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Manufacturing Services Agreement
January 1, 2003
** Certain portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. The pages on which such omissions appear contain a legend to such effect.
Table of Contents
ARTICLE 1 1 INTERPRETATION 1 1.1 Definitions 1 1.2 Currency 4 1.3 Sections and Headings 4 1.4 Singular Terms 4 1.5 Schedules 5 ARTICLE 2 5 PATHEON'S MANUFACTURING RESPONSIBILITIES 5 2.1 Manufacturing Services 5 2.2 Standard of Performance 6 ARTICLE 3 6 CEPHALON'S OBLIGATIONS 6 3.1 Payment 6 3.2 Active Materials 6 ARTICLE 4 7 CONVERSION FEES AND COMPONENT COSTS 7 4.1 Fees and Component Costs 7 4.2 Adjustments to Current Year's Pricing 7 4.3 Adjustments to Subsequent Year's Pricing 8 4.4 Adjustments Due to Technical Changes 9 ARTICLE 5 9 ORDERS, DELIVERY, INVOICING, PAYMENT, PRODUCT DEFICIENCIES 9 5.1 Market Outlook 9 5.2 Orders and Forecasts 9 5.3 Reliance by Patheon 10 5.4 Minimum Orders 11 5.5 Shipments 11 5.6 Invoices and Payment 11 5.7 Product Deficiencies 11 ARTICLE 6 12 CO-OPERATION 12 6.1 Quarterly Review 12 6.2 Product Recalls and Returns 12 6.3 Customer Questions and Complaints 13 6.4 Governmental Agencies 13 6.5 Records and Accounting by Patheon 13 6.6 Inspection 14 6.7 Access 14 6.8 Reports 14 6.9 Validation 14 6.10 Quality Compliance 14 6.11 Batch Records 15 ARTICLE 7 15 TERM AND TERMINATION 15 7.1 Initial Term 15
i 7.2 Termination for Cause 15 7.3 Product Discontinuation 16 7.4 Obligations on Termination 16 ARTICLE 8 16 REPRESENTATIONS, WARRANTIES AND COVENANTS 16 8.1 Authority 16 8.2 General 17 8.3 Non-Infringement 17 8.4 Debarred Persons 18 8.5 Permits 18 8.6 Compliance with Laws 18 ARTICLE 9 18 REMEDIES AND INDEMNITIES 18 9.1 Consequential Damages 18 9.2 Limitation of Liability 18 9.3 Patheon 19 9.4 Cephalon 19 9.5 Reasonable Allocation of Risk 20 ARTICLE 10 20 CONFIDENTIALITY 20 10.1 Disclosure 20 10.2 Use of Information 20 10.3 Exceptions 20 10.4 Designation of Confidentiality 21 ARTICLE 11 21 DISPUTE RESOLUTION 21 11.1 Commercial Disputes 21 11.2 Technical Dispute Resolution 21 ARTICLE 12 23 TRADEMARKS 23 12.1 Trademarks 22 ARTICLE 13 22 MISCELLANEOUS 22 13.1 Intellectual Property 22 13.2 Insurance 22 13.3 Independent Contractors 23 13.4 No Waiver 23 13.5 Assignment 23 13.6 Force Majeure 23 13.7 Additional Product 24 13.8 Notices 24 13.9 Severability 24 13.10 Entire Agreement 25 13.11 No Third Party Benefit or Right 25 13.12 Execution in Counterparts 25 13.13 Governing Law 26
MANUFACTURING SERVICES AGREEMENT
THIS AGREEMENT made as of the ? day of January 1, 2003
B E T W E E N:
a corporation existing under the laws of Canada,
(hereinafter referred to as " Patheon "),
a corporation existing under the laws of the State of Delaware, USA,
(hereinafter referred to as " Cephalon ").
