Strategic Alliance Agreement

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STRATEGIC ALLIANCE AGREEMENT


THIS AGREEMENT ("Agreement"), effective as of April 1, 1996, is entered into by QMED, INC., a company organized and existing under the laws of the State of Delaware and having its principal office at 100 Metro Park South, 3rd Floor, Laurence Harbor, NJ 08878 ("Qmed") and SMITHKLINE BEECHAM HEALTHCARE SERVICES, a division of SMITHKLINE BEECHAM CORPORATION, a company organized under the laws of the Commonwealth of Pennsylvania and having its principal office at One Franklin Plaza, Philadelphia, PA 19101 ("SB").


Whereas, Qmed has developed the On-Line Health Management System for Coronary Artery Disease ("ohms|cad"), a proprietary system which, when used by appropriate medical personnel, can provide evaluations relating to ambulatory myocardial ischemia and certain other coronary risk factors for patients with coronary artery disease ("CAD"), and/or who are being evaluated for such conditions, and can contribute to the formation by the patients' treating physicians of appropriate medical management plans for such patients, which system and services are more fully described in Attachment 1 hereto, and Qmed is interested in obtaining the assistance of SB in marketing and selling the ohms|cad service, in obtaining customers and potential customers for such service, administering certain aspects of the ohms|cad services and the collection of payments for use of the ohms|cad services;


Whereas, SB is interested in providing marketing, selling and administrative assistance and support in connection with the ohms|cad system;


Whereas, SB's affiliate, S.R. One, Limited ("S.R.One"), and Qmed are entering into a separate agreement pursuant to which S.R. One is making an equity investment in Qmed in order to provide Qmed with certain operating capital to fund operations that are expected to occur in connection with this Agreement as more fully set forth in such separate agreement; and


Whereas, Qmed and SB desire to set forth the terms and conditions on which they will conduct their strategic alliance (the "Strategic Alliance").


NOW THEREFORE, the parties hereto agree as follows:


1. DESCRIPTION OF STRATEGIC ALLIANCE AND OHMS|CAD SERVICES


SB and Qmed will jointly market and sell the ohms|cad services to persons and/or entities lawfully engaged in providing medical services outside of the fee-for-service market, including, but not limited to, health maintenance organizations ("HMOs"), preferred provider organizations, "at risk" physician groups, integrated delivery systems that assume risk, and other managed care organizations (the "Potential Customers") under the terms and conditions


set forth in this Agreement. This Agreement sets forth the responsibilities of each of SB and Qmed in connection with the marketing of the ohms|cad services to Potential Customers, the negotiation and administration of contracts entered into by customers for the provision of the ohms|cad services, and the provision of the ohms|cad services to such customers, as well as the reimbursement of costs and compensation each party will receive for its activities hereunder.


2. JOINT STEERING COMMITTEE


2.1 Within thirty (30) days following the execution of this Agreement, the parties shall establish a Joint Steering Committee ("JSC") which shall consist of up to two (2) members appointed by each of the parties. Each of the parties will designate one of its members as a co-chairperson of the JSC. Either party may, at any time by written notice to the other, replace any of its members of the JSC without the consent of the other party.


2.2 The JSC shall have overall responsibility for strategic and other major decisions regarding the Strategic Alliance, including, but not limited to; (a) review and approval of the marketing and business plan for the Strategic Alliance; and (b) resolution of any disputes or other matters that cannot be resolved by the JMC (as defined in Section 3.1 below). Notwithstanding the foregoing, it is understood and agreed that Qmed shall be responsible for the actual provision of the ohms|cad services, including the provision of the results of the ohms|cad monitoring, communication of any ohms|cad recommendations in connection with such results, and arranging for any consultations provided in connection with such services, such ohms|cad services being more fully described in Attachments 1 and 2 hereto.


2.3 The JSC shall meet at least once every six (6) months (or as otherwise agreed to by the parties), in person or by telephone, to discuss the operation of the Strategic Alliance and any issues that may be appropriate for discussion by the JSC. The parties shall mutually agree on the date, place, time and agenda for JSC meetings. The JSC shall prepare and maintain written minutes or other suitable written records of the actions taken at and the results of such meetings.


