Commercial Manufacturing Agreement

Exhibit 10.1


Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.


COMMERCIAL MANUFACTURING AGREEMENT


This COMMERCIAL MANUFACTURING AGREEMENT (this "Agreement") is made and effective as of the 22nd day of June 2006 (the "Effective Date") by and between IDENIX PHARMACEUTICALS, INC., with offices at 60 Hampshire Street, Cambridge, MA 02139, USA ("Idenix US"), and NOVARTIS PHARMA AG, with offices at Lichtstrasse 35, 4056 Basel, Switzerland ("Novartis").


1. Idenix US, Idenix (Cayman) Limited ("Idenix Cayman") and Novartis entered into a Development, License and Commercialization Agreement dated as of May 8, 2003, as amended from time to time (the "Development Agreement"), pursuant to which the parties thereto agreed, subject to the terms and conditions thereof, to develop and commercialize the Selected Drug Candidates and Products (each as defined in the Development Agreement) derived therefrom;


2. Idenix Cayman and Novartis entered into a Master Manufacturing and Supply Agreement dated as of May 8, 2003, as amended from time to time (the "Supply Agreement"), setting forth the general principles governing the Technical Development and Manufacture and supply of the Products; and


3. Idenix US and Novartis wish to enter into this Agreement to further specify terms and conditions applicable to the Manufacture and supply of the LdT Finished Product by Novartis to Idenix US as it relates to supply that is destined for sale in the United States.


NOW, THEREFORE, for and in consideration of the mutual covenants contained herein, Idenix US and Novartis hereby agree as follows:


1. Definitions.


1.1 Development Agreement Terms. All capitalized terms used, but not defined, herein shall have the meaning ascribed to them in the Supply Agreement or, if not ascribed therein, in the Development Agreement.


1.2 "Components". Components shall mean raw materials necessary for Novartis to perform its obligations under this Agreement with respect to the Manufacture and Finishing of LdT Finished Product.


1.3 "Fully Allocated Manufacturing Costs". Fully Allocated Manufacturing Costs shall mean with respect to the Finishing of the LdT Finished Product all direct and indirect costs and overhead allocable to the conduct of such activity in accordance with GAAP or IFRS, including but not limited to project and cost accounting consistently applied, such cost items to include, without limitation, costs of raw materials, supplies, other resources consumed in the conduct of such activity, rent, real estate depreciation, utilities, insurance, equipment lease payments, equipment depreciation and labor, plus general and administrative and similar expenses reasonably allocated to the conduct of such Finishing activities. For avoidance of doubt, it is expressly agreed that the API and costs and amounts detailed in Section 12.1 (a) below are specifically excluded from the items and costs which constitute a part of the Fully Allocated Manufacturing Costs.


1.4 "LdT Finished Product". LdT Finished Product shall mean the LdT Product in bulk form Finished by Novartis in accordance with this Agreement which, when Packaged, is intended to be sold by Idenix US in the U.S. Territory.


2. Relationship to Other Agreements and Documents.


2.1 Other Agreements. This Agreement (which includes the Quality Agreement attached hereto) is intended to supplement the terms of the Development Agreement and the Supply Agreement with respect to the LdT Finished Product. In the event of any conflict or inconsistency between the provisions of this Agreement or the Quality Agreement, on the one hand, and the provisions of the Development Agreement or the Supply Agreement, on the other hand, the provisions of this Agreement or as applicable, the Quality Agreement, will govern and control with respect to the LdT Finished Product. For the sake of clarity, the provisions of Section 4 of the Supply Agreement shall apply to the LdT Finished Product in accordance with its terms.


2.2 Other Documents. In the event of any conflict or inconsistency between the terms and conditions of this Agreement and any terms or conditions set forth in any purchase order, acknowledgment or other document relating to the transactions contemplated by this Agreement, the terms and conditions set forth in this Agreement shall prevail.


3. Exclusivity.


3.1 Supply. Novartis shall not, and shall ensure that its Affiliates (other than Idenix US) and licensees do not, directly or indirectly, make or have made or Finish the LdT Product for any person or entity (including themselves) for sale in the U.S. Territory other than Idenix US. Idenix US shall not, and shall ensure that its Affiliates and licensees (with exception to Novartis, its Affiliates and licensees) do not, directly or indirectly, make or have made or Finish LdT Product destined for sale in the U.S. Territory, except to the extent permitted pursuant to this Agreement or any other relevant agreement between the Parties and/or Affiliates of one or both Parties.


3.2 Requirements. Except as provided herein or otherwise agreed by the Joint Manufacturing Committee, Idenix US shall order from Novartis all of Idenix's, its Affiliates' and licensees' (including Novartis') requirements for LdT Finished Products.


