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PORTIONS OF THIS EXHIBIT MARKED “[* * *]” HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND THE OMITTED PORTIONS HAVE BEEN FILED SEPARATELY IN PAPER FORM WITH THE SECURITIES AND EXCHANGE COMMISSION.
SOFTGEL DEVELOPMENT AND CLINICAL SUPPLY AGREEMENT
This Softgel Development and Clinical Supply Agreement (“Agreement”) is made as of this 5th day of October, 2005, by and between Sytera Inc., having its registered office at 505 Coast Boulevard South, Suite 412, La Jolla, California 92037 (hereinafter “Client”), and Cardinal Health PTS, LLC, a limited liability company organized under the laws of the State of Delaware, through its Pharmaceutical Development group with a place of business at 14 Schoolhouse Road, Somerset, New Jersey 08873 (hereinafter “Cardinal Health”).
Client is a pharmaceutical company that manufactures, markets, and sells pharmaceutical products. Cardinal Health provides a complete range of analytical, development and clinical services to the pharmaceutical industry. Client and Cardinal Health desire to enter into this Agreement to provide the terms and conditions upon which Client is engaging Cardinal Health to provide services as defined in one or more Project Plans (as defined below) specifying the details of the services and the related terms and conditions.
THEREFORE , in consideration of the mutual covenants, terms and conditions set forth below, the parties agree as follows:
The following terms have the following meanings in this Agreement:
1.1 “ Affiliate(s) ” means any corporation, firm, partnership or other entity that controls, is controlled by or is under common control with a party. For purposes of this definition, “control” shall mean the ownership of at least fifty percent (50%) of the voting share capital of such entity or any other comparable equity or ownership interest.
1.2 “ API ” means the active pharmaceutical ingredient of Client referred to as Fenretinide.
1.3 “ Applicable Laws ” means all laws, ordinances, rules and regulations applicable to a Project or any aspect thereof and the obligations of Cardinal Health or Client, as the context requires, under this Agreement, including, without limitation, (a) all applicable federal, state and local laws and regulations; (b) the U.S. Federal Food, Drug and Cosmetic Act, and (c) the Good Manufacturing Practices (“GMPs”) or Good Laboratory Practices (“GLPs”) promulgated by the Regulatory Authorities, as amended from time to time, as applicable to such Project.
1.4 “ Batch Cost ” means the fee payable by Client for the performance of a batch manufacturing or packaging Project as provided in Section 3.1.1.
1.5 “ Cardinal Health Indemnitees ” has the meaning set forth in Section 9.2.
1.6 “ Cardinal Health Inventions ” has the meaning set forth in Section 7.3.
1.7 “ Change Order ” has the meaning set forth in Section 2.2.
1.8 “ Client Indemnitees ” has the meaning set forth in Section 9.1.
1.9 “ Client Inventions ” has the meaning set forth in Section 7.2.
1.10 “ Client-Supplied Materials ” means any API or other materials provided by Client to Cardinal Health.
1.11 “ Confidential Information ” has the meaning set forth in Section 6.2.
1.12 “ Dispute ” means any dispute, controversy or disagreement between the parties in connection with this Agreement.
1.13 “ Facility ” means a Cardinal Health facility identified in a Project Plan.
1.14 “ Intellectual Property ” means all intellectual property (whether or not registered), including without limitation, patents, patent applications, know-how, trade secrets, copyrights, trademarks, designs, concepts, technical information, manuals, standard operating procedures, instructions or specifications.
1.15 “ Losses ” has the meaning set forth in Section 9.1.
1.16 “ Process Invention ” has the meaning set forth in Section 7.2.
1.17 “ Product ” means the finished product or material that is the subject of the Services to be provided pursuant to the applicable Project Plan.
1.18 “ Project ” means each project described in a Project Plan. For avoidance of doubt, a collection of activities to be performed by Cardinal Health for which Cardinal Health has provided Client one estimated cost in the applicable quotation will be considered one Project.
1.19 “ Project Plan ” means a separate quotation or project plan agreed to by the parties in writing, attached hereto, and incorporated by reference into this Agreement, and which defines the scope of the Services to be performed by Cardinal Health and the responsibilities of the parties with respect to such Services.
1.20 “ Regulatory Authority ” means any governmental regulatory authority involved in regulating any aspect of the development, manufacture, market approval, sale, distribution, packaging or use of the Product.
1.21 “ Services ” means all work performed by Cardinal Health for Client pursuant to the applicable Project Plan.
1.22 “ Softgel Technology ” is a proprietary technology for the manufacture of soft capsules (“softgels”) for the oral administration of pharmaceutical active ingredients having certain solubility characteristics and includes proprietary know-how including without limitation know-how relating to (a) the development of fill and shell formulations; (b) the design and use of the encapsulation process to enhance stability, solubility, bioavailability, and manufacturability of active ingredient chemical entities in softgels; (c) the selection and preparation of solvents, vehicles, excipients, surfactants, stabilizers, gelatin, gelatin substitutes, plasticizers and other components of the liquid fill and the shell; and (d) certain encapsulation, drying and related manufacturing techniques and machinery for making commercial quantities of softgels. The Softgel Technology is included in Cardinal Health’s Intellectual Property.