2.4 Each of SB and Qmed shall have one vote on the JSC and all JSC decisions will be by unanimous vote of the JSC. In the event that the JSC is not able to agree on an issue involving a strategic decision, such as how to fund certain expenses or other costs related to the Strategic Alliance, no action will be taken on such issue. In the event that the JSC is not able to agree on an issue involving the marketing of the ohms|cad services, SB shall have the right, after due discussion of such issue, to determine what action will be taken with respect to such issue and will inform Qmed in writing of such decision. In the event that the JSC is not able to agree on an issue which involves the operation of the ohms|cad system, after due discussion of such issue, Qmed shall have the right to determine what action will be taken with respect to such issue and will inform SB in writing of any such decision.


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3. JOINT MARKETING COMMITTEE


3.1 Within thirty (30) days following the execution of this Agreement, the parties shall establish a Joint Marketing Committee (the "JMC") which shall consist of up to two members appointed by each of the parties. Each of the parties will designate one of its members as a co-chairperson of the JMC. Either party may, at any time by written notice to the other, replace any of its members of the JMC without the consent of the other party.


3.2 The JMC shall be responsible for all decisions regarding the marketing and promotion of the ohms|cad services under this Agreement, and for the administrative activities required in connection with this Agreement including the following: (a) development of a detailed marketing and business plan for submission to the JSC; (b) modifying the marketing and business plan as needed from time to time; (c) monitoring performance against the business and marketing plans; and (d) such other activities as are reasonably necessary in connection with the administration of this Agreement. Each party shall use all due diligence to ensure that all tasks assigned by the JMC are performed in a timely manner and in accordance with the applicable budget.


3.3 The JMC shall meet at least once each calendar quarter (or as otherwise agreed to by the parties), in person or by telephone, to discuss the actual results achieved through the Strategic Alliance compared to the marketing and business plan and any other matters that may be appropriate for discussion by the JMC. The parties shall mutually agree on the date, place, time and agenda for JMC meetings. Each of SB and Qmed will have one vote on the JMC and all decisions of the JMC will be by unanimous vote of the JMC. Any matters that cannot be resolved by the JMC will be submitted to the JSC for consideration and resolution. JMC shall prepare and maintain written minutes or other suitable written records of the action taken at and the results of such meetings.


4. SERVICES PROVIDED BY THE PARTIES


4.1 Marketing and Selling


4.1.1 SB, with input from Qmed, will be responsible for developing a prioritized target account list consisting primarily of staff model HMOs and capitated (i.e., at risk) physician groups located in [CONFIDENTIAL] (the "Initial Target Accounts"). The target account list will be submitted to the JMC for review and approval. SB, with input from Qmed, will also identify 2-3 IPA model HMOs that may be willing to serve as pilot sites for the provision of the ohms|cad services in such a setting. In these accounts, the use of SBCL testing sites as monitoring stations will be explored. After the development of the list of Initial Target


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Accounts, SB, with input from Qmed, will also develop a national target list of accounts that includes capitated (i.e., at risk) physician groups, staff model HMOs, and, as appropriate, IPA model HMOs (the "National Target Accounts"). The expanded list will be reviewed, approved and prioritized by the JMC.


4.1.2 SB will utilize its Integrated Healthcare Division ("IHD") sales force to market and promote the ohms|cad services to the Initial Target Accounts and to other customers as determined by SB with input from Qmed. The IHD sales force will make the initial contacts with such clients to describe the ohms|cad services and to determine the level of interest in the ohms|cad services. SB, with input from Qmed, will develop a sales presentation for the IHD sales force to use. For those potential customers that appear interested in the ohms|cad services, SB will, where appropriate, arrange for a meeting involving Qmed personnel to provide the needed technical sales support, and to inform the potential customer as to the details regarding the operation and use of the ohms|cad services.


4.1.3 SB will utilize, as appropriate, its pharmaceutical consultants in [CONFIDENTIAL] (the "Sales Consultants") and in other states as deemed appropriate to assist the IHD sales force in establishing appropriate target customer contacts and in promoting the ohms|cad services to such accounts. In addition, after a customer has executed an agreement to use the ohms|cad services, the Sales Consultants will, as appropriate, help "pull through" the use of the ohms|cad services in accounts in which those consultants are active by providing reminder information regarding the ohms|cad services, discussing the ohms|cad services with the physician and/or the physician's staff, and through other appropriate activities.


