MANUFACTURING AND SUPPLY AGREEMENT

Exhibit 10.65

* Portions of this document marked [*] are requested to be treated confidentially.

EXECUTION COPY

MANUFACTURING AND SUPPLY AGREEMENT

between

SALIX PHARMACEUTICALS, INC.

and

GLENMARK PHARMACEUTICALS LTD.

Dated as of December 9, 2008

TABLE OF CONTENTS

 

 

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This MANUFACTURING AND SUPPLY AGREEMENT (this “ Agreement ”), dated as of December 9, 2008 (the “ Effective Date ”), is made by and between Salix Pharmaceuticals, Inc., a Delaware corporation (“ Salix ”), and Glenmark Pharmaceuticals Ltd., a corporation organized under the laws of India (“ Glenmark ”). Salix and Glenmark are sometimes referred to herein individually as a “ Party ” and collectively as the “ Parties .”

RECITALS

WHEREAS , subject to the terms and conditions set forth in this Agreement, Salix wishes to have Glenmark manufacture and supply the Compound (as defined below) for Salix, and Glenmark wishes to manufacture and supply, or have manufactured and supplied through its Affiliate, Glenmark Generics Ltd., the Compound for Salix.

NOW, THEREFORE , in consideration of the foregoing premises, the mutual promises and covenants of the Parties contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, do hereby agree as follows:

ARTICLE I. DEFINITIONS

As used herein, the following terms shall have the following meanings:

1.1 “ Actual Cost ” has the meaning set forth in Section 2.5(a).

1.2 “ Affiliate ” of a Person means any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, such first Person. “ Control ” and, with correlative meanings, the terms “ controlled by ” and “ under common control with ”, means to possess the power to direct the management or policies of a Person, whether through ownership of voting securities or by contract or otherwise.

1.3 “ Agreement ” has the meaning set forth in the preamble hereto.

1.4 “ Applicable Law ” means applicable laws, rules and regulations, including any rules, regulations, guidelines or other requirements of Regulatory Authorities, that may be in effect from time to time.

1.5 “ Calendar Year ” means each successive period of twelve (12) consecutive calendar months commencing on January 1 and ending on December 31, except that the first Calendar Year of the Term shall commence on the Effective Date and end on December 31, 2008 and the last Calendar Year of the Term shall commence on January 1 of the year in which the Term ends and end on the last day of the Term.

1.6 “ Capped Price ” has the meaning set forth in Schedule 1.6 .

1.7 “ Certificate of Analysis ” has the meaning set forth in the Quality Agreement.

1.8 “ Certificate of Compliance ” has the meaning set forth in the Quality Agreement.

1.9 “ CMC Data ” means the chemistry, manufacturing and controls data required by Applicable Law to be included in a New Drug Application (as defined in the FFDCA and the regulations promulgated thereunder) for a Product or in any other Marketing Authorization outside the United States.

1.10 “ Compound ” means oligomeric proanthocyanidin (OPC) of varying chain lengths with an average molecular weight of approximately 2000 daltons (Crofelemer) meeting the Specifications.

1.11 “ Compound Equipment ” means the Napo-Provided Equipment and the Scale-Up Equipment.

1.12 “ Compound Invention Patents ” has the meaning set forth in Section 4.2(a)(i).

1.13 “ Compound Inventions ” means any and all Inventions relating to the Compound or any derivatives thereof or other compounds related thereto, that are conceived, discovered, developed or otherwise made, solely by a Party or jointly by or on behalf of the Parties as a result of or in connection with this Agreement, but excluding the Glenmark Inventions.

1.14 “ Confidential Information ” means any and all information or material that, at any time before or after the Effective Date, has been or is provided or communicated to the Receiving Party by or on behalf of the Disclosing Party pursuant to this Agreement or in connection with the transactions contemplated hereby or any discussions or negotiations with respect thereto; any data, ideas, concepts or techniques contained therein; and any modifications thereof or derivations therefrom. Confidential Information may be disclosed either orally, visually, electronically, in writing, by delivery of materials containing Confidential Information or in any other form now known or hereafter invented; provided , however , that notwithstanding the Party that disclosed such information or material, (a) all information and materials regarding the Compound, including the Specifications, Salix Information, and Compound Inventions, shall be Confidential Information of Salix and not the Confidential Information of Glenmark, and Salix will be deemed to be the Disclosing Party, and Glenmark will be deemed to be the Receiving Party, with respect thereto, and (b) Glenmark Information shall be Confidential Information of Glenmark and not the Confidential Information of Salix, and Glenmark will be deemed to be the Disclosing Party, and Salix will be deemed to be the Receiving Party, with respect thereto.

1.15 “ Courts ” has the meaning set forth in Section 9.7(b).

 

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1.16 “ CPL ” means crude plant latex of croton lechleri that meets the Specifications.

1.17 “ Current Capacity ” means the capacity of Glenmark’s equipment and process in place as of the Effective Date to conduct the Manufacturing process, as set forth on Schedule 1.17 , unless and until increased pursuant to a Scale-Up Plan.