THIS AGREEMENT WITNESSES THAT in consideration of the rights conferred and the obligations assumed herein, and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), and intending to be legally bound the parties agree as follows:
1.1 Definitions .
The following terms shall, unless the context otherwise requires, have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:
" Active Materials " means the materials listed on Schedule C hereto;
" Active Materials Value " means the value to be attributed to the Active Materials for certain purposes of this Agreement, and Patheon's maximum liability for the replacement cost of the Active Materials, as set out in Schedule D hereto;
" Affiliate " means: (a) a business entity which owns, directly or indirectly, a controlling interest in a party to this Agreement, by stock ownership or otherwise; or
(b) a business entity which is owned by a party to this Agreement, either directly or indirectly, by stock ownership or otherwise; or
(c) a business entity, the majority ownership of which is directly or indirectly common to the majority ownership of a party to this Agreement;
"Adverse Experience" means any unfavourable and unintended change in the structure, function, or chemistry of the body temporally associated with any use of the Products or a derivative thereof, whether or not the adverse experience is considered to be related to the use of the Products, including but not limited to any of the following: an unexpected side effect, injury, toxicity or sensitivity reaction, which may include an experience of unexpected frequency or severity; an adverse experience occurring in the course of the use of a drug product in professional practice; an adverse experience occurring in clinical studies; an adverse experience occurring from drug overdose, whether accidental or intentional; an adverse experience occurring from drug abuse; an adverse experience occurring from drug withdrawal; or any significant failure of expected pharmacological action.
" Business Day " means a day other than a Saturday, Sunday or a day that is a statutory holiday in the Province of Ontario, Canada and the State of Pennsylvania;
" cGMPs " means current good manufacturing practices as described in: (a) Division 2 of Part C of the Food and Drug Regulations (Canada);
(b) Parts 210 and 211 of Title 21 of the United States' Code of Federal Regulations; and
(c) EC Directive 91/356/EEC,
together with the latest TPD, FDA and EMEA guidance documents pertaining to manufacturing and quality control practice, all as updated, amended and revised from time to time;
" Cephalon's Technical Information " means the file, for each Product, which is provided by Cephalon to Patheon and which contains documents relating to such Product, including, without limitation: (a) a detailed description of each Product, including its physical and chemical characteristics and stability;
(b) manufacturing and packaging directions;
(c) shipping and storage requirements;
(d) protocols for validating processes or equipment to produce Products;
(e) quality control and quality assurance procedures for sampling, testing, documenting and releasing Active Materials, Components and in-process and finished Product;
(f) procedures for testing the stability of the Product; and
(g) all environmental, health and safety information relating to the Product including material safety data sheets, incident reports, risk analyses, health concerns, preventative measures and procedures for waste disposal,
all as updated, amended and revised from time to time by Cephalon in accordance with the terms of the Agreement;
" Cephalon's Trademarks " shall mean PROVIGILae as well as any other trademark owned or sued by Cephalon in connection with the Products, including without limitation those trademarks listed in Schedule H.
