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Distribution Services Agreement

Distribution Agreement

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Governing Law: Delaware     Date: 5/5/2005
Industry: Biotechnology and Drugs     Sector: Healthcare

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Exhibit 10.1


Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Asterisks denote omissions.




This Distribution services Agreement (“ Agreement ”) is entered into as April 1, 2005 (Execution Date) by and between Collagenex Pharmaceuticals Corporation, a Delaware corporation with its principal place of business located at 41 University Drive, Newtown, Pa 18940 (“Customer”), and Cardinal Health * with its principal place of business located at 7000 Cardinal Place, Dublin, Ohio 43017 (“Service Supplier”).




WHEREAS, Service Supplier provides services including but not limited to logistics and inventory management services, administrative services, and financial services; and, Customer wishes to purchase such services from Service Supplier; and


WHEREAS, Service Supplier is willing to provide and Customer desires certain additional services to Customer as needed and agreed upon by both parties.


WHEREAS, Customer and Service Supplier desire to assure adequate availability of supply and inventory management of Products.


NOW THEREFORE, in consideration of the foregoing, the mutual representations, warranties and covenants contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:






Products ” means all current and future ethical pharmaceutical products, bearing Customer’s label and packaging, which Customer sells to wholesale customers in the United States. (see current price list).


1.2 .

Aggregate Inventory ” means, at any given time, the total of Products in units that Service Supplier as on hand at all of its storage and/or distribution facilities and that Service Supplier has on order from Customer


1.3 .

Confidential Information ” means the confidential information described in Section 4.2.


1.4 .

Providers” means the purchaser(s) of Products from Service Supplier in the United States.


1.5 .

“Average Weekly Movement” means, at any given time, the total quantity of Products in units (by NDC number) sold by Service Supplier to Providers over the immediately preceding eight (8) weeks divided by eight (8).






Execution Date ” means the date of full execution of this Agreement.



‘Effective Date” means April 1, 2005.



Inventory and Sales Reports ” means the reports described in Sections 2.3



“New Price” means the wholesale acquisition cost (“WAC”) charged by Customer after the effective date and time of a price change instituted by Customer at any time following the Effective Date of this Agreement.



“Old Price” means the WAC charged by Customer immediately preceding the institution of a New Price.





General – Customer agrees to compensate Service Supplier for each of the services described below in accordance with the fee structure contained on Schedule A.



Base Distribution Services.




Sophisticated ordering technology




Daily consolidated deliveries to providers




Emergency shipments to providers 24/7/365




Consolidated accounts receivable management




Contract and Chargeback administration




Returns processing




Customer Service support




Adequate working inventories to meet customer needs and service levels




Licensed, environmentally controlled, PDMA compliant, secure facilities



Inventory Management Services.




Inventory Levels . During the term of this Agreement, Service Supplier will use best efforts to maintain Aggregate Inventory levels of no less than [**] weeks and no more than [**] weeks on all Products.




Purchase Limits . Customer agrees to ship all Service Supplier purchase orders in full. Customer has the right to question any orders that exceed [**]% of Service Supplier’s Average Weekly Movement and has the right to cancel any quantities that Service Supplier is not able to provide reasonable justifications and/or explanations.





Product Availability . Service Supplier and Customer will jointly use best efforts to minimize product shortages and maximize product availability by agreeing to the following:




Service Supplier will institute an automated balancing system on Customer Products in order to optimize the use of existing inventories across the entire Service Supplier network, including brokerage.




During backorder situations and limited product availability and upon Customer’s request, Service Supplier will implement more frequent order and receiving cycles to help reduce inventory requirements.



Data / Reporting Services. Service Supplier shall prepare inventory reports detailing the status of its Aggregate Inventory of Products (“Inventory Reports”) and movement of Products (“Sales Reports”) by NDC number for the duration of this Agreement. Service Supplier shall provide Customer with such Inventory Reports weekly, or daily upon request, and Sales Reports monthly. All such Inventory and Sales Reports shall be transmitted in EDI 852 and EDI 867 formats, respectively and shall include such information as reasonably requested by Customer, 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



Service Supplier may, due to contractual requirements, be required to block certain data in the 867’s that discloses Provider identity. This may include Provider name and DEA number, and any other data that would identify a Provider.



Within thirty (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 5 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.



Service Level . Service Supplier agrees to use its best commercial efforts to service provider orders for Products at a [**]% service level. Service Level will be calculated according to Service Supplier’s then current, standard adjusted service level report. In addition, Service Supplier will allow Customer the opportunity, with advanced written notice, to add up to [**] additional weeks of inventory beyond the inventory levels defined in Section 2.2.1 in order to ensure maximum service levels. Customer will be entitled to this opportunity one time per quarter.




Provider Order Monitoring . During the term of this agreement Service Supplier will implement processes and procedures to monitor Provider order patterns. Service Supplier and Customer will agree upon parameters which may represent speculative buy activity. Any orders that meet the agreed upon parameters will be investigated by Service Supplier and the outcome reported to Customer. If it is determined that a Provider is speculating, additional steps will be implemented to limit Provider purchases to reasonable levels.



New Product Launch Support. Service Supplier will provide guaranteed support for future Customer new product launches. Support will consist of the following:




Stocking each distribution center with quantities as reasonably determined by Customer, in no case to exceed [**] days of anticipated demand.




Providing daily sales out reports for the first [**] days of product launch




Providing automatic distribution to participating or targeted pharmacies on qualified products through Service Supplier’s First Script Program.



Purchase Requirement . Service Supplier agrees to purchase [**]% of its requirements of Customer Products directly from Customer.



Payment Terms . [**] percent ([**]%), [**] days from the date of the invoice.



Term and Termination; Remedies


3.1 .

Term and Termination . This Agreement shall remain in full force and effect from the Effective Date, April 1, 2005, through March 31, 2008 unless terminated by either Customer and/or Service Supplier, as the case may be, upon the earlier of (a) the mutual written agreement of Customer and Service Supplier; or (b) a breach by Customer or Service Supplier of any of the terms of this Agreement that is not cured within [**] days of written notification thereof by the non-breaching party; or (d) the institution (whether voluntarily or involuntarily) of bankruptcy, insolvency, liquidation or similar proceedings by or against Customer or Service Supplier, or

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