1.18 “ Disclosing Party ” means the Party disclosing Confidential Information.

1.19 “ Dispute ” has the meaning set forth in Section 9.6.

1.20 “ Drug Master File ” means any drug master file filed with the FDA with respect to a Product, and any equivalent filing in other countries or regulatory jurisdictions.

1.21 “ Effective Date ” has the meaning set forth in the preamble hereto.

1.22 “ European Union ” or “ EU ” means the economic, scientific and political organization of member states of the European Union, and which, as of the Effective Date, consists of Austria, Belgium, Bulgaria, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom, and that certain portion of Cyprus included in such organization.

1.23 “ Excluded Lists ” means the United States Department of Health and Human Service’s List of Excluded Individuals/Entities and the General Services Administration’s Lists of Parties Excluded from Federal Procurement and Non-Procurement Programs.

1.24 “ Exploit ” means to make, have made, import, use, sell, offer for sale or otherwise dispose of a compound, product or process, including all discovery, research, development, commercialization, registration, modification, enhancement, improvement, Manufacture, storage, formulation, optimization, exportation, transportation, distribution, promotion and marketing of such compound, product or process.

1.25 “ Facility ” means the Manufacturing facility of Glenmark’s Affiliate, Glenmark Generics Ltd., located at 3109, GIDC Industrial Estate, Ankleshwar, India 393 002.

1.26 “ FDA ” means the United States Food and Drug Administration and any successor agency thereto.

1.27 “ FFDCA ” means the United States Federal Food, Drug, and Cosmetic Act, as amended.

1.28 “ Firm Forecast ” has the meaning set forth in Section 2.2(b).

 

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1.29 “ Fixed Price ” has the meaning set forth in Section 2.5(c).

1.30 “ Forecast ” has the meaning set forth in Section 2.2(b).

1.31 “ Fully-Allocated Manufacturing Cost ” or “ FAMC ” has the meaning set forth in Schedule 1.31 .

1.32 “ Glenmark ” has the meaning set forth in the preamble hereto.

1.33 “ Glenmark Activities ” has the meaning set forth in Section 2.8(c).

1.34 “ Glenmark Indemnified Parties ” has the meaning set forth in Section 8.2.

1.35 “ Glenmark Information ” means all technical, scientific and other know-how and information, trade secrets, knowledge, technology, means, methods, processes, practices, formulae, instructions, skills, techniques, procedures, technical assistance, designs, assembly procedures, specifications, assays, test methods, analytical methods, and other material or information owned or controlled by Glenmark and its Affiliates and necessary or useful for the Manufacture of the Compound, excluding Glenmark Inventions.

1.36 “ Glenmark Invention Patents ” has the meaning set forth in Section 4.2(b)(i).

1.37 “ Glenmark Inventions ” has the meaning set forth in Section 4.1(b).

1.38 “ Glenmark Policies ” has the meaning set forth in Section 8.4(b).

1.39 “ Glenmark-Supplied Material ” means all ingredients, raw materials, packaging and labeling components, and all other supplies of any kind used in connection with Manufacturing the Compound, excluding the Salix-Supplied Material.

1.40 “ Glenmark Territory ” shall mean the countries set forth on Schedule 1.40 .

1.41 “ GMP ” means current good manufacturing practices as required under the FFDCA and as set forth by the FDA in regulations promulgated at 21 C.F.R. Parts 210 and 211, and in applicable FDA guidance and policy documents.

1.42 “ Hatch-Waxman Act ” means the Drug Price Competition and Patent Term Restoration Act of 1984, as amended.

1.43 “ Indemnification Claim Notice ” has the meaning set forth in Section 8.3(a).

1.44 “ Indemnified Party ” has the meaning set forth in Section 8.3(a).

1.45 “ Indemnifying Party ” has the meaning set forth in Section 8.3(a).

 

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1.46 “ Informational Forecast ” has the meaning set forth in Section 2.2(a).

1.47 “ Invention ” means any discovery, improvement, process, formula, data, invention, know-how, trade secret, procedure, device, or other intellectual property, whether or not patentable, including any enhancement in the manufacture, formulation, ingredients, preparation, presentation, means of delivery, dosage or packaging of a compound or product or any discovery or development of a new indication for a compound or product.

1.48 “ Joint Invention Patents ” has the meaning set forth in Section 4.2(c)(i).

1.49 “ Joint Inventions ” means any manufacturing technique, process or Compound derivative that is not derived from or based on the Specifications, any Salix Information, Compound Invention or Glenmark Information that is conceived, discovered, developed or otherwise made, jointly by or on behalf of the Parties as a result of or in connection with this Agreement, but excluding the Glenmark Inventions.

1.50 “ Launch Date ” means the first date on which Salix anticipates requiring supply of Compound hereunder in order to make Product available for commercial sale or distribution.

1.51 “ Losses ” has the meaning set forth in Section 8.1.