" Commencement Date " means January 1, 2003;
" Components " means, collectively, all packaging components, raw materials and ingredients (including labels, product inserts and other labelling for the Products), required to be used in order to produce the Products in accordance with Cephalon's Technical Information, other than the Active Materials;
" Confidential Information " means a party's technology, data, know-how or information whether written or oral, technical or non-technical, including financial statements, reports, pricing, trade secrets, secret processes, formulas, customer data (including customer lists), and the like, that is disclosed to the other party;
" Deficiency Notice " shall have the meaning ascribed thereto in Section 5.7(a);
" EMEA " means the European Medicine Evaluation Agency;
" FCA " means free carrier, as that term is defined in INCOTERMS 2000;
" FDA " means the United States government department known as the Food and Drug Administration;
" Firm Orders " has the meaning specified in Section 5.2(b);
" Intellectual Property " includes, without limitation, rights in patents, patent applications, formulae, trade-marks, trade-mark applications, trade-names, confidential information, trade secrets, inventions, copyright, industrial designs, know-how and, with respect to Cephalon, Cephalon's Technical Information;
" Inventory " means all inventories of Components and work-in-process produced or held by Patheon in connection with the manufacture of the Products but, for greater certainty, does not include the Active Materials;
" Manufacturing Services " means the manufacturing, quality control, quality assurance and stability testing, packaging and related services, as contemplated in this Agreement, required to produce Products from Active Materials and Components;
" Patheon Manufacturing Responsibilities " has the meaning specified in Section 2.2;
" Products " means the products listed on Schedule A hereto;
" Technical Agreement " means the agreement to be entered into between the parties hereto setting out the quality assurance standards to be applicable to the Manufacturing Services provided by Patheon, which agreement attached hereto as Schedule G;
" Technical Dispute " has the meaning specified in Section 11.2;
" Third Party Rights " means the Intellectual Property of any third party;
" TPD " means the Canadian government department known as the Therapeutic Products Directorate; and
" Year " means the twelve-month period commencing, in the case of the first Year of this Agreement, on the Commencement Date, and thereafter commencing upon completion of the immediately preceding Year.
1.2 Currency .
Unless otherwise indicated, all monetary amounts are expressed in this Agreement in the lawful currency of the United States of America.
1.3 Sections and Headings .
The division of this Agreement into Articles, sections, subsections and Schedules and the insertion of headings are for convenience of reference only and shall not affect the interpretation of this Agreement. Unless otherwise indicated, any reference in this Agreement to a Section or Schedule refers to the specified Section or Schedule to this Agreement. In this Agreement, the terms " this Agreement ", " hereof ", " herein ", " hereunder " and similar expressions refer to this Agreement and not to any particular part, Section, Schedule or the provision hereof.
1.4 Singular Terms .
Except as otherwise expressly provided herein or unless the context otherwise requires, all references to the singular shall include the plural and vice versa.
1.5 Schedules .
The following Schedules are attached to, incorporated in and form part of this Agreement: Schedule A Products, Minimum Run Quantity, Minimum Annual Volume and Fees Schedule B Stability Testing Fees Schedule C Active Materials Schedule D Active Materials Value Schedule E Batch Numbering and Expiration Dates Schedule F Technical Dispute Resolution Schedule G Technical Agreement Schedule H Cephalon's Trademarks
PATHEON'S MANUFACTURING RESPONSIBILITIES
2.1 Manufacturing Services .
Patheon shall provide the Manufacturing Services in North America for the fees specified in Schedules A and B in order to produce Products for Cephalon. In providing the Manufacturing Services: (a) Conversion of Active Materials and Components. Patheon shall convert Active Materials and Components into Products.
(b) Quality Control and Quality Assurance. Patheon shall perform the quality control and quality assurance testing specified in the Technical Agreement. Each time Patheon ships Products to Cephalon, it shall provide Cephalon with a certificate of analysis that sets out the test results for each batch of Products, and that certifies that such batch has been evaluated by Patheon's Quality Control/Quality Assurance department and that the Products comply with Cephalon's Technical Information;
(c) Components. Patheon shall purchase and test all Components (with the exception of those that are supplied by Cephalon) at Patheon's expense or as otherwise specified by Cephalon's Technical Information;
(d) Stability Testing. Patheon shall conduct stability testing on the Products in accordance with the protocols set out in Cephalon's Technical Information for the separate fees specified in Schedule B. Patheon shall not make any changes to these testing protocols without prior written approval from Cephalon. In the event that any batch of Products fails stability testing, Patheon and Cephalon shall jointly determine the proceedings and methods to be undertaken to investigate the causes of such failure, including which party shall bear the cost of such investigation, provided that Patheon shall not be liable for any such costs unless there has been a failure by it to provide the Manufacturing Services in accordance with the Patheon Manufacturing Responsibilities. Patheon will provide any and all data and results relating to the stability testing upon request by Cephalon; and
(e) Packaging. Patheon shall package the Products with labels, product inserts and other packaging as set out in Cephalon's Technical Information. In addition, Patheon shall make arrangements for and implement the imprinting of batch numbers and expiration dates for each Product shipped. Such batch numbers and expiration dates shall be affixed on the Products and on the shipping carton of each Product as outlined in Cephalon's Technical
Information and as required by cGMPs. The system used by Patheon for batch numbering and expiration dates is detailed in Schedule E hereto. Cephalon may, in its sole discretion, make changes to labels, product inserts and other packaging for the Products, which changes shall be submitted by Cephalon to all applicable governmental agencies and other third parties responsible for the approval of the Products. Patheon's name shall not appear on the label nor anywhere else on the Products unless required by a governmental authority or applicable laws or regulations.
