Property” means all intellectual property (whether or not patented), including without limitation, patents, patent applications, know-how, trade secrets, copyrights, trademarks, designs, concepts, technical information, manuals, standard operating procedures, instructions or specifications.

 

1.25         “Master Batch Record” means a document consisting of the specific procedures for the manufacturing formula and appropriate packaging bill of materials to produce and store the product in accordance with the Specifications and Applicable Laws.

 

1.26         “Minimum Requirement” shall have the meaning set forth in Section 4.1.

 

3

 

1.27         “Process” or “Processing” means the compounding, filling, producing, labeling and packaging of the API and Raw Materials into Product in accordance with the Specifications and the terms and conditions set forth in this Agreement.

 

1.28         “Processing Date” means the day on which the Product is to be compounded by Cardinal Health.

 

1.29         “Product” means the API Processed into Dosage Containers and packaged in accordance with the Specifications.

 

1.30         “Purchase Order” shall have the meaning set forth in Section 4.3.

 

1.31         “Raw Materials” means all raw materials, supplies, components and packaging necessary to manufacture and ship the Product in accordance with the Specifications, as provided in Exhibit A, but not including the API.

 

1.32         “Regulatory Authority” means the US Food and Drug Administration and any other governmental regulatory authority within a Territory involved in regulating any aspect of the development, manufacture, market approval, sale, distribution, packaging or use of the Product.

 

1.33         “Rolling Forecast” shall have the meaning set forth in Section 4.2.

 

1.34         “Specifications” means the procedures, requirements, standards, quality control testing and other data and the scope of services as set forth in Exhibit A for Product, which are hereby incorporated by reference into this Agreement, along with any valid amendments or modifications thereto, subject to the terms and conditions set forth in Article 8.

 

1.35         “Term” shall have the meaning set forth in Section 15.1.

 

1.36         “Territory” means the United States of America and any other country which the parties agree in writing to add to this definition of Territory in an amendment to this Agreement.

 

1.37         “Unit Pricing” shall have the meaning set forth in Section 7.1.

 

ARTICLE 2

VALIDATION, PROCESSING & RELATED SERVICES

 

2.1           Supply and Purchase of Product.  During the Term, Cardinal Health shall Process and supply to Cubist the Product in accordance with the Specifications, the Applicable Laws and the terms and conditions of this Agreement. Cubist shall purchase the Product from Cardinal Health in accordance with the terms and conditions of this Agreement.  Cardinal Health shall not use any third party contractors or subcontractors to perform any of the Processing without Cubist’s prior written consent.

 

4

 

2.2           Other Related Services.  Cardinal Health shall provide other services upon terms and conditions agreed to by the parties in writing from time to time.

 

ARTICLE 3

MATERIALS

 

3.1           API. Cubist shall supply to Cardinal Health for Processing, at Cubist’s sole cost, the API and applicable reference standards in quantities sufficient to meet Cubist’s requirements for each Product as further set forth in Article 4.  Prior to delivery of any of the API or reference standard to Cardinal Health for Processing, Cubist shall provide to Cardinal Health a copy of the API Material Safety Data Sheet (“MSDS”), as amended, and any subsequent revisions thereto. Cubist shall supply the API and reference standards [ ]* no later than [ ]* before the scheduled Processing Date upon which such API will be used by Cardinal Health hereunder.  Cubist shall provide Cardinal Health with the API certificates of analysis, as provided to Cubist by its API supplier, prior to the shipment of API to Cardinal Health. Upon receipt of the API, Cardinal Health shall conduct UV and IR identification testing of the API only. Cardinal Health shall use the API solely and exclusively for Processing under this Agreement.