1.52 “ Manufacture ” and “ Manufacturing ” means (a) the manufacturing, processing, formulating, packaging, labeling, holding, storage, warehousing, and quality control testing of a pharmaceutical product or compound and (b) the holding, storage or warehousing of raw materials, finished product or work in process.

1.53 “ Marketing Authorization ” means an approved New Drug Application as defined in the FFDCA and the regulations promulgated thereunder, or any corresponding foreign application, registration or certification, necessary or reasonably useful to market any Product in a country or regulatory jurisdiction in the Territory other than the United States, including applicable pricing and reimbursement approvals.

1.54 “ Material(s) ” means the Glenmark-Supplied Material and the Salix-Supplied Material.

1.55 “ Napo ” means Napo Pharmaceuticals, Inc.

1.56 “ Napo-Glenmark Agreement ” means that certain Collaboration Agreement entered into on July 2, 2005, by and between Glenmark and Napo, as amended through the Effective Date.

1.57 “ Napo-Provided Equipment ” has the meaning set forth in Section 2.8(b).

1.58 “ Other Product Entry ” has the meaning set forth in Section 7.2(c)(iii).

1.59 “ Party ” and “ Parties ” has the meaning set forth in the preamble hereto.

 

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1.60 “Patents” means the Compound Invention Patents, the Glenmark Invention Patents and the Joint Invention Patents.

1.61 “ Person ” means an individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or other similar entity or organization, including a government or political subdivision, department or agency of a government.

1.62 “ Policies ” means the Glenmark Policies and the Salix Policies.

1.63 “ Product ” means a pharmaceutical product that contains the Compound as an active ingredient.

1.64 “ Purchase Order ” means a written purchase order that sets forth, with respect to the period covered thereby, (a) the quantities of Compound to be delivered by Glenmark to Salix and (b) the required delivery dates therefor.

1.65 “ Purchase Price ” has the meaning set forth in Section 2.5(a).

1.66 “ Quality Agreement ” means the quality assurance agreement to be agreed between the Parties relating to the Manufacture of the Compound in accordance with Section 2.11, as such agreement shall be amended from time to time.

1.67 “ Recalls ” shall have the meaning set forth in Section 3.3(e).

1.68 “ Receiving Party ” means the Party receiving Confidential Information.

1.69 “ Recipients ” has the meaning set forth in Section 6.1.

1.70 “ Regulatory Approval ” means, with respect to any particular country, any and all approvals, licenses, registrations or authorizations of any Regulatory Authority necessary for the Exploitation of a Product in such country (or, if applicable, the EU), including, where applicable, (a) approval of a Product in such country (or, if applicable, the EU), including any Marketing Authorization and supplements and amendments thereto; (b) pre- and post-approval marketing authorizations (including any prerequisite Manufacturing approval or authorization related thereto); (c) labeling approval; and (d) technical, medical and scientific licenses.

1.71 “ Regulatory Authority ” means any applicable supra-national, federal, national, regional, state, provincial or local regulatory agencies, departments, bureaus, commissions, councils or other government entities regulating or otherwise exercising authority with respect to the Exploitation of the Compound or a Product in any country or jurisdiction in the Specified Territory.

1.72 “ Regulatory Documentation ” means (a) submissions to any Regulatory Authority, including investigational new drug applications, New Drug Applications (as defined in the FFDCA and the regulations promulgated thereunder), Drug Master Files,

 

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correspondence with regulatory agencies (registrations and licenses, regulatory drug lists, advertising and promotion documents), period safety update reports, adverse event files, complaint files and manufacturing records and, if applicable, any updates or supplements to any of the foregoing, (b) any minutes or contact logs with respect to any telephone conferences conducted with any Regulatory Authority relating to the subject matter described in Section 1.72(a) and (c) any written correspondence received from any Regulatory Authority.

1.73 “ Salix ” has the meaning set forth in the preamble hereto.

1.74 “ Salix Indemnified Parties ” has the meaning set forth in Section 8.1.

1.75 “ Salix Information ” means all technical, scientific and other know-how and information, trade secrets, knowledge, technology, means, methods, processes, practices, formulae, instructions, skills, techniques, procedures, technical assistance, designs, assembly procedures, specifications, assays, test methods, analytical methods, and other material or information owned or controlled by Salix and its Affiliates and necessary or useful for the Manufacture of the Compound.

1.76 “ Salix Policies ” has the meaning set forth in Section 8.4(a).

1.77 “ Salix-Supplied Material ” means the CPL used in connection with Manufacturing the Compound.

1.78 “ Scale-Up Equipment ” has the meaning set forth in Section 2.8(c).

1.79 “ Scale-Up Plan Effective Date ” has the meaning set forth in Section 2.8(c).

1.80 “ Scale-Up Plans ” means the adaptations, scale-ups or improvements to Glenmark’s Manufacturing equipment or process, and any required investments relating thereto, in order to satisfy Salix’s anticipated annual requirements in excess of the Current Capacity. A non-binding example of such proposal is set forth on Exhibit A .