2.2 Standard of Performance .
Patheon shall provide the Manufacturing Services in accordance with Cephalon's Technical Information and cGMPs. Patheon's responsibilities and obligations with respect to the provision of the Manufacturing Services as set forth in this Article 2 are hereinafter referred to as the " Patheon Manufacturing Responsibilities ".
3.1 Payment .
Pursuant to the terms of this Agreement, Cephalon shall pay Patheon for the provision of the Manufacturing Services according to the fees specified in Schedules A and B hereto (such fees being subject to adjustment in accordance with the terms hereof).
3.2 Active Materials .
Cephalon shall, at its sole cost and expense, deliver the Active Materials to Patheon in sufficient quantities and at such times to facilitate the provision of the Manufacturing Services by Patheon, which Active Materials shall be held by Patheon on behalf of Cephalon on the terms and subject to the conditions herein contained. The parties acknowledge and agree that title to the Active Materials shall at all times belong to and remain the property of Cephalon. Patheon agrees that any Active Materials received by it shall only be used by Patheon to provide the Manufacturing Services. Patheon's liability with respect to any lost or damaged Active Materials shall be as set forth in Section 9.2.
CONVERSION FEES AND COMPONENT COSTS
4.1 Fees and Component Costs .
The fees for the Manufacturing Services (which fees include Component Costs) listed in Schedules A and B are intended by the parties to be fixed for the first year of this Agreement, subject to the amendments to such fees provided for in this Article 4.
4.2 Adjustments to Current Year's Pricing .
During any Year of this Agreement, the fees set out in Schedule A shall be subject to adjustment in accordance with the following: (a) Volume Reduction. If at any time and from time to time Patheon determines, acting reasonably and based on the forecasts and Firm Orders received from Cephalon, that the current yearly run-rate volumes (including, without limitation, any permanent reductions in volumes) relating to a specific Product will constitute no more than [**] of the minimum annual volume for that Product specified in Schedule A hereto or, if applicable, any revised minimum annual volume hereinafter agreed to by the parties, then Patheon shall be entitled to request an adjustment to the fee for Manufacturing Services in respect of that Product to reflect the increased costs that Patheon will incur as a result of the reduced volumes;
** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
5 (b) Component Costs. If at any time market conditions result in Patheon's cost of Components being greater than normal forecasted increases, then Patheon shall be entitled to request an adjustment to the fee for Manufacturing Services in respect of any affected Product to compensate it for such increased Component costs. For the purposes of this Section 4.2(b), changes greater than normal forecasted increases shall be considered to have occurred if (i) the cost of a Component is more than [**] greater than the cost for that Component upon which the fee quote was based or (ii) the aggregate cost for all Components required to manufacture a Product is more than [**]of the total Component costs for such Product upon which the fee quote was based. To the extent that Manufacturing Services fees have been previously adjusted pursuant to this Section 4.2(b) to reflect an increase in the cost of one or more Components, the adjustments provided for in (i) and (ii) above shall operate based on the costs attributed to such Component (or Components) at the time the last of such adjustments were made;In connection with a fee adjustment request pursuant to this Section 4.2, Patheon shall deliver to Cephalon a revised Schedule A and such budgetary pricing information, adjusted Component costs or other documentation sufficient to demonstrate that a fee adjustment is justified. Upon delivery of such a request, each of Cephalon and Patheon shall forthwith use all reasonable efforts to agree on a revised fee for the Manufacturing Services in respect of each affected Product.