 

3.2           Raw Materials.  Cardinal Health shall be responsible for procuring, inspecting and releasing adequate Raw Materials as necessary to meet the Firm Commitment, unless otherwise agreed to by the parties in writing.  In certain instances, Cubist may require a specific supplier to be used for Raw Material.  In such an event, the supplier will be specified in the Specifications, and Cubist shall be responsible for the timeliness, quantity and quality of supply of such Raw Materials.  If the cost of any such Raw Material is greater than Cardinal Health’s costs for the same raw material of equal quality from other suppliers, Cardinal Health shall add the difference between Cardinal Health’s cost of the Raw Material and Cubist’s mandated supplier’s cost to the Unit Price of the Product.  [ ]* will be responsible for all costs associated with qualification of a new supplier of a Raw Material not previously qualified by Cardinal Health.  Unless a particular Raw Material can, with Cubist’s prior written consent, be replaced with the same raw material from another supplier, Cardinal Health shall [ ]* of Product if (i) [ ]*, a particular Raw Material necessary to Process the Product, and (ii) Cardinal Health placed orders for Raw Materials necessary to Process the Product promptly following receipt of Cubist’s [ ]*.

 

3.3           Artwork and Packaging. Cubist shall provide or approve, prior to the procurement of applicable components, all artwork,   and packaging information necessary to Process the Product.  Such artwork and packaging information is and shall remain the exclusive property of Cubist, and Cubist shall be solely responsible for the content thereof.  Cardinal Health agrees not to use such artwork, advertising and packaging information or any reproduction thereof following the termination of this Agreement, or during the Term of this Agreement in any manner other than solely for the purpose of performing its obligations hereunder.

 

3.4           Reimbursement for Raw Materials. In the event of (i) a Specification change for any reason permitted hereunder, (ii) termination or expiration of this Agreement; or (iii) obsolescence of any Raw Material,  Cubist shall bear the cost of any unused Raw Materials that Cardinal Health is unable to use for any other product that it processes, provided that (a) Cardinal Health purchased such Raw Materials in quantities consistent with Cubist’s [ ]* and the

 

* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

5

 

supplier’s minimum purchase obligations, and (b) Cardinal Health has used commercially reasonable efforts to use such Raw Materials for another product or products that it processes.

 

ARTICLE 4

PURCHASE ORDERS & FORECASTS

 

4.1           Initial Forecasts.  On or before the [ ]* of the calendar quarter, beginning at least [ ]* prior to the anticipated Commencement Date, Cubist shall furnish to Cardinal Health a written [ ]* rolling forecast of the quantities of Product that Cubist intends to order from Cardinal Health during the [ ]* period commencing with the start of the next calendar quarter (“Initial Forecast”).  The first [ ]* of such Initial Forecast shall constitute a binding commitment for the quantities of Product specified therein (“Firm Commitment”) and the following [ ]* of the Initial Forecast shall be non-binding, good faith estimates (“Estimated Commitment”).

 

4.2           Rolling Forecasts.  Following the Initial Forecast, on or before the [ ]* of each calendar quarter, Cubist shall furnish to Cardinal Health a written [ ]* rolling forecast of the quantities of Product that Cubist intends to order from Cardinal Health during the [ ]* period commencing with the start of the next calendar quarter (“Rolling Forecast”).   The first [ ]* of such Rolling Forecast shall constitute a Firm Commitment and the following [ ]* of the Rolling Forecast shall be Estimated Commitments.

 

4.3           Purchase Orders and Supply.  Along with the Initial Forecast and each Rolling Forecast, Cubist shall submit a purchase order for the Firm Commitment portion of the Rolling Forecast, which specifies the actual number of Batches to be Processed, the approximate number of Dosage Containers in each Batch, and the requested delivery dates for each Batch during such period (“Purchase Order”).  Except for the Purchase Orders accompanying the Initial Forecast, Cubist shall submit each Purchase Order to Cardinal Health at least [ ]* in advance of the delivery date requested in the Purchase Order. In the event of a conflict between the terms of any Purchase Order and this Agreement, this Agreement shall control.  Cardinal Health shall supply Cubist with Product in conformance with the Specifications and the Master Batch Record and, subject only to Section 4.4 below, in accordance with the quantities set forth in a Purchase Order, including the specified delivery dates, provided that such Purchase Order has been completed and submitted in accordance with this Agreement.  Within [ ]* following Cardinal Health’s receipt of a Purchase Order, Cardinal Health shall notify Cubist in writing of the anticipated Processing Dates for the Product ordered under such Purchase Order, and will subsequently notify Cubist of any changes to such Processing Dates; provided, that, any such change shall not affect Cardinal’s obligation to deliver Product [ ]*.