1.81 “ Specifications ” means, with respect to the Compound, those Compound-related specifications set forth on Schedule 1.81 and, with respect to CPL, those CPL-related specifications set forth on Schedule 1.81 , in each case as the same may be amended from time to time in accordance with the terms hereof.

1.82 “ Specified Territory ” means the United States, the EU and India, together with such additional countries or territories as may be agreed by the Parties pursuant to written amendment to this Agreement. The Parties agree that upon the proposal by Salix of additional countries or territories to be included in the definition of “Specified Territory,” they will negotiate in good faith in respect of the inclusion of such additional countries or territories in such definition, including with respect to the appropriate allocation between the Parties of any additional costs anticipated as a result thereof.

 

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1.83 “ Territory ” means the entire world.

1.84 “ Term ” has the meaning set forth in Section 7.1.

1.85 “ Testing Expert ” has the meaning set forth in Section 2.7(d).

1.86 “ Third Party Claim ” has the meaning set forth in Section 8.3(b).

1.87 “ Third Party Manufacturer ” means any Third Party manufacturer of the Compound designated by Salix, other than an Affiliate of Glenmark.

1.88 “ Third Party Manufacturer License ” means the license described in Schedule 1.88 .

1.89 “ United States ” means the United States of America.

ARTICLE II. MANUFACTURING

2.1 Supply Obligations . Subject to the terms and conditions hereof, Glenmark shall Manufacture or have Manufactured by its Affiliate, Glenmark Generics Ltd., and supply to Salix, and Salix shall purchase from Glenmark, such quantities of Compound as Salix may order pursuant to Purchase Orders in accordance with the terms hereof from time to time during the Term.

2.2 Forecasting, Order and Delivery of Compound .

(a) At least [*] days prior to the first day of each Calendar Year during the Term commencing with the Calendar Year in which the Launch Date is anticipated to occur, Salix shall deliver to Glenmark a written good faith forecast estimating, on a quarterly basis, the quantities of Compound that Salix expects to purchase from Glenmark during such Calendar Year (each, an “ Informational Forecast ”); provided that in the event that the Launch Date is anticipated to occur in Calendar Year [*] , Salix shall deliver to Glenmark the Informational Forecast in respect of Calendar Year [*] on a date reasonably agreed by the Parties. Each Informational Forecast shall be non-binding and shall be used by Glenmark for planning purposes only.

(b) On or before the fifteenth (15th) day of each month, commencing at least [*] months prior to the month in which the Launch Date is anticipated to occur, Salix shall deliver to Glenmark a written good faith forecast estimating the quantities of Compound that Salix expects to purchase from Glenmark for each month during the following [*] months (each, a “ Forecast ”). The [*] months of each Forecast shall be a “ Firm Forecast ”. Except as provided in Section 2.2(c), each Forecast shall be non-binding and shall be used by Glenmark for planning purposes only.

(c) Without duplication of any previously delivered Purchase Order, each Firm Forecast shall be accompanied by a Purchase Order for Compound to be

 

*	Confidential treatment requested; certain information omitted and filed separately with the SEC.

 

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delivered to Salix during each of the [*] months, respectively, set forth in such Firm Forecast. The quantity of Compound specified in any Purchase Order for delivery in any month (i) shall be in multiples of the full production lots of Compound set forth on Schedule 2.2(c) and (ii) shall not be less than [*] percent ( [*] %) nor more than [*] percent ( [*] %) of the quantities specified in any previous Firm Forecast applicable to such month. In no event shall the delivery date of Compound for any Purchase Order be less than [*] months from the date of the Purchase Order; provided, however, that such period shall be shortened to [*] months so long as Salix has fulfilled its obligations under Section 2.3(b) to provide to Glenmark the Salix-Supplied Material in respect of such Purchase Order.

(d) Glenmark shall, within [*] business days after Glenmark receives each Purchase Order submitted in accordance with Section 2.2(c), accept in writing such Purchase Order. Glenmark shall be deemed to have accepted such Purchase Order if such Purchase Order is not rejected in writing by Glenmark in such [*] business day period. Salix shall be obligated to purchase, and Glenmark shall be obligated to deliver by the required delivery date set forth therein, such quantities of Compound as are set forth in each Purchase Order. In the event that the terms of any Purchase Order are not consistent with or are in addition to the terms of this Agreement, the terms of this Agreement shall prevail.

(e) Glenmark shall deliver the quantities of Compound set forth in each Purchase Order by the required delivery date set forth in such Purchase Order DDU (as defined in Incoterms 2000) the port of entry in any Specified Territory (or, in the case of the EU, any member state of the EU) other than India designated by Salix; provided, however , that (i) Glenmark shall only engage such carriage, insurance or other providers in connection with such delivery as are designated by Salix in the applicable Purchase Order, (ii) Salix shall bear costs and expenses for (A) carriage and insurance of the Compound from the Facility and (B) clearance of Compound through customs in the destination country and (iii) in the event any claim arises against any such carriage, insurance or other provider, Glenmark, as promptly as possible, shall assign such claim to Salix. All Compound shall be labeled in accordance with Applicable Law and packed for shipping in accordance with packing instructions provided by Salix. Title to and risk of loss of Compound shall pass to Salix at the time of delivery.