4.1.4 SB, with input from Qmed, shall be responsible for developing and producing sales and marketing materials required to carry out the marketing plan approved by the JMC. SB will provide administrative support services in coordinating sales and marketing activities, including scheduling SB/Qmed booths at appropriate symposia.


4.1.5 Qmed, with input from SB, will be responsible for developing a technical sales presentation to be used with accounts that have indicated to the IHD sales force that they are interested in the ohms|cad system. Qmed will develop and train a team of experts on the ohms|cad services that will provide the technical expertise and rationale for why a Potential Customer should consider using the ohms|cad services. Qmed will train and place into the geographic regions in which the target accounts are located one or more technical experts on the ohms|cad services who can assist accounts with set-up and implementation. Qmed will submit recommendations as to the number and locations of such technical experts to the JSC which shall determine the appropriate number and location of such experts.


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4.2 Ohms|cad Services


Qmed will be solely responsible for the provision of the ohms|cad services to Potential Customers who enter into contracts for the provision of such services (the "Customers"), and/or to physicians and other health care professionals affiliated with such Customers as may be appropriate. The ohms|cad services to be provided are described in Attachments 1 and 2 hereto, and, subject to the agreement entered into by the Customer, generally include (1) the provision, installation, and maintenance of ohms|cad monitors and related equipment and software; (2) ohms|cad analysis of data received from patients, including reviews by the ohms|cad consulting cardiology service of results of patient monitoring and of recommendations for such patients where such review is deemed appropriate by an ohms|cad consulting cardiologist, or under a protocol established for the ohms|cad services; (3) provision of the results of patient monitoring, and the ohms|cad recommendations to Customers; (4) arranging for consultations with the ohms|cad consulting cardiology service where appropriate; (5) provision of a variety of reports to customers; and (6) other operational, administrative and support services related to the ohms|cad services.


4.3 Contract Administration and Support Services


4.3.1 SB and Qmed shall develop and agree upon the substance and form of a standard contract template to be executed by customers interested in utilizing the ohms|cad system (the "Contract Template"). SB shall be responsible for preliminary negotiations with Potential Customers, including introducing the Contract Template to such customers. In the event the Contract Template needs to be customized for such customer, Qmed (which is to provide the ohms|cad service) and SB will negotiate with the customer to achieve the customization. In the event that a customer requires significant changes to the contract template, those changes shall be submitted to the parties or to the JMC for approval. Each contract for the provision of ohms|cad services must be approved and signed by Qmed before becoming effective.


4.3.2 SB and Qmed will jointly agree upon their respective responsibilities with respect to (a) the analysis of historical data regarding costs and utilization relating to CAD data submitted by a Customer or Potential Customer to determine the baseline costs against which the performance of the ohms|cad services will be measured, (b) the assessment of outcomes data and calculation of the cost savings generated for a Customer in connection with the ohms|cad system and the portion due for services rendered pursuant to that Customer's agreement, and (c) reporting the results of such analysis and assessment to Customers or Potential Customers. Each party shall have access to all such information.


4.3.3 SB shall be responsible for establishing and maintaining a separate bank account to hold funds generated through contracts with Customers, collecting amounts due from Customers, tracking revenues generated through the Strategic Alliance and expenses reimbursed


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out of such revenues, distributing funds to SB and/or Qmed in accordance with this Agreement or as otherwise directed by the JMC or JSC, and other administrative support services related to these activities as determined from time to time by the JMC or by agreement of the parties.


4.4 Maintenance of and Access to Customer-Related Data


As part of its provision of services to Customers, Qmed will receive and, through the ohms|cad system, will generate data regarding patients of Customers or aggregate data relating to Customers, including baseline information, the results of monitoring, and certain statistical reports more fully described in Attachment 2 hereto (the "Customer-Related Data"). Unless prohibited by applicable law or a contract with a Customer, during the term of this Agreement SB will have the right to copy, obtain and use all Customer-Related Data for purposes pertaining to the Strategic Alliance and for any other purpose agreed to by a Customer, provided that in no event will SB have access to any of Qmed's proprietary software, treatment algorithms, or other data (other than Customer-Related Data) within, or utilized by, the ohms|cad system.