 

4.4           Cardinal Health’s Cancellation of Purchase Orders. Notwithstanding the terms and conditions set forth in Section 4.5 below, to the extent that Cubist refuses or fails to make scheduled deliveries of the API necessary for Cardinal Health to satisfy such Purchase Order and Cardinal Health does not otherwise have sufficient quantity of API on hand to satisfy such Purchase Order,  Cardinal Health reserves the right to cancel all, or any part of, a Purchase Order upon written notice to Cubist, and Cardinal Health shall have no further obligations or liability with respect to such Purchase Order.

 

* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

6

 

4.5           Cubist’s Modification or Cancellation.

 

(a)           Cubist may modify the delivery date, Specifications or quantity of Product in a Purchase Order only by submitting a written change order (“Change Order”) to Cardinal Health at least [ ]* in advance of the earliest scheduled Processing Date for the Product covered by such Purchase Order.  Such change order shall be effective and binding against Cardinal Health [ ]*; provided, that Cardinal Health shall use commercially reasonable efforts to accommodate the changes within reasonable manufacturing capabilities and efficiencies.  Cardinal Health shall advise Cubist in writing of the reasonable costs associated with making any such change. If Cubist does not indicate to Cardinal in writing that Cardinal Health should proceed to make the change, Cubist shall notify Cardinal Health whether or not Cubist wants Cardinal Health to supply the Product pursuant to the original Purchase Order or pursuant to the changed Purchase Order.  If the change is required by a change in Specifications, the terms of Section 8.1 shall also apply.

 

(b)           If Cubist cancels any Purchase Order, Cubist shall pay a fee as set forth in the following table:

 

[ ]*	[ ]*	[ ]*
[ ]*	[ ]*	[ ]*
[ ]*	[ ]*	[ ]*
[ ]*	[ ]*	[ ]*
[ ]*	[ ]*	[ ]*
[ ]*	[ ]*	[ ]*

 

(c)           If Cubist fails to place Purchase Orders sufficient to satisfy the first [ ]* of the Firm Commitment for any Rolling Forecast, Cubist shall, within [ ]* of receipt of invoice, pay to Cardinal Health the unit price for all units that were not ordered, but would have been Processed if Cubist has placed Purchase Orders sufficient to satisfy the Firm Commitment.

 

4.6           Failure to Deliver. If Cardinal Health has not supplied one or more Batches of Product ordered by Cubist in a Purchase Order, Cubist may increase or reduce its Firm Commitment and corresponding Purchase Orders for the next calendar quarter by the number of Batches of Product that Cardinal Health [ ]*, and Cardinal Health shall supply Product to Cubist in accordance with such revised Purchase Orders.  Any such increase or reduction by Cubist shall in no way affect any other remedies that Cubist may have in law or equity for Cardinal Health’s failure to supply such Batches in accordance with a Purchase Order.

 

4.7           Inspection of Processing, Records and Facilities. Cubist may base up to [ ]* representatives at the Facilities to observe the Processing, provided that Cubist provides Cardinal Health at least [ ]* advance written notice of the attendance of such Cubist representatives.  Cubist shall have the right, on reasonable advance written notice, to perform: (i) one annual quality assurance audit and inspection of Cardinal Health’s records and production facilities relating to the Processing so that Cubist may evaluate Cardinal Health’s quality control, manufacturing, labeling, packaging and testing processes and Standard Operating Procedures,

 

* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

7

 

and (ii) one annual audit of Cardinal Health’s inventory and inventory control processes, including physical counts of inventory, comparison of physical counts to inventory counts in Cardinal Health’s documentation and on its systems, and an audit of Cardinal Health’s inventory receipt and shipment processes; provided, that, Cubist shall have the right to perform additional audits and inspections to the extent that: (a) Cubist has reasonable cause to believe that the Facilities or Cardinal Health’s production of Product hereunder is not in compliance with GMPs, the Specifications or this Agreement; (b) such an audit is mandated by a Regulatory Authority or necessary to respond to questions from any Regulatory Authority; or (c) the Product is recalled.  Cubist shall indemnify and hold harmless Cardinal Health for any action or activity of such representatives while on Cardinal Health’s premises, except to the extent any harm is caused by the negligent or wrongful action or activity by or on behalf of Cardinal Health and its employees and agents.

 

ARTICLE 5

TESTING; SAMPLES; RELEASE

 

5.1           Testing by Cardinal Health; Acceptance by Cubist.  Following Processing, Cardinal Health shall test each Batch for conformance with Specifications and compliance with GMPs in accordance with Cardinal Health’s standard quality assurance procedures.  Initially, Cardinal Health will test only for sterility and deliver samples of each Batch to a GMP-compliant third party testing facility for finished Product testing on behalf of Cubist.  Following transfer of the applicable test methods and upon at least [ ]* prior written notice from Cubist to Cardinal Health, Cardinal Health will perform finished Product testing pursuant to the Specifications.  Within [ ]* after Cardinal Health’s completion of Processing, Cardinal Health shall provide Cubist with an accurate and complete Batch Record and Certificate of Analysis for each Batch Processed.  Prior to Cardinal Health becoming obligated to perform finished Product testing, Cardinal Health shall be responsible for completing the Certificate of Analysis only with respect to sterility.  Thereafter, Cardinal Health shall provide complete Certificates of Analyses.  Cubist shall have a period of [ ]* from the date of its receipt of all completed Batch Records and Certificates of Analyses for a Batch of Product to complete its review of such documents and either release the Batch for delivery or notify Cardinal Health that the Batch does not comply with the Specifications.  Cardinal Health shall deliver Product to Cubist in accordance with Section 6.1 only upon Cubist’s release of each Batch.  Prior to such Batch release by Cubist, Cardinal Health shall store Product under quarantine in accordance with Product labeling, the Master Batch Record and all Applicable Laws.  Cubist shall have a period of [ ]* from the date of its receipt of a shipment of Product to inspect such shipment for shortage of quantity, damage or failure of the Product to conform to the warranty in Section 10.1.  Acceptance by Cubist shall occur either upon Cubist’s providing written notice to Cardinal Health of acceptance or upon the expiration of the [ ]* period, if Cubist has not provided notice of rejection, as provided in Section 5.2; provided, however, in the case of Latent Defects, Cubist shall have [ ]* from the date it becomes aware of any such Latent Defect to reject any Product in accordance with Section 5.2.

 

5.2           Rejection; Disagreements Regarding Rejection. If Cubist rejects Product for failure to conform to the Specifications and Applicable Laws or damage caused prior to delivery, it shall promptly notify Cardinal Health.  In the event of a disagreement between the parties as to the basis for Cubist’s rejection, the parties shall cause a mutually acceptable, GMP-compliant, independent laboratory to review records, test data and to perform comparative tests and/or

 

* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

8

 

analyses on samples of the Product to determine whether the basis for Cubist’s rejection is accurate.  The independent party’s results shall be final and binding.  Unless otherwise agreed to by the parties in writing, the costs associated with such testing and review shall be borne by the party which was found by the independent laboratory to be incorrect.

 

5.3           Shortage in Quantities.  If Cubist determines that Cardinal Health has invoiced Cubist for more vials than have been delivered in a particular shipment, Cubist shall notify Cardinal Health and the parties shall work together in good faith to resolve such discrepancy.  If Cardinal Health has overcharged Cubist, Cardinal Health shall provide Cubist a corrected invoice.