(f) Each delivery of Compound shall be accompanied by (i) a Certificate of Analysis, (ii) a Certificate of Compliance, (iii) such other documents as may be required pursuant to the Quality Agreement, and (iv) documentation necessary for the sale or import of the Compound.

2.3 Raw Materials .

(a) In any given month, Glenmark shall maintain an inventory of Materials in sufficient quantities, and shall use its commercially reasonable efforts, to

 

*	Confidential treatment requested; certain information omitted and filed separately with the SEC.

 

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supply Salix with quantities of Compound that are up to [*] percent ( [*] %) of the quantities specified in any Firm Forecast applicable to such month.

(b) Simultaneous with delivery of each Firm Forecast by Salix to Glenmark, Salix shall deliver to Glenmark at the Facility such quantities of Salix-Supplied Material as are necessary for Manufacture of Compound in accordance with each Firm Forecast, free of charge to Glenmark. Glenmark shall use the Salix-Supplied Material solely for the purpose of Manufacturing the Compound for supply to Salix. In the event Salix fails to deliver Salix-Supplied Material in quantities and quality necessary for Glenmark to Manufacture Compound in accordance with the applicable Purchase Order, such failure shall be deemed a force majeure event for which Glenmark’s obligation to supply to Salix shall be excused until such force majeure event has been corrected or eliminated.

(c) Each Party shall be responsible for auditing and qualifying its respective third party supplier(s) of Materials and obtaining supplies of Materials in accordance with the applicable Specifications. All Materials shall conform to the applicable Specifications and any applicable Drug Master File, as further referenced in any applicable Regulatory Documentation.

2.4 Invoice and Payment . Glenmark promptly shall invoice Salix for all quantities of Compound delivered in accordance herewith. Payment with respect to Compound delivered shall be due [*] days from the date of invoice to Salix; provided that if Salix rejects such Compound pursuant to Section 2.7, then payment shall be due within [*] days after receipt by Salix of notice from the Testing Expert that the invoiced Compound is conforming or, subject to Section 2.7, receipt by Salix of replacement Compound, as the case may be; provided further, if Salix disputes any portion of an invoice, it shall pay the undisputed portion and shall provide Glenmark with written notice of the disputed portion and its reasons therefor, and Salix shall not be obligated to pay such disputed portion. The Parties shall use good faith efforts to resolve any such disputes promptly. In the event of any inconsistency between an invoice and this Agreement, the terms of this Agreement shall control. Payment of invoices shall be made by wire transfer to an account designated in writing by Glenmark in United States Dollars. If any currency conversion shall be required in connection with any payment hereunder, such conversion shall be made each calendar quarter using an exchange rate that is the arithmetic average of the daily exchange rates (obtained as described below) during such calendar quarter. Each daily exchange rate shall be obtained from The Wall Street Journal , Eastern United States Edition, or, if not so available, as otherwise agreed by the Parties.

2.5 Price .

(a) The purchase price per kilogram (the “ Purchase Price ”) for all Compound delivered hereunder shall equal Glenmark’s Fully-Allocated Manufacturing Cost plus [*] percent ( [*] %). Along with each acceptance of a Purchase Order

 

*	Confidential treatment requested; certain information omitted and filed separately with the SEC.

 

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pursuant to Section 2.2(d), Glenmark shall also confirm the Purchase Price applicable for such Purchase Order, based on the formula set forth in the preceding sentence. If Glenmark fails to confirm the Purchase Price for any Purchase Order, the Purchase Price for such Purchase Order shall be the [*] . No later than thirty (30) days following each anniversary of the first day of the month in which Glenmark commences commercial supply to Salix, Glenmark shall calculate its actual Fully-Allocated Manufacturing Cost of manufacturing Compound supplied to Salix in the [*] percent ( [*] %) (the “ Actual Cost ”). If the Purchase Price paid by Salix for Compound is within [*] ( [*] %) of the Actual Cost, no reconciliation of the Purchase Price will be made between the Parties. If the Purchase Price paid by Salix for Compound is greater than the Actual Cost by more than [*] percent ( [*] %), Glenmark shall reimburse Salix for such amount in excess of [*] percent ( [*] %) within [*] days of such determination. If the Purchase Price paid by Salix for Compound is less than the Actual Cost by more than [*] percent ( [*] %), Salix shall reimburse Glenmark for such amount in excess of [*] percent ( [*] %) within [*] days of such determination.

(b) Glenmark shall provide Salix with access to such books, records, and financial and other information, including in respect of the details of its arrangements with third parties for the supply of Materials, as Salix may reasonably request in order to establish that the Purchase Price for Compound supplied hereunder is in compliance with the provisions of Section 2.5(a).