4.5 Ownership of Equipment and Other Property


4.5.1 The parties recognize that ohms|cad technology, equipment, hardware and software, including all Monitor-One STRx units, communication modules, software and property used therewith, is and shall remain the property solely of Qmed, or of Qmed's affiliate, Interactive Heart Management Corp., regardless of where such equipment is located, used and/or installed. The parties recognize that the ohms|cad system is a proprietary system of Qmed and that the software and algorithms and use thereof are also proprietary, and are owned by Qmed. The parties further recognize that, in using the ohms|cad system, information relevant to patients, customers and other matters, will, or may be, input into and/or generated by the ohms|cad system; any additions and/or changes to the ohms|cad databases and/or system resulting from its use, and any information input into or generated by the ohms|cad system, become part of, and are owned by Qmed; the parties also recognize that some of the information so input and/or generated may also be Customer-Related Data, which is also owned by SB, pursuant to paragraph 4.4, but this shall not affect the ownership of the ohms|cad system and databases, or of the information as it exists as a part of the ohms|cad system and databases, which shall remain in Qmed. Notwithstanding the foregoing, in the event that the parties decide to pursue additional developmental activities as provided for in Section 10.1.1 or Section 10.2 hereof, rights in and ownership of any intellectual property, data and other property created or developed, pursuant to such activities, shall be determined in accordance with the agreement or agreements reached pursuant to those sections.


4.5.2 The parties agree that, unless otherwise provided under a contract with a Customer or prohibited by applicable law, the Customer-Related Data shall be owned jointly by SB and Qmed and each of SB and Qmed shall have the right to independently utilize such data in the manner that each deems appropriate subject to the provisions of any such contract or


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applicable law. SB acknowledges that there is information contained in the ohms|cad database other than the Customer-Related Data to which it has no ownership rights and that its right to obtain and use the Customer-Related Data included in the ohms|cad database shall be governed by Section 4.4 above.


4.6 Compliance with Laws


It is understood and agreed that the ohms|cad services will not be marketed, sold or provided in any state until the parties are satisfied that the provision of the ohms|cad services in such state would not violate any state law, rule or regulation.


5. REVENUES GENERATED THROUGH THE STRATEGIC ALLIANCE


All revenues generated from the provision of ohms|cad services to Customers that enter into agreements for the provision of such services after the date of the Agreement shall be treated as subject to this Agreement. In addition, as of the effective date of this Agreement, Qmed is negotiating or has signed agreements to provide the ohms|cad services to the Potential Customers listed on Attachment 3 hereto ("Qmed Potential or Existing Customers"). Revenues from all such Customers (except for the[CONFIDENTIAL]) related to the provision of the ohms|cad services shall be treated as subject to this agreement and those customers (except for [CONFIDENTIAL]) will be considered "Customers" for purposes of this Agreement. The parties shall agree on the appropriate mechanisms to be used to collect, record and account for revenue from Qmed Potential or Existing Customers. Revenues generated by Qmed from the provision of ohms|cad services to physicians that provide services on a fee-for-service basis shall not be subject to this Agreement, provided that Qmed will not provide ohms|cad services for any such physicians in connection with such physicians' provision of services to HMOs that are Customers or Potential Customers of SB and Qmed through the Strategic Alliance.


6. REIMBURSABLE EXPENSES


6.1 General Marketing Costs


The reasonable expenses SB incurs in developing general marketing and sales materials and programs related to the ohms|cad services, such as in the development of patient and physician education materials, development of a physician kickoff program, development of a training program for IHD and Sales Consultants, certain costs associated with conferences or conventions at which SB and/or Qmed will promote the ohms|cad services, and professional agency fees associated with these items ("General Marketing Costs") will be reimbursed out of revenues received from Customers. Attachment 4 hereto contains a detailed list of such reimbursable General Marketing Costs. Any such costs not


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included in Attachment 4 hereto will be reimbursed upon the approval of the JMC. Subject to the limitation set forth in Section 6.2 below, SB will initially incur these costs and will be reimbursed for such costs as provided herein.


6.2 Client Specific Marketing Materials


The reasonable expenses SB incurs in connection with the printing and production of marketing materials designed for specific target customers and other out of pocket expenses incurred in marketing and selling the ohms|cad services to specific clients ("Client Marketing Costs") will be reimbursed out of revenues received from Customers. Attachment 4 hereto contains a more detailed list of such reimbursable Client Marketing Costs. Any such costs not included in Attachment 4 hereto will be reimbursed upon the approval of the JMC. SB will initially incur the Client Marketing Costs and will be reimbursed for such costs as provided herein, provided that SB will not be required to incur unreimbursed General Marketing Costs, Client Marketing Costs and other operational costs to be agreed to by Qmed and SB in excess of [CONFIDENTIAL].