 

5.4           Replacement of Product.  In the event of failure of Product to conform to warranty in Section 10.1 or Product that was damaged prior to delivery (“Defective Product”), whether as determined by Cardinal Health or an independent laboratory under Section 5.2, Cardinal Health shall replace all such Product with conforming Product.  THE OBLIGATION OF CARDINAL HEALTH TO (i) REPLACE PRODUCT PURSUANT TO THIS SECTION 5.4 AND (ii) REIMBURSE CUBIST FOR ITS ACTUAL COST OF ANY LOST, DAMAGED, OR DESTROYED API OR API THAT IS NO LONGER USABLE AS A RESULT OF BEING USED FOR DEFECTIVE PRODUCT IN AN AMOUNT NOT TO EXCEED THE LIMITATION SET FORTH IN SECTION 16.1 SHALL BE CUBIST’S SOLE AND EXCLUSIVE REMEDY UNDER THIS AGREEMENT FOR DEFECTIVE PRODUCT [ ]* AND IS IN LIEU OF ANY OTHER WARRANTY, EXPRESS OR IMPLIED.

 

5.5           Supply of Material for Replacement Product .  In the event Cardinal Health is required to replace Product pursuant to Section 5.3 above, Cubist shall supply, at its sole cost, Cardinal Health with sufficient quantities of the API in order for Cardinal Health to complete such replacement.

 

ARTICLE 6

DELIVERY

 

6.1           Delivery. Cardinal Health shall segregate and store all Product in accordance with the Product labeling, Master Batch Record and all Applicable Laws until delivery to a common carrier selected by Cubist as set forth herein. Cardinal Health shall tender the Product for delivery on the delivery date specified in the applicable Purchase Order or such other date mutually agreed to by the parties, [ ]*.  Cubist shall be responsible for all costs and risk of loss associated with shipment of the Product.  Cubist shall retain title to the API at all times; however, Cardinal Health shall assume all responsibility and risk for the safekeeping, storage and handling of all API and Product while in Cardinal Health’s possession or control, subject to the limitation set forth in Section 16.1.

 

6.2           Failure to Take Delivery.  If Cubist fails to take delivery on any scheduled delivery date, Cubist shall be invoiced on the first day of each month for the stored Product and reasonable administration and storage costs.  For each such Batch of undelivered Product, Cubist agrees that: (i) Cubist has made a fixed commitment to purchase such Product, (ii) risk of ownership for such Product passes to Cubist, (iii) such Product shall be on a bill and hold basis for legitimate business purposes, (iv) if no delivery date is determined at the time of billing, Cardinal Health

 

* Confidential Treatment Requested.  Omitted portions filed with the Commission.

 

9

 

shall have the right to ship the Product to Cubist within four (4) months after billing, and (v) Cubist will be responsible for any decrease in market value of such Product that relates to factors and circumstances outside of Cardinal Health’s control.  Within five (5) days following a written request from Cardinal Health, Cubist shall provide Cardinal Health with a letter confirming items (i) through (v) of this Section for each such Batch of undelivered Product.

 

ARTICLE 7

PRICING AND PAYMENT

 

7.1           Unit Pricing.  Cubist shall pay to Cardinal Health the unit pricing set forth on Exhibit B-1 (“Unit Pricing”) for all Product.  In the event Cubist requests services other than Processing Product, Cardinal Health shall provide a written quote of the fee for such additional services and Cubist shall advise Cardinal Health whether it wishes to have such additional services performed by Cardinal Health.

 

7.2           Price Increase. The Unit Pricing may be adjusted on an annual basis, effective on each anniversary date of this Agreement, upon [ ]* written notice from Cardinal Health to Cubist in an amount equal to the most recent annual percentage increase of the [ ]*, provided, however, that in no event shall such increase be less than [ ]* or more than [ ]*.