4.3 Adjustments to Subsequent Year's Pricing .
The fees for the Manufacturing Services provided pursuant to the terms of this Agreement during any period following the first anniversary of this Agreement shall be determined in accordance with the following: (a) Manufacturing Costs. On each yearly anniversary of this Agreement, Patheon shall be entitled to request an adjustment to the fees for Component costs and Manufacturing Services fees in respect of the Products for increase in manufacturing costs based on the increases in the Industrial Product Price Index , Pharmaceuticals, No. V157093 and the Consumer Price Index, published by Statistics Canada in respect of the immediately prior Year;
(b) Annual Forecast. At least ninety days prior to the end of the each Year of this Agreement, Cephalon shall provide Patheon a yearly volume projection. To the extent that Patheon determines that the projections contained in that yearly volume forecast necessitate that an adjustment be made to the fee for Component costs and Manufacturing Services fees in respect of any Product for such Year, Patheon shall, within thirty days of receipt by Patheon of the yearly forecast, be entitled to request an appropriate price adjustment.
(c) Pricing Basis. Cephalon acknowledges that the fee for Manufacturing Services in respect of a Product in any Year is quoted based upon the minimum run quantity and estimated annual volume per Product specified in Schedule A or thereafter specified in the forecast provided pursuant to Section 4.3(b) for the Year and is subject to change if the specified minimum run quantity and estimated annual volume is not met. For greater certainty, if Patheon and Cephalon agree that the minimum run quantity in respect of a Product shall be reduced whether as a result of a decrease in estimated annual volume or otherwise and, as a result of such reduction, Patheon's costs relating to such Product increase on a per unit basis, then Patheon shall be entitled to an increase in the fee for Manufacturing Services in respect of such Product by an amount sufficient to absorb such increase.
In connection with a fee adjustment request pursuant to this Section 4.3, Patheon shall deliver to Cephalon a revised Schedule A and such budgetary pricing information, adjusted Component costs or other documentation sufficient to demonstrate that a fee adjustment is justified. Upon delivery of such a request, each of Cephalon and Patheon shall forthwith use all reasonable efforts to agree on a revised fee for the Manufacturing Services in respect of each affected Product. ** Portions of the Exhibit have been omitted and have been filed separately pursuant to an application for confidential treatment filed with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
4.4 Adjustments Due to Technical Changes .
Amendments to Cephalon's Technical Information or the Technical Agreement requested by Cephalon will only be implemented following a technical and cost review by Patheon and are subject to Cephalon and Patheon reaching agreement as to revisions, if any, to the fees specified in Schedules A or B necessitated by any such amendment. If Cephalon accepts a proposed fee change, the proposed change in Cephalon's Technical Information shall be implemented, and the fee change shall become effective only with respect to those orders of Products that are manufactured in accordance with the revised Cephalon's Technical Information. In addition, Cephalon agrees to purchase, at Patheon's cost, all Inventory utilized under the "old" Cephalon's Technical Information and purchased or maintained by Patheon in order to fill Firm Orders or in accordance with Section 5.3, to the extent that such Inventory can no longer be utilized under the revised Cephalon's Technical Information. Open purchase orders for Components no longer required under any revised Client's Technical Information that were placed by Patheon with suppliers in order to fill Firm Orders or in accordance with Section 5.3 shall be cancelled where possible, and where such orders are not subject to cancellation without penalty, shall be assigned to and satisfied by Cephalon. 4.5 Multi-Country Pricing. The pricing set forth in Schedule A of this Agreement is for Product intended for sale and distribution in the United States of America. If Cephalon decides that it wishes to have Patheon manufacture the Product for countries in addition to the United States of America, the Cephalon shall inform Patheon of the packaging requirements needed for this new country market and Patheon shall prepare a quotation for consideration by Cephalon of the additional Component costs, if any, packaging fees and the change over fees for the Product destined for the new country market. The agreed additional packaging requirements and related packaging costs and change over fees shall be set out in a written amendment to this Agreement.