6.3 Qmed Operational Costs


The reasonable out-of-pocket expenses incurred by Qmed in providing the ohms|cad service to customers ("Qmed Operational Costs") will be reimbursed out of revenues received from Customers. Attachment 4 hereto contains a more detailed list of such Qmed Operational Costs. Any such costs not included in Attachment 4 hereto will be reimbursed upon approval of the JMC.


6.4 Contract Administration Costs


Any reasonable out-of-pocket costs (including legal or accounting costs) incurred by a party in connection with the negotiation of a customer contract, the administration of the Strategic Alliance, the collection and distribution of revenues or other activities relating to the Strategic Alliance ("Contract Administration Costs") will be reimbursed out of revenues received from Customers. In addition, the parties will be reimbursed for the costs of their personnel (or external personnel hired by them for this purpose) that perform the accounting and recordkeeping support services required in connection with the Strategic Alliance. Attachment 4 sets forth the reimbursable Contract Administration Costs in more detail. Any such costs not included in Attachment 4 hereto will be reimbursed upon approval of the JMC.


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6.5 Miscellaneous Costs


The JMC may from time to time agree to reimburse other costs incurred by a party in connection with the Strategic Alliance ("Miscellaneous Costs") out of revenue received from Customers.


6.6 Submission of Summary of Reimbursable Expenses


On a monthly basis, each of Qmed and SB shall submit to the other a summary setting forth in detail all costs that it has incurred in the applicable month that are reimbursable out of revenues received from Customers with such costs assigned to the Customer on whose behalf such costs were incurred to the extent such assignment is practicable. Qmed does not believe it is currently practicable to allocate costs to Customers, but will work with SB to agree upon a methodology for such allocation to help estimate the profitability of specific accounts. Each party shall also submit adequate supporting documentation for such costs and the designation of the type of cost that such expense represents. In the event that a party submits an expense that does not fall within the categories of reimbursable expenses established by this Agreement or subsequently by the JMC or JSC, such party's request for reimbursement shall be submitted to the JMC for review.


7. PROFITS OR LOSSES


SB and Qmed will share in any profits (i.e., revenues in excess of reimbursable expenses) or losses (i.e., reimbursable expenses in excess of revenues generated from the provision of the ohms|cad service under this Agreement) [CONFIDENTIAL]. While funds received from Customers will initially be distributed according to the priorities set forth in Section 8 below, at the expiration or termination of this Agreement, a reconciliation will be made between costs incurred by each party, the profits or losses allocable to each party, and the amount of distribution each party has received in order to assure that the funds received by a party out of the revenues received from Customers equals the total of that party's' reimbursable expenses plus or minus, as the case may be, its [CONFIDENTIAL] of such profit or loss.


8. DISTRIBUTION OF FUNDS


8.1 Frequency and Determination of Amount of Distribution


Subject to the provisions of Section 8.4 below and any decision of the JMC or JSC that provides otherwise, funds generated through the provision of ohms|cad services to Customers will be distributed on a monthly basis. SB and Qmed anticipate that contracts with Customers will provide for two types of payments from such Customers: (1) a monthly per member per month amount intended as a prepayment of the actual amount earned under a


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Customer's contract (the "Customer Prepayments"); and (2) other payments designed to pay the balance of the amounts due under a Customer's contract (the "Other Payments"). The determination of the total amount distributable to each party each month will be done in two steps based on the type of payment the funds represent. First, the Customer Prepayments will be allocated for distribution as set forth in Section 8.2 below. Second, the Other Payments received from Customers will be allocated for distribution as set forth in Section 8.3 below.


8.2 Customer Prepayments


8.2.1 Customer Prepayments received during a month will first be used to reimburse Qmed for the Qmed Operational Costs actually incurred by Qmed during such month and not previously reimbursed.


8.2.2 In the event that any portion of the Customer Prepayments received in a month remain after the distribution provided for under Section 8.2.1, such funds will then be distributed to the parties on a pro rata basis based on the total amount of Qmed Operational Costs, Client Marketing Costs, Contract Administration Costs, General Marketing Costs and Miscellaneous Costs (together, hereinafter referred to as the "Reimbursable Expenses") actually incurred by each party from the effective date of this Agreement t ...