4. Manufacture.


4.1 Standards. Novartis shall:


(a) Manufacture all APIs for the LdT Finished Product,


(b) Finish the APIs into LdT Finished Product,


(c) warehouse the APIs and LdT Finished Products until delivery, and


(d) deliver the LdT Finished Products to Idenix US, an Affiliate of Idenix US or a sublicensee of Idenix US, as identified to Novartis by Idenix US,


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in each case in accordance with:


(i) the relevant Specifications,


(ii) the terms and conditions of the Quality Agreement attached hereto as Exhibit A (the "Quality Agreement"),


(iii) all applicable Laws, including, without limitation, health, safety and environmental Laws,


(iv) the terms and conditions of this Agreement.


4.2 Coordination. Novartis shall promptly inform Idenix US of decisions about, or changes to, any parties or facilities used in Manufacturing or Finishing the LdT Finished Product. Novartis shall not change any Manufacturing or Finishing processes without Idenix US' prior written consent and otherwise as provided in the Quality Agreement.


4.3 Subcontracting to Affiliates. Subject to Section 4.3, Novartis may subcontract its obligations hereunder to its Affiliates; provided that Novartis remains liable for the performance of such obligations and all applicable obligations of Novartis hereunder shall apply to such Affiliates.


4.4 Transition to a Tolling Arrangement. Upon written request from Idenix US and recommendation of the Joint Manufacturing Committee provided not less than twelve (12) months prior to the anticipated transition date, and subject to the approval by the Joint Steering Committee, the relationship between the Parties with respect to Manufacture and supply of the LdT Finished Product will convert to a toll manufacturing relationship, whereby Novartis will Manufacture, or have Manufactured, the LdT Finished Product, but notwithstanding any provisions to the contrary contained in this Agreement, Idenix will purchase and supply (or have supplied) to Novartis all Components and Idenix will retain the title to and risk of loss for the Components and the LdT Finished Product, as applicable, throughout the Manufacturing process.


5. Quality Assurance


The provisions of the Quality Agreement attached hereto as Exhibit A are incorporated by reference.


6. Secondary Supplier.


Idenix US and Novartis shall work collaboratively and in good faith to determine plans to ensure continuity of supply of LdT Finished Product, which may include, if reasonably requested by Idenix US, and subject to the recommendation of the Joint Manufacturing Agreement and the approval by the Joint Steering Committee, the appointment of a Third Party secondary supplier (the "Secondary Supplier") to Manufacture and Finish the LdT Finished Product. In case of appointment of a Secondary Supplier, Novartis shall cooperate fully with Idenix US and the Secondary Supplier, and shall use commercially reasonable efforts to enable Secondary Supplier to qualify and validate the Secondary Supplier's facilities and to


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Manufacture and Finish the LdT Finished Product to ensure that such Secondary Supplier would be available as soon as practicable after appointment to Manufacture and/or Finish the LdT Finished Product in the event that Novartis is, at any time during the term of this Agreement, unable to supply the LdT Finished Product in sufficient quantities to meet firm orders. Novartis shall provide to Secondary Supplier all Technical Information and the Parties agree to grant to the Secondary Supplier such rights and licenses to Manufacturing Technology, Idenix Intellectual Property, Novartis Intellectual Property and Joint Intellectual Property to the extent necessary for Secondary Supplier to Manufacture and Finish the LdT Finished Product. Novartis agrees to the extent commercially reasonable to cooperate with the Secondary Supplier, to permit, in accordance with a mutually agreed timetable, the Secondary Supplier the opportunity to observe Novartis' Manufacturing and Finishing operations as applicable to LdT Finished Product and to make available to Secondary Supplier in accordance with a mutually agreed timetable, such of Novartis' employees who may demonstrate and explain to Secondary Supplier any of the Technical Information and the Manufacturing and Finishing processes relating to the LdT Finished Product. Costs incurred by Novartis, Idenix and/or the Secondary Supplier in connection with the appointment, qualification/validation of the Secondary Supplier and the transfer of all relevant information and know-how shall be shared between the parties based on a allocation to be recommended by the Joint Manufacturing Committee and approved by the Joint Steering Committee.


7. Components.


7.1 Purchase. Novartis shall purchase all Components. The Components shall conform to any specifications therefore agreed upon by the Parties.


7.2 Costs. Novartis shall use commercially reasonable efforts to ensure that the Components benefit from discounts, allowances, credits or other pricing incentives it receives from suppliers and that discounts, allowances, credits or other pricing incentives it receives from suppliers on other raw materials do not disproportionately increase the price that it pays for the Components.


