DISTRIBUTION SERVICES AGREEMENT

Exhibit 10.1

Execution Copy

DISTRIBUTION SERVICES AGREEMENT

     This Distribution Services Agreement ( “Agreement” ) is entered into as of September 30, 2005 by and between Connetics Corporation, a Delaware corporation with its principal place of business located at 3160 Porter Drive, Palo Alto, California 94304 ( “Connetics” ), and AmerisourceBergen Drug Corporation, with its principal place of business located at 1300 Morris Drive, Chesterbrook, Pennsylvania 19087 ( “AmerisourceBergen” ). Connetics and AmerisourceBergen are sometimes referred to individually in this Agreement as a “Party,” and collectively as the “Parties.”

BACKGROUND

     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) AmerisourceBergen has on hand at all of its storage and/or distribution facilities and (ii) AmerisourceBergen has on order from Connetics.

Average Weekly Movement. “Average Weekly Movement” means (as further clarified in Section 2.3.1 ), at any given time, the total quantity of Products in units (sorted by NDC number)

* Portions of this exhibit have been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions.

that AmerisourceBergen has sold to Providers over the immediately preceding eight (8) weeks, divided by eight (8).

Commitment Period. “Commitment Period” means July 1, 2005 through and including December 31, 2006, unless this Agreement is terminated earlier under the provisions of Article 4.

Confidential Information. “Confidential Information” shall have the meaning set forth in Section 6.2 .

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 AmerisourceBergen 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 Article 2.

Service Level. “Service Level” shall have the meaning set forth in Section 2.10 .

Service Fee. “Service Fee” means the fee payment to which AmerisourceBergen is entitled pursuant to Section 3.1 .

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 AmerisourceBergen performs certain distribution and inventory management services (collectively, the “Services” ) from which Connetics may benefit. Connetics hereby appoints AmerisourceBergen (and all of its distribution centers) as an authorized distributor of record for the Products. The services include, but may not be limited to, the following:

           2.3.1 Inventory Levels . AmerisourceBergen will use reasonable efforts to maintain an inventory level of [*] based on Average Weekly Movement for the third calendar quarter of 2005, and thereafter to maintain a consistent inventory level of [*] based on Average Weekly Movement for the balance of the Commitment Period. [*] The Parties recognize that factors such as increased customer demand, new product launches, additions of new customers, losses of customers, seasonality, distribution center consolidations, openings of new distribution centers, etc., may influence the total number of weeks of inventory and the Parties therefore agree to work together in good faith to determine target inventory levels.

           2.3.2 Purchase Limits . Connetics agrees to ship all AmerisourceBergen purchase orders in full provided they are consistent with product demand. Connetics has the right to question any orders that exceed AmerisourceBergen’s Average Weekly Movement by [*] and has the right to cancel any quantities for which AmerisourceBergen is not able to provide reasonable justifications and/or explanations.

      2.4 Product Availability . AmerisourceBergen and Connetics will jointly use their reasonable efforts to minimize Product shortages and maximize Product availability by agreeing to the following:

     (a) When placing orders, AmerisourceBergen will use reasonable efforts to optimize the use of existing inventories across the entire AmerisourceBergen network, including inventories held in AmerisourceBergen’s distribution center as a broker fulfilling orders by chain warehouses, but in no event shall AmerisourceBergen be required to transfer Products between distribution centers if it will incur substantial and unreasonable costs to effectuate such transfer.

     (b) At any time that Product is on back order or there is otherwise limited Product availability, and upon Connetics’ reasonable request, AmerisourceBergen will implement more frequent order and receiving cycles to help reduce inventory requirements.

     (c) AmerisourceBergen will not speculate by buying Product beyond target inventory levels in order to take advantage of proposed or actual price increases. Speculative Buying does not include buying that is a result of increased customer demand, the addition of new customers, etc.

     (d) Connetics agrees to work with AmerisourceBergen to ensure that any allocation program instituted by Connetics does not cause an out-of-stock situation for AmerisourceBergen. If AmerisourceBergen validates to Connetics a potential out-of-stock condition, Connetics will use commercially reasonable efforts to adjust AmerisourceBergen’s allocation to meet demand.

      2.5 Data / Reporting Services .

           2.5.1 AmerisourceBergen 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. AmerisourceBergen 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 data elements that the Parties mutually agree upon, including, at a minimum, Provider purchasing activity and other data elements as set forth for each report on Exhibit B . In addition, at Connetics’ reasonable request, AmerisourceBergen shall also furnish to Connetics a “morgue” report, indicating Product inventory that is eligible for return to Connetics and has been removed from on-hand inventory reports.