(c) The Parties acknowledge that there are other terms negotiated between Napo and Glenmark in connection with the execution of this Agreement. Section 2.5(a) notwithstanding, the Purchase Price for supply of Compound by Glenmark to Salix during the [*] months following the Effective Date shall be fixed at the purchase price set forth in Schedule 2.5(c) (“ Fixed Price ”); provided that the Parties shall review such Fixed Price every [*] months following the Effective Date and (i) in the event the FAMC plus [*] percent ( [*] %) at such time is less than such Fixed Price, the Fixed Price shall be adjusted downward to equal such FAMC plus [*] percent ( [*] %) and, (ii) in the event the FAMC plus [*] percent ( [*] %) at such time is greater than such Fixed Price, the Fixed Price shall be adjusted upward to equal such FAMC plus [*] percent ( [*] %) up to a maximum amount equal to the Capped Price. In no event shall the aggregate quantity of Compound purchased hereunder at the Fixed Price exceed [*] kilograms ( [*]) . Salix acknowledges and understands that as of the Effective Date the Fixed Price does not reflect Glenmark’s Fully-Allocated Manufacturing Cost plus [*] percent ( [*] %) as of the Effective Date and such Fixed Price is only being offered as a short term accommodation.

(d) The Parties acknowledge that Glenmark has invested significant resources in developing and optimizing the manufacturing process for the Manufacture of Compound. In the event that Salix uses a Third Party Manufacturer, Salix shall provide compensation to Glenmark as set forth in Schedule 2.5(d) , subject to all of the limitations set forth in such Schedule including the limitation with respect to the [*] year duration of such obligations.

 

*	Confidential treatment requested; certain information omitted and filed separately with the SEC.

 

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2.6 Warranty . In connection with each delivery of Compound to Salix hereunder, Glenmark hereby represents and warrants to Salix as of the date of the delivery of such Compound to Salix as follows: (a) such Compound is in conformity with the Specifications and the Certificate of Analysis therefor provided pursuant to Section 2.2(f); (b) such Compound has been Manufactured in conformance with GMP, all other Applicable Law, this Agreement and the Quality Agreement; (c) title to such Compound will pass to Salix free and clear of any security interest, lien or other encumbrance; (d) such Compound has been Manufactured at the Facility and those portions of the Facility used in the Manufacture of the Compound are in compliance with all Applicable Law at the time of such Manufacture (including applicable GMP and inspection requirements of FDA and other Regulatory Authorities); (e) the expiration date of such Compound is no earlier than [*] months after the date of delivery thereof (or such longer period after the date of delivery thereof as may be supported by ongoing stability studies, it being acknowledged that a [*] month period must be allowed for packaging and shipment); (f) such Compound has not been adulterated (as such term is defined in the FFDCA) at the time of shipment by Glenmark from the Facility; (g) such Compound may be introduced into interstate commerce pursuant to the FFDCA and similar provisions of other Applicable Law in the Specified Territory; and (h) neither Glenmark nor any of its Affiliates has been debarred or is subject to debarment pursuant to Section 306 of the FFDCA or any similar law in any country in the Specified Territory or listed on either Excluded List or any similar list in any country in the Specified Territory; provided that, with respect to any such similar laws or lists in any country in the Specified Territory other than the United States, Salix has identified for Glenmark with specificity such law or list.

2.7 Failure or Inability to Supply Compound .

(a) In the event that Glenmark, at any time during the Term, shall have reason to believe that it will be unable to supply Salix with the full quantity of Compound forecasted to be ordered or actually ordered by Salix in a timely manner and in conformity with the warranties set forth in Section 2.6, Glenmark shall promptly notify Salix thereof. Promptly thereafter, the Parties shall meet to discuss how Salix shall obtain such full quantity of conforming Compound. Compliance by Glenmark with this Section 2.7(a) shall not relieve Glenmark of any other obligation or liability under this Agreement, including any obligation or liability under Section 2.7(b) or 2.7(c).

(b) Subject to Section 2.7(f), if Glenmark fails to deliver the full quantity of Compound specified in a Purchase Order by [*] days after the required delivery date specified therein and in conformity with the warranty set forth in Section 2.6, then Salix may, at its option, (i) cancel all or any portion of such Purchase Order, in which event Salix shall have no liability with respect to the portion of such Purchase Order so cancelled, or (ii) accept late delivery of all or any portion of the Compound specified in such Purchase Order.

 

*	Confidential treatment requested; certain information omitted and filed separately with the SEC.