8. Forecasts and Ordering.


At least [**] Business Days in advance of the commencement of each calendar month, Idenix US shall provide Novartis with its monthly rolling forecast of the quantities of LdT Finished Product that Idenix US estimates it will be requiring for the coming [**] months. Idenix US shall be obligated to purchase at least [**] percent ([**]%) of the quantity estimated for the next [**]-month period during such upcoming [**]-month period, and Novartis shall be obligated to supply up to [**] percent ([**]%) of such estimated quantity during the upcoming [**]-month period.


The first [**] months of each rolling forecast shall be considered firm orders, thereby committing Idenix US to purchase and Novartis to sell the stated amount of LdT Finished Products, and Idenix US shall raise the corresponding firm orders in writing, on stock keeping units basis to Novartis at the same time when submitting its monthly forecast. Idenix US shall purchase [**] percent ([**]%) of the LdT Finished Products specified in each firm order. Idenix US shall specify in each firm order (a) the quantity of the LdT Finished Products ordered, (b) the


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delivery location(s) for such quantity, (c) the requested delivery date(s), and (d) any export/import information required to enable Novartis to deliver the order. Novartis in its sole discretion may reject any order that does not comply with this Agreement and all other orders that comply with this Agreement will be accepted. Orders will be deemed accepted by Novartis unless Novartis provides notification of rejection in accordance with the immediately preceding sentence, along with the reason for rejection, to Idenix US within five (5) Business Days of receipt by Novartis of the firm order.


To the extent not inconsistent with this Agreement, Idenix US shall comply with the minimum order quantities and the order lead times as defined in the Customer Trading Service Procedure ("TSP") in the form attached hereto as Exhibit B and which shall be executed and delivered on the Effective Date.


9. Capacity Allocation.


In the event that Novartis is or expects to be unable (including without limitation any inability as a result of a Force Majeure Event) to meet firm orders due to a shortage of production capacity or Components, Novartis shall promptly notify Idenix US in writing of such shortage, and, if possible, the date such shortage is expected to end. In such event, Novartis shall allocate to the LdT Finished Product its available production capacity or common raw materials in such proportion (expressed as a function of equipment or raw materials utilized) as the production equipment capacity or common raw materials actually utilized to meet orders of Idenix US for the LdT Finished Product over the previous [**] (or, if a full [**] month period of Manufacture of the LdT Finished Product has not yet occurred, the actual period of time of such Manufacture). In the event that Novartis is still unable (including without limitation any inability as a result of a Force Majeure Event) to meet confirmed firm orders despite the capacity allocation set forth above, the matter shall be submitted to the Joint Manufacturing Agreement, who shall make a recommendation to be approved by the Joint Steering Committee.


10. Delivery.


Novartis shall deliver all LdT Finished Products in accordance with the quantities and requested delivery date(s) specified in the relevant firm order. Novartis will pack the LdT Finished Products for shipment and storage in accordance with the applicable Specifications. Novartis shall deliver the LdT Finished Products [**] point of entry into the US (handed-over to named US customs broker) and title shall transfer upon such delivery at the latest [**] weeks following the written firm order confirmation by Novartis.


11. Acceptance and Rejection.


11.1 Acceptance. Idenix US or its designee shall notify Novartis in writing within the timelines specified in the Quality Agreement of any apparent non-conformity of the LdT Finished Product to the applicable Specifications (a "Rejection") and Idenix US or its designee shall return to Novartis, at Idenix US' expense, samples of the Rejected LdT Finished Product with a reasonably detailed statement of the claimed defect. If Idenix US or its designee fails to so notify Novartis, Idenix US or its designee will be deemed to have accepted such LdT Finished Product; provided that if the non-conformity results from a defect that is not typically observed


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by routine inspection, Idenix US or its designee will have the right to reject such LdT Finished Product if it notifies Novartis of such Rejection upon discovery, within the timelines set forth in the Quality Agreement.


11.2 Disputes regarding Rejection. Upon receipt of a Rejection, Novartis shall have twenty (20) Business Days to advise Idenix US by notice in writing if it disagrees with such Rejection (a "Rejection Disagreement"). If the Parties fail to agree within ten (10) Business Days after Idenix US' receipt of a Rejection Disagreement, the Parties shall mutually select an independent laboratory to evaluate the samples returned by Idenix US. Such evaluation shall be binding on the Parties. If such evaluation certifies that any of such samples do not conform to the applicable Specifications, Novartis shall pay the costs and expenses of such evaluation, all costs and expenses incurred by Idenix US in returning the samples of the rejected LdT Finished Product and all costs incurred in replacing the non-conforming Finished Product. If such evaluation certifies that all such samples conform to the applicable Specifications, Idenix US shall pay the costs and expenses of such evaluation and shall pay Novartis for the rejected LdT Finished Product.


