<PAGE>
EXHIBIT 10.54
CORE DISTRIBUTION AGREEMENT
This Core Distribution Agreement
("AGREEMENT") is entered into as of December
23, 2004 by and between Connetics
Corporation, a Delaware corporation with its
principal place of business located at 3290
West Bayshore Road, Palo Alto,
California 94303 ("CONNETICS"), and
McKesson Corporation, with its principal
place of business located at One Post
Street, San Francisco, California 94104
("MCKESSON"). Connetics and McKesson are
sometimes referred to individually in
this Agreement as a "Party," and
collectively as the "Parties."
BACKGROUND
A. McKesson provides
distribution services for pharmaceutical companies,
including but
not limited to logistics and inventory management services,
administrative
services, and financial services; and Connetics wishes to
purchase such
services from McKesson; and
B. McKesson is willing to
provide to Connetics and Connetics desires to obtain
from McKesson
certain additional services as needed and agreed upon by both
Parties; and
C. Connetics and McKesson
desire to enhance the visibility of inventory
management of
Products and assure adequate availability of supply of
Products (as
defined in this Agreement).
NOW THEREFORE,
in consideration of the foregoing, the mutual
representations contained in this
Agreement, and other good and valuable
consideration, the receipt and sufficiency
of which are hereby acknowledged, the
Parties agree as follows:
ARTICLE 1
DEFINITIONS
As used in this
Agreement, the capitalized terms listed below shall have
the meanings set forth. Terms not otherwise
defined shall be deemed to have the
meaning most commonly ascribed to them in
the pharmaceutical distribution
industry.
AGGREGATE INVENTORY. "Aggregate Inventory"
means, at any given time, the total
amount of Products in units that (i)
McKesson has on hand at all of its storage
and/or distribution facilities and (ii)
McKesson has on order from Connetics.
AVERAGE WEEKLY MOVEMENT. "Average Weekly
Movement " means, at any given time,
the total quantity of Products in units
(sorted by NDC number) that McKesson has
sold to Providers over the immediately
preceding eight (8) weeks, divided by
eight (8).
COMMITMENT PERIOD. "Commitment Period"
means October 1, 2004 through and
including December 31, 2005, unless this
Agreement is terminated earlier under
the provisions of ARTICLE 4.
** Portions of this exhibit have been
omitted and filed separately with the
Commission. Confidential treatment has been
requested with respect to the
omitted portions.
<PAGE>
CONFIDENTIAL INFORMATION. "Confidential
Information" shall have the meaning set
forth in SECTION 5.2.
EFFECTIVE DATE. "Effective Date" means the
date of full execution of this
Agreement.
INVENTORY REPORTS. "Inventory Reports"
shall have the meaning set forth in
SECTION 2.5.1.
PRODUCTS. "Products" means all ethical
pharmaceutical products that bear
Connetics' label and packaging, whether
currently or at any time in the future,
which Connetics sells to wholesale
customers in the United States. A list of
Connetics' products is attached as EXHIBIT
A to this Agreement for convenient
reference, but no failure to update EXHIBIT
A in the future shall be interpreted
to mean that the Products are limited to
those in the attached exhibit.
PROVIDERS. "Providers" means the
purchaser(s) of Products from McKesson in the
United States.
SALES REPORTS. "Sales Reports" shall have
the meaning set forth in SECTION
2.5.1.
SERVICES. "Services" shall have the meaning
set forth in Section 2.1.
SERVICES FEE. "Services Fee" means the fee
payment to which McKesson is entitled
pursuant to Section 3.1 of this
Agreement.
WAC. "WAC" means wholesale acquisition cost
for Products as reported by
Connetics from time to time. It is
understood that "WAC" is Connetics' price to
wholesalers without regard to any prompt
payment or other discounts, rebates, or
chargebacks.
ARTICLE 2
THE SERVICES
The Parties
agree that McKesson performs certain distribution and inventory
management services (collectively, the
"SERVICES") from which Connetics may
benefit. The services include, but may not
be limited to, the following:
2.1 ADMINISTRATIVE SERVICES
o
Sophisticated ordering technology
o Daily
consolidated deliveries to providers
o
Emergency shipments
o
Consolidated accounts receivable management
o Customer
Service support
o Adequate
working inventories to meet customer needs and service
levels
o
Licensed, environmentally controlled, PDMA compliant, secure
facilities
<PAGE>
2.2 BASE DISTRIBUTION SERVICES.
(a) Contract and
Chargeback administration
(b) Returns
processing
2.3 INVENTORY MANAGEMENT SERVICES.
2.3.1 INVENTORY LEVELS. During the term of this Agreement,
McKesson
will use its best efforts to maintain an
inventory level of between [**].
McKesson will not be penalized if McKesson
has more than [**] due to an
unexpected reduction in demand from
external events.
2.3.2 PURCHASE LIMITS. Connetics agrees to ship all McKesson
purchase
orders in full provided they are consistent
with product demand. Connetics has
the right to question any orders that
exceed McKesson's Average Weekly Movement
and has the right to cancel any quantities
for which McKesson is not able to
provide reasonable justifications and/or
explanations.
2.3.3 INVENTORY ON THE EFFECTIVE DATE. If McKesson has more than
[**]
of any Product as of the Effective Date,
the Parties will agree to a timeline
during which the inventory levels in all
distribution centers will be
transitioned to a level of between [**].
The Parties agree that McKesson will
not attain these inventory levels by
returning Product to Connetics.
2.4 PRODUCT
AVAILABILITY. McKesson and Connetics will jointly use their
best efforts to minimize Product shortages
and maximize Product availability by
agreeing to the following:
(a) McKesson will institute a balancing system for Products in
order
to optimize the
use of existing inventories across the entire McKesson
network,
including inventories held in McKesson's distribution center as
a
broker
fulfilling orders by chain warehouses.
(b) At any time that Product is on back order or there is
otherwise
limited Product
availability, and upon Connetics' request, McKesson will
implement more
frequent order and receiving cycles to help reduce inventory
requirements.
(c) McKesson will not speculate by buying Product beyond target
inventory levels
in order to take advantage of proposed or actual price
increases.
** Portions of this exhibit have been
omitted and filed separately with the
Commission. Confidential treatment has been
requested with respect to the
omitted portions.
<PAGE>
2.5 DATA /
REPORTING SERVICES.
2.5.1 McKesson shall prepare inventory reports detailing the status
of
its Aggregate Inventory ("INVENTORY
REPORTS") and movement of Products ("SALES
REPORTS") by NDC number for the duration of
this Agreement. McKesson shall
provide Connetics with Inventory Reports
weekly and Sales Reports monthly. All
such Inventory and Sales Reports shall be
transmitted in EDI 852 and EDI 867
formats, respectively, and shall include
the information that Connetics
reasonably requests, including but not
limited to the following:
o On hand
inventory level by distribution center; and
o On order
inventory level by distribution center; and
o Sales
out by distribution center
2.5.2 If McKesson, due to contractual requirements, is required
to
block data in the EDI 867 that would
identify a Provider, McKesson will, at a
minimum, provide Connetics with zip code
level reports.
2.5.3 Within 30 days after entering into this Agreement, the
Parties
shall examine and test the capability of
their respective EDI systems and
complete implementation of a mutually
agreeable system whereby transfers of
information can be made effectively on a
consistent basis. In the event that
critical internal support systems and
electronic communication links, including
EDI, are not available for five business
days, the Parties will cooperate to
promptly implement substitute procedures to
document the information customarily
sent by EDI and prevent interruptions to
each other's business.
2.6 PROVIDER
ORDER MONITORING. During the term of this Agreement, McKesson
will implement proce