 

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(c) Subject to Section 2.7(f), if Glenmark fails to deliver the full quantity of Compound specified in a Purchase Order by [*] days after the required delivery date specified therein and in conformity with the warranty set forth in Section 2.6, then Salix may, at its option, (i) accept late delivery of all or any portion of the Compound specified in such Purchase Order, (ii) terminate its obligations under Section 2.1 in whole or in part by written notice to Glenmark or (iii) provide written notice to Glenmark of its intention to qualify a Third Party Manufacturer for the Compound, in which event Glenmark shall use its commercially reasonable efforts promptly to assist Salix to qualify such Third Party Manufacturer designated by Salix to Manufacture such Compound, and provide, to such Third Party Manufacturer such technical assistance, as Salix may reasonably request and such Third Party Manufacturer may reasonably require in order to Manufacture the Compound without charge to Salix, except that Salix shall be responsible for the out of pocket expenses incurred by Glenmark in providing such technical assistance and provided further that the technical assistance is for no more than [*] (equal to [*] work hours each). Glenmark shall also promptly grant to such Third Party Manufacturer a Third Party Manufacturer License, provided that Salix shall compensate Glenmark in the manner set forth in Schedule 2.5(d) , subject to all of the limitations set forth in such Schedule including the limitation with respect to the [*] year duration of such obligations and Schedule 1.31, Section III.

(d) In the event that Salix determines, within [*] days after delivery thereof by Glenmark (or within [*] days after discovery of any non-conformity that could not reasonably have been detected by a customary inspection on delivery, so long as such discovery is during the production of Product, but in no event more than [*] months after delivery of Compound by Glenmark), that any Compound supplied by Glenmark does not conform to the warranties set forth in Section 2.6, Salix shall give Glenmark notice thereof (including a sample of such Compound, if applicable). Glenmark shall undertake appropriate evaluation of any such sample and shall notify Salix whether it has confirmed such nonconformity within [*] days after receipt of such notice from Salix. If Glenmark notifies Salix that it has not confirmed such nonconformity, then the Parties shall submit the dispute to an independent testing laboratory or other appropriate expert mutually acceptable to the Parties (the “Testing Expert” ) for evaluation. Both Parties shall cooperate with the Testing Expert’s reasonable requests for assistance in connection with its evaluation hereunder. The findings of the Testing Expert shall be binding on the Parties, absent manifest error. The expenses of the Testing Expert shall be borne by Glenmark if the testing confirms the nonconformity and otherwise by Salix. If the Testing Expert or Glenmark confirms that a lot of Compound does not conform to the warranties set forth in Section 2.6, then Glenmark, at Salix’s option, promptly shall (A) supply Salix with a conforming quantity of Compound at Glenmark’s expense or (B) reimburse Salix for the Purchase Price paid by Salix with respect to such non-conforming Compound if already paid. In addition, Glenmark promptly shall reimburse Salix for all costs incurred by Salix with respect to such non-conforming Compound, including the Salix-Supplied Material. Salix shall have the right to offset any such costs against any payments owed by Salix to Glenmark under this Agreement. Glenmark immediately shall notify Salix if at any time it discovers that any Compound delivered hereunder does

 

*	Confidential treatment requested; certain information omitted and filed separately with the SEC.

 

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not conform to the Specifications. Notwithstanding any other provision of this Section 2.7(d), Glenmark shall have no liability hereunder to the extent any such liability is attributable to (i) a failure of Salix-Supplied Material to conform to applicable Specifications or (ii) Salix-Supplied Material having been adulterated (as such term is defined in the FFDCA) prior to the time of delivery to Glenmark.

(e) Subject to Salix’s right to indemnification under Section 8.1, the rights and remedies provided in this Section 2.7 shall be cumulative and shall be Salix’s sole and exclusive remedy with respect to Glenmark’s failure to supply Compound that conforms to the warranties set forth in Section 2.6, or Glenmark’s inability to supply Compound pursuant to any accepted Purchase Order.

(f) The rights and remedies provided in Sections 2.7(b) and (c) shall be subject to Salix fulfilling its obligations under Section 2.3(b).

2.8 Limitations of Current Capacity .

(a) The Parties acknowledge the Current Capacity production constraints of Glenmark, and, subject to Section 2.8(b), agree that the estimation of the maximum annual quantities of the Compound that Glenmark is capable of delivering to Salix as of the Effective Date are as set forth on Schedule 1.17 .

(b) Glenmark shall bear the expenses for the required civil, mechanical, HVAC, electrical and instrumentation, qualified utilities, environment and safety and consultancy charges for manufacturing state I and II of the Compound at the Facility. Napo has provided, at its sole cost and expense, the required [*] as of the Effective Date (the “ Napo-Provided Equipment ”).