11.3 Consequences of accepted or non-disputed Rejection. Idenix US will not be required to pay Novartis for any LdT Finished Product that does not conform to the applicable Specifications. Novartis shall, at its expense, replace any Rejected LdT Finished Product that does not conform to the applicable Specifications within [**].


12. Purchase Price, Payment Terms, Cost Improvement, Other.


12.1 Purchase Price. The purchase price for the LdT Finished Product ("Purchase Price") shall be equivalent to the sum of a) the price of API , and b) the fee payable by Idenix to Novartis for Finishing the API into the LdT Finished Product. The Purchase Price pursuant to this Section 12.1 is exclusive of any applicable VAT or sales tax.


(a) Price of API. The price of API shall be calculated per kilogram and shall be equivalent to the total consideration for processing, Components, [**], as described below and in the Exhibit C.


(i) Processing. The consideration for processing is equivalent to amounts that are dependent on the quantities ordered, as per Exhibit C. Such consideration shall be firm until [**]. As of [**], the consideration for processing shall [**].


(ii) Components. The consideration for Components shall be equivalent to the actual costs for Components. [**], the Parties agree on firm amounts, as per Exhibit C.


(iii) [**] The consideration for [**] is equivalent to [**], which [**] shall be [**]. The [**] for the [**] from the [**] shall be [**] on the [**] of the [**] the [**]. In [**] will be [**] on the [**] of the [**].


(iv) [**] The consideration for [**] shall be [**]. Such [**] shall be [**] in the [**] and [**] in the [**]. The [**] for the [**] shall be [**].


(v) [**] The consideration for [**] shall be [**] shall be [**].


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(b) Fee for Finishing. The fee payable by Idenix US to Novartis for Finishing the API into the LdT Finished Product shall be equivalent to the total of (i) Fully Allocated Manufacturing Costs, and (ii) a mark-up of [**] percent ([**]%) of the Fully Allocated Manufacturing Costs.


12.2 Standard Delivery Price. Prior to November 30 of each calendar year, the Parties shall agree in writing on a price per unit of LdT Finished Product to be used for the following calendar year (the "Standard Delivery Price"), taking into consideration the various elements of Purchase Price as specified in Section 12.1 above.


Actual Purchase Price will be calculated for the respective calendar year when all the actual elements of the Purchase Price are known. Reconciliation of Actual Purchase Price with the Standard Delivery Price shall be made in two steps:


i) Provisional reconciliation. Within 60 (sixty) calendar days after the end of the third quarter of each calendar year, Novartis will send to Idenix US a report comparing the Actual Purchase Price with the Standard Delivery Price invoiced to Idenix US for the first three quarters of such calendar year, such report being based on actual data for the first three quarters of such calendar year and the available estimates for the fourth quarter. The Parties agree that no reconciliation payment shall be made as a result of the report sent by Novartis to Idenix US for the first three calendar quarters of any calendar year.


ii) Final reconciliation. Within 30 (thirty) calendar days after the end of each calendar year, Novartis will send to Idenix US a report comparing the Actual Purchase Price with the Standard Delivery Price invoiced to Idenix US for such calendar year. The Parties shall reconcile the reports within sixty (60) days after the end of such calendar year. Any payment required by Idenix US or Novartis to compensate the difference between the Actual Purchase Price and the Standard Delivery Price shall be made to the appropriate Party within 30 (thirty) calendar days of reconciliation of such report. In the event of a dispute with respect thereto, (a) the paying Party shall remit on a timely basis all amounts not disputed and shall provide written notice within such thirty (30) day period after reconciliation of such report, specifying in detail the amounts in dispute and the basis for such dispute, (b) the matter shall be referred to the Joint Steering Committee for resolution, and (c) interest shall be payable on any additional amounts determined to be due in the same manner as provided for in Section 6.9 of the Supply Agreement.


To the extent that one Party must make a payment to the other Party, the paying Party shall pay the other Party such payments within thirty (30) days after Final reconciliation of such reports.


12.3 Currency. The currency for pricing, invoicing and reporting will be in United States Dollars. For the purpose of this Agreement, all currencies will be converted into United States Dollars using the then Novartis official currency conversion methodology applied in its external reporting (which is based on official rates such as Reuters and the European Central Bank) for the conversion of foreign currency into United States Dollars.