ORDERS, DELIVERY, INVOICING, PAYMENT, PRODUCT DEFICIENCIES
5.1 Market Outlook .
Cephalon acknowledges that for optimal production planning, Patheon requires an understanding of Cephalon's strategic vision for the Products in the market and agrees, to the extent that such information (including, if any, Cephalon's five-year market outlook studies) exists, to share such information with Patheon, provided that such information may not be relied upon by Patheon for any purpose and further provided that any information so provided shall be subject to the confidentiality provisions of Article 10.
5.2 Orders and Forecasts .
Cephalon shall provide Patheon with the following: (a) concurrent with the execution of this Agreement, a written non-binding twelve (12) month forecast of the volume of each Product that Cephalon then anticipates will be required to be produced and delivered to Cephalon during that twelve (12) month period. Such forecast will be updated by Cephalon monthly on a rolling twelve (12) month basis and updated forthwith upon Cephalon determining that the volumes contemplated in the most recent of such forecasts has changed by more than twenty per cent; and
(b) on or before the 20th day of each month, firm written orders (" Firm Orders ") for the Products to be produced and delivered to Cephalon on a date not less than 12 weeks from the date that the Firm Order is submitted. Such Firm Orders submitted to Patheon shall specify Cephalon's purchase order number, quantities by Product type, monthly delivery schedule and
any other elements necessary to ensure the timely production and delivery of the Products. The quantities of Products ordered in such written orders shall be firm and binding on Cephalon and shall not be subject to reduction. (c) on or before September 30 in each Year, a written non-binding three-year forecast (broken down by quarters for the second and third years of the forecast) of the volume of each Product Cephalon then anticipates will be required to be produced and delivered to Cephalon during the three-year period.
5.3 Reliance by Patheon .
Cephalon understands and acknowledges that Patheon will rely on the Firm Orders submitted pursuant to Section 5.2(b) in ordering the Components required to meet such Firm Orders. In addition, Cephalon understands that to ensure an orderly supply of such Components and to achieve economies of scale in the costs therefor, it may be desirable for Patheon to purchase such Components in sufficient volumes to meet the production requirements for Products during part or all of the forecasted periods referred to in Section 5.2(a) or to meet the production requirements of any longer period agreed to by Patheon and Cephalon. Accordingly, Cephalon authorizes Patheon to purchase Components in order to satisfy the production requirements for Products for the first six months contemplated in the most recent forecast provided by Cephalon pursuant to Section 5.2(a), and agrees that Patheon may make such other purchases of Components to meet production requirements during such longer periods as may be agreed to in writing from time to time by Cephalon at the request of Patheon. If Components ordered by Patheon pursuant to Firm Orders or this Section 5.3 are not included in finished Products purchased by Cephalon within six months after the forecasted month in respect of which such purchases have been made (or such longer period as the parties may agree), Cephalon shall pay to Patheon its costs thereof and, in the event such Components are incorporated into Products subsequently purchased by Cephalon, Cephalon will receive credit for any costs of such Components previously paid to Patheon by Cephalon.
5.4 Minimum Orders .
Cephalon may only order Products in multiples of the minimum run quantities set out in Schedule A.
5.5 Shipments .
Shipments of Products shall be made FCA Patheon's shipping point. Such title as Patheon has in Products and risk of loss or of damage to Products shall remain with Patheon until Products are delivered