(c) In anticipation of Salix’s annual requirements exceeding the amount of Compound permitted by Current Capacity, the Parties shall discuss in good faith the Scale-Up Plans. Glenmark agrees to use its commercially reasonable efforts to implement any agreed upon Scale-Up Plan as promptly as possible and the cost of such implementation shall be borne by Salix, including the purchase and installation of any equipment needed for the Scale-up Plans and any replacement for Napo-Provided Equipment purchased and installed after the Effective Date (the “ Scale-up Equipment ”). Until such time as Glenmark has been afforded a reasonable period of time to implement a Scale-Up Plan (the date on which such period expires, the “ Scale-Up Plan Effective Date ”), Glenmark’s inability to supply Compound in excess of the amount set forth on Schedule 1.17  per year shall not be construed as a material breach of this Agreement. Glenmark shall have the right to use all Compound Equipment to (i) carry out any research, development scale-up and other activities relating to the Compound, provided, however, that such usage shall not exceed [*] percent ( [*] %) of such Compound Equipment’s capacity and (ii) subject to Section 2.21, [*] permitted pursuant to the Napo-Glenmark Agreement (collectively, the “ Glenmark Activities ”). Glenmark shall reimburse Salix in accordance with the terms set forth in Schedule 2.8(c) .

 

*	Confidential treatment requested; certain information omitted and filed separately with the SEC.

 

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(d) Salix acknowledges and agrees that the Scale-Up Plan as set forth on Exhibit A is for illustrative purposes only and Glenmark has no obligations to achieve the targets set forth therein.

2.9 Costs and Expenses . Except as otherwise explicitly set forth herein, [*] shall be solely responsible for all costs and expenses incurred in connection with the Manufacture of Compound hereunder, including costs and expenses of personnel, quality control testing, Manufacturing facilities and equipment, and Glenmark-Supplied Materials.

2.10 Amendment of Specifications .

(a) In the event that an amendment to the Specifications, the Manufacturing process, or the test methods for the Compound is required in writing by any Regulatory Authority, Salix promptly shall provide Glenmark with appropriate documentation relating to any such changes to the Specifications or Manufacturing process to the extent that such changes affect Glenmark’s Manufacturing of the Compound hereunder. So long as the process capability can meet such amendment to Specifications or Manufacturing process required by the Regulatory Authority, Glenmark shall promptly implement such changes in accordance with the change control procedures applicable under GMP. In the event that the process capability cannot meet such an amendment to Specifications or Manufacturing process required by the Regulatory Authority, then the Parties will pursue good faith discussions with respect to the identification and implementation of arrangements that will permit Glenmark to meet such amendment. Salix may request any other amendment to the Specifications, the Manufacturing process, or the test methods for the Compound, in which event the Parties shall meet to discuss such proposed amendment in good faith. Salix promptly shall provide Glenmark with appropriate documentation relating to any such changes to the Specifications or Manufacturing process to the extent that such changes affect Glenmark’s Manufacturing of the Compound hereunder. Promptly thereafter, Glenmark shall use its commercially reasonable efforts to implement any such change agreed to by the Parties. Glenmark shall not, in any respect, amend, modify or supplement the Specifications, the Manufacturing process, or the test methods for the Compound or any Materials or sources of Materials used in connection with Manufacturing the Compound without the prior written consent of Salix.

(b) [*] shall reimburse [*] for reasonable expenses that are actually incurred by [*] in connection with any amendment of the Specifications or the Manufacturing process for the Compound required by Salix, including reasonable costs of capital equipment and process upgrades and obsolescence of Materials, goods-in-process, and finished goods not suitable for other use in the business or operations of Glenmark or any of its Affiliates; provided , however , that [*] liability for such reimbursement shall be limited to levels of inventory that are customary in pharmaceutical manufacturing operations.

 

*	Confidential treatment requested; certain information omitted and filed separately with the SEC.

 

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(c) [*] shall be solely responsible for any and all increased costs or expenses incurred by [*] or [*] as a result of any amendment of the Specifications or the Manufacturing process for the Compound (i) requested by Glenmark and consented to by Salix or (ii) required by Salix as a result of Glenmark’s failure to Manufacture the Compound in conformity with the Specifications.

2.11 Quality Agreement . Within [*] days after the Effective Date, and in any event, prior to any commercial sale of the Compound, Salix and Glenmark shall prepare and enter into a reasonable and customary quality assurance agreement, upon terms generally consistent with the existing quality agreement between Glenmark and Napo with such modifications thereto as either Party may reasonably request (the “ Quality Agreement ”). Each Party shall duly and punctually perform all of its obligations under the Quality Agreement.

2.12 Quality Control Analyses and Release . Glenmark shall be responsible for all quality control analyses of the Compound and all Compound shall be released by Glenmark, in each case in accordance with the terms of the Quality Agreement.

2.13 Maintenance of Facility .

(a) Except as otherwise approved in writing by Salix, Glenmark shall Manufacture the Compound exclusively at the Facility under GMP.

(b) Glenmark shall ensure that any and all licenses, registrations, and Regulatory Authority approvals required by Applicable Law are and shall be obtained in connection with the Facility and equipment used in connection with the Manufacture of the Compound by Glenmark.

(c) Glenmark shall maintain the Facility and such equipment in a state of repair and operating efficiency consistent with the requirements of the Specifications, the Regulatory Approvals, GMP and all other Applicable Law.

(d) Glenmark shall maintain in the Facility adequate and segregated holding accommodations for the Compound and the Materials