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12.4 Payment Terms. The Standard Delivery Price shall be paid within thirty (30) days from delivery of the relevant shipment. Invoices shall be issued together with the delivery note and the packing list. Sections 6.5, 6.6, 6.8 and 6.9 of the Supply Agreement are hereby incorporated by reference and shall apply to the Parties with respect to this Agreement mutatis mutandis to the same extent as in the Supply Agreement.


12.5 Cost Improvement. The Parties shall, through the Joint Manufacturing Committee, jointly undertake to participate and invest in a research and development program and other efforts to lower costs of Manufacturing the API for the LdT Finished Product by funding and/or dedicating efforts to such program, and the Parties shall share the net benefits of such cost reductions in proportion to their respective contributions thereto (taking into account, without limitation, the value of any financial and non-financial contributions).


12.6 Audit. Novartis shall keep, and shall cause its Affiliates and licensees to keep, complete and accurate records of the data, including expense data, relating to the pricing, invoicing, reports and payments required under this Agreement. Idenix US will annually have the right at its own expense to have an independent, certified public accountant, selected by it and reasonably acceptable to Novartis, review any such records pertaining to the portion of the Purchase Price relating to the API as determined in Section 12.1(a) in the location(s) where such records are maintained by Novartis, its Affiliates and licensees, upon reasonable notice and during regular business hours and under obligations of confidence, for the sole purpose of verifying the basis and accuracy of payments made pursuant to Section 12.2 (ii) in each case within the prior calendar year. If the review of such records reveals that the Actual Purchase Price was inaccurately reported, then Novartis or Idenix US, as the case may be, shall pay to the other Party the resulting amounts due pursuant to Section 12.2 (ii) above. Should the review of such records reveals that Idenix US was overcharged by Novartis by more than ten percent (10%) of the amounts actually due from Idenix US for the reviewed period, then Novartis shall pay all of the costs of such review.


13. Limited Warranties.


13.1 Corporate Warranties by Novartis. Novartis hereby represents and warrants to Idenix US as follows:


(a) Organization, Good Standing and Qualification. Novartis is an Aktiengesellschaft duly organized, validly existing and in compliance with the laws of Switzerland. Novartis has all requisite corporate power and corporate authority to own and operate its properties and assets, to carry on its business as now conducted and as currently proposed to be conducted, to enter into this Agreement and to carry out its obligations hereunder. Novartis is duly qualified to transact business and is in good standing in each jurisdiction in which the nature of its business or property makes such qualification necessary, except where the failure to be so qualified would not reasonably be expected to materially adversely affect the ability of Novartis to consummate the transactions contemplated hereby.


(b) Authorization, Execution and Delivery. All corporate action on the part of Novartis and its officers and directors necessary for the authorization, execution and delivery of this Agreement, and performance of the obligations of Novartis contemplated hereby, have been


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taken. This Agreement has been validly executed, delivered and authorized by Novartis. This Agreement, assuming it constitutes valid and legally binding obligations of Idenix US, constitutes valid and legally binding obligations of Novartis, enforceable against Novartis in accordance with its terms, except as the enforcement hereof may be limited by (i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally or (ii) equitable principles, including those limiting the availability of specific performance, injunctive relief and other equitable remedies and those providing for equitable defenses.


(c) No Conflict. Neither the execution, delivery and performance by Novartis of this Agreement, nor the consummation by Novartis of the transactions contemplated hereby, nor the compliance by Novartis with any of the provisions hereof, will:


(i) violate or conflict with any applicable Law applicable to Novartis
or any of its Subsidiaries, or Judgment applicable to Novartis or any of
its Subsidiaries;


(ii) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of
time, or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any material Contract to which Novartis
is a party or under which Novartis or any of its Subsidiaries is bound or
affected; or


(iii) conflict with or violate any provision of the Articles of
Incorporation or by-laws of Novartis.


(d) Consents. No Consents of, (i) or registration, qualification, designation, declaration, notification or filing with, any Governmental Entity or (ii) any party to any Contract to which Novartis is a party or by which it is bound, in the case of clauses (i) and (ii) above, is required in connection with the valid execution, delivery or performance of this Agreement by Novartis or the consummation of the transactions contemplated hereby, except such Consents of (x) or registrations, qualifications, designations, declarations, notifications or filings with, any Governmental Entity or (y) any parties to any Contract to which Novartis is a party or by which Novartis is bound, in the case of clauses (x) and (y), the failure of which Consents to obtain, or registrations, qualifications, designations, declarations, notifications or filings to make, would not be reasonably likely to materially and adversely affect the ability of the Parties to consummate the transactions contemplated hereby.


13.2 Corporate Warranties by Idenix US. Idenix US hereby represents and warrants to Novartis as follows:


(a) Organization, Good Standing and Qualification. Iden ...