           2.5.2 If AmerisourceBergen, due to contractual requirements, is required to block data in the EDI 867 that would identify a Provider, AmerisourceBergen will, at a minimum, provide Connetics with zip code level reports, except where AmerisourceBergen has a contractual obligation not to provide any data including blinded data.

           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 . If Connetics suspects that a Provider or an AmerisourceBergen customer is speculative buying and notifies AmerisourceBergen, AmerisourceBergen agrees to cooperate with Connetics in any investigation of such speculative buying. If it is determined that a Provider is speculating, AmerisourceBergen will implement additional steps to limit Provider purchases to reasonable levels. AmerisourceBergen agrees not to sell Product to or order Product from known secondary sources or other wholesalers, except for sales to hospital supply companies and other wholesalers/distributors who are duly listed on the EDI 867 reports.

      2.7 Purchase Requirement . AmerisourceBergen agrees to purchase 100% of its requirements of Connetics Products directly from Connetics.

      2.8 Processing of Credits, Etc. Except for recalls, AmerisourceBergen shall perform all the work associated with credits, reconciliations, and returns at no additional cost to Connetics.

      2.9 Connetics’ Wholesale Distribution Policy . A copy of Connetics’ current Wholesale Distribution Policy is attached to this Agreement as Exhibit C . The Parties acknowledge that, due to the nature of its business, AmerisourceBergen does not meet certain elements of that policy. In particular, the Parties agree to the following clarifications to the policy as it relates to AmerisourceBergen:

     [*]

     [*]

      2.10 Service Level. During the term of this Agreement, AmerisourceBergen agrees to service Provider orders for Products at a [*] or greater service level (the “Service Level” ) each calendar quarter.

ARTICLE 3
Consideration and Payment; Risk of Loss

      3.1 Service Fee .

          1 (a) In recognition of AmerisourceBergen’s performance of the Services, Connetics will pay AmerisourceBergen a fee equal to a percentage of AmerisourceBergen’s gross purchases of Connetics Products at [*] during each calendar quarter (the “ Service Fee ”), as follows: for the quarter ending September 30, 2005, a fee equal to [*] during that quarter; and for each subsequent quarter during the Commitment Period, a fee equal to [*] during each quarter. If on September 30, 2005, AmerisourceBergen is not holding at least [*] weeks of inventory, the Service Fee for the quarter ended on that date shall be [*] . In addition to the Service Fee, subject to the provisions of this Section , AmerisourceBergen shall be entitled to retain the full benefit of any other programs or price concessions that Connetics offers, including but not limited to price increases, non-launch discounts, prompt payment discounts, and any other deals and/or incentives that Connetics offers on Products.

          (b) AmerisourceBergen will invoice Connetics within 25 days after the close of each calendar quarter during the Commitment Period. Connetics shall pay each invoice no later than 30 days from the date of the invoice.

     (c)

     (i) It is the intention of the Parties that, over the Commitment Period, AmerisourceBergen shall receive a benefit from this Agreement of at least [*] during the Commitment Period, and that that benefit be derived from a combination of the Service Fee and the other commercial activities described in subsection 3.1(a) . Accordingly, in addition to the quarterly invoices, AmerisourceBergen shall reconcile its records as of [*] to determine the total benefit it has received during the Commitment Period. [*]

     [*]

     (d) Examples of how and when fees are or might be payable to AmerisourceBergen pursuant to this Section 3.1 are set forth on Exhibit D . Exhibit D is attached hereto for reference purposes only. In the event of any conflict between the interpretation of Exhibit D and the interpretation of the Agreement (as it may be amended from time to time), the terms of the Agreement shall govern.

      3.2 Return Credit . During the Commitment Period, Connetics will credit AmerisourceBergen for returns for which AmerisourceBergen submits a return goods authorization request, at a rate equal to [*] AmerisourceBergen will make all returns in accordance with the terms of Connetics’ then-current Return Goods Policy, including specifically that AmerisourceBergen shall have the right to return any Product dated up to six months prior to expiration.

      3.3 Terms of Payment . Unless otherwise agreed, AmerisourceBergen will pay all Connetics’ invoices for undisputed orders in accordance with the due dates specified; provided, however, that the [*] discount set forth in Section 2.9 will only be applied to payments received by Connetics on or before the 30 ^th day from the date of the applicable invoice, and not to payments that are received by Connetics on or after the 31 ^st day from the date of the applicable invoice. Connetics agrees to provide AmerisourceBergen with a monthly accounts receivable