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EXHIBIT 10.53
EXECUTION COPY
DISTRIBUTION SERVICES AGREEMENT
This Distribution Services Agreement
("AGREEMENT") is entered into as of
December 1, 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
Cardinal Health, Inc.* with its
principal place of business located at 7000
Cardinal Place, Dublin, Ohio 43017
("CARDINAL"). Connetics and Cardinal are
sometimes referred to individually in
this Agreement as a "Party," and
collectively as the "Parties."
RECITALS
WHEREAS,
Cardinal 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 Cardinal;
and
WHEREAS,
Cardinal is willing to provide to Connetics and Connetics
desires
to obtain from Cardinal certain additional
services as needed and agreed upon by
both Parties; and
WHEREAS,
Connetics and Cardinal 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)
Cardinal has on hand at all of its storage
and/or distribution facilities and (ii)
Cardinal 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 Cardinal 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.
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CONFIDENTIAL INFORMATION. "Confidential
Information" shall have the meaning set
forth in SECTION 5.2.
INVENTORY REPORTS. "Inventory Reports"
shall have the meaning set forth in
SECTION 2.5.1.
NEW PRICE. "New Price" means the WAC
charged by Connetics effective upon any
price change Connetics institutes during
the Commitment Period.
OLD PRICE. "Old Price" means the WAC
charged by Connetics immediately preceding
the institution of a New Price.
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 Cardinal in the
United States.
SALES REPORTS. "Sales Reports" shall have
the meaning set forth in SECTION
2.5.1.
SERVICE FEE. "Service Fee" shall have the
meaning set forth in SECTION 3.1(a).
SERVICES. "Services" shall have the meaning
set forth in SECTION 2.1.
TERM. "Term" means the date first written
above, through and including December
31, 2005, unless this Agreement is
terminated earlier under the provisions of
Article 4.
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 Cardinal 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.
-
Sophisticated ordering technology
-
Daily consolidated deliveries to providers
- Emergency shipments to
providers 24/7/365
-
Consolidated accounts receivable management
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-
Customer Service support
- Adequate working
inventories to meet customer needs and
service levels
-
Licensed, environmentally controlled, PDMA compliant, secure
facilities
2.2
BASE
DISTRIBUTION SERVICES.
(a) Contract and
Chargeback administration
(b) Returns and
Recall processing
2.3
INVENTORY
MANAGEMENT SERVICES.
2.3.1 INVENTORY LEVELS. During the Term of this Agreement,
Cardinal
will use its best efforts to maintain an
inventory level of between [**]
2.3.2 PURCHASE LIMITS. Connetics agrees to ship all Cardinal
purchase orders in full provided they are
consistent with product demand.
Connetics has the right to question any
orders that exceed Cardinal's Average
Weekly Movement and has the right to cancel
any quantities for which Cardinal is
not able to provide reasonable
justifications and/or explanations.
2.3.3 INVENTORY DURING THE COMMITMENT PERIOD. If Cardinal has
more
than [**] of any Product as of date this
Agreement is signed, 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 do not
intend that Cardinal will attain these
inventory levels by returning Product to
Connetics.
2.4
PRODUCT
AVAILABILITY. Cardinal and Connetics will jointly use their
best efforts to minimize Product shortages
and maximize Product availability by
agreeing to the following:
(a) Cardinal will institute an automated balancing system for
Products
in order to optimize the use of existing inventories across the
entire
Cardinal network, including inventories held in Cardinal'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, Cardinal
will
implement
more frequent order and receiving cycles to help reduce
inventory requirements.
(c) Cardinal 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.
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2.5
DATA / REPORTING
SERVICES.
2.5.1 Cardinal 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. Cardinal
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:
- On
hand inventory level by distribution center; and
- On
order inventory level by distribution center; and
-
Sales out by distribution center
2.5.2 Cardinal may, due to contractual requirements, be required
to
block certain data in the EDI 867's that
discloses Provider identity. In
particular, Cardinal may block information
such as Provider name and DEA number,
and any other data that would identify a
Provider, but only to the extent that
it would identify a Provider.
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,
Cardinal will implement processes and
procedures to monitor Provider order
patterns. Cardinal and Connetics will agree
upon parameters that may represent
speculative buy activity, and Cardinal will
investigate any orders that meet
those parameters, and will report the
outcome to Connetics. If it is determined
that a Provider is speculating, Cardinal
will implement additional steps to
limit Provider purchases to reasonable
levels. Cardinal agrees not to sell
Product to or order Product from known
secondary sources or other wholesalers.
2.7
NEW PRODUCT
LAUNCH SUPPORT. Cardinal will provide guaranteed support
for future Connetics new Product launches.
Support will consist of the
following:
(a) stocking each