1.23 “ Specifications ” means all written specifications for finished product (i.e., after completion of product development) agreed to by the parties in a Project Plan, and applicable master batch records, protocols, or standard operating procedures.
1.24 “ Term ” has the meaning set forth in Section 12.1.
2.1 Definition of Scope . Cardinal Health will perform the Services for each Project, which Client has authorized Cardinal Health in writing to perform, in accordance with the specific terms set forth in the applicable Project Plan, which shall: (a) clearly define the Project, the Product, and the responsibilities of the parties with respect to such Project; (b) include, as appropriate, the scope of work, pricing and payment schedule; and (c) be subject to all of the terms and conditions of this Agreement, in addition to the specific details set forth in the applicable Project Plan. Any quotation and/or set of Specifications for a Project shall become part of the applicable Project Plan upon written approval or acceptance of such quotation and/or set of Specifications by the parties. The parties acknowledge and agree that Cardinal Health Quotation No. QTE-SZU-0002.03 entitled “Phase II Clinical Supplies of Fenretinide 100mg Softgels (Active and Placebo)” and dated June 13, 2005, a copy of which is attached hereto and incorporated herein by reference, constitutes the first Project Plan hereunder. Cardinal Health acknowledges that Client’s execution of any Project Plan is not an authorization for Cardinal Health to perform all of the Projects specified therein and that Cardinal Health must obtain Client’s prior written authorization on a Project-by-Project basis before Cardinal Health begins performing each Project. To the extent any terms or conditions of any Project Plan conflict with the terms and conditions of this Agreement, the terms and conditions of this Agreement shall control, except to the extent that such Project Plan expressly and specifically states an intent to supersede this Agreement on a specific matter. This Agreement shall supersede the terms of any purchase order, acknowledgement or delivery document.
2.2 Amendments to Scope/Change Orders . Any material change in the details of a Project Plan or the assumptions upon which such Project Plan is based (including, but not limited to, changes in an agreed starting date for a Project or suspension of a Project by Client) may require changes in the pricing and/or time lines, and shall require a written amendment to such Project Plan (a “Change Order”). Each Change Order shall detail the requested changes to the applicable task, responsibility, duty, pricing, time line or other matter. The Change Order will
become effective upon the execution of the Change Order by both parties, and Cardinal Health will be given a reasonable period of time within which to implement the changes. Both parties agree to act in good faith and promptly when considering a Change Order requested by the other party. Without limiting the foregoing, Client agrees that it will not unreasonably withhold approval of a Change Order if the proposed changes in pricing or time lines result from, among other appropriate reasons, forces outside the reasonable control of Cardinal Health or changes in the assumptions upon which the initial pricing or time lines were based. Cardinal Health reserves the right to postpone effecting material changes in the applicable Project’s scope until such time as the parties agree to and execute the corresponding Change Order.
3.l Price and Price Changes .
3.1.1 Price . Client shall pay for the Services performed by Cardinal Health as provided in this Agreement and the applicable Project Plan.
3.1.2 Price Changes . Cardinal Health may revise the prices provided in the Project Plan for a Project, with Client’s prior written consent, which consent will not be unreasonably withheld, to the extent the cost of performing the Services for such Project has increased because: (a) the parties agreed to revise a technical test protocol, (b) any information relating to such Project that was provided by Client is inaccurate or incomplete, (c) Client revised Cardinal Health’s responsibilities, the Specifications, applicable test methods, final review of test methods, procedures, assumptions, development processes, test methods or analytical requirements, (d) Client requested an alternate report format, or (e) Client requested revisions to laboratory reports, (f) Client requested copies of laboratory records (excluding a single copy of batch records which will be provided for each batch manufactured hereunder). Any revisions in prices proposed by Cardinal Health must be notified to Client prior to initiating or continuing additional work on such Project.
3.1.3 Retesting . All retesting performed at Client’s request, that is not directly due to a Cardinal Health erroneous action or omission will be billed to the Client. All investigational studies performed by Cardinal Health that are required by Applicable Laws and approved by Client or requested by Client and that are not outlined in the applicable Project Plan will be invoiced for the cost of performance at the current standard hourly rate, plus any reasonable associated fees.
3.1.4 Out Of Specification Investigations . Cardinal Health reserves the right to expend up to 4 hours per occurrence to complete all required investigational work (such as OOS investigations, trouble shooting chromatographic methods, etc.) without prior approval from the Client. If the additional work requires going beyond 4 hours, the Client will be contacted prior to continuation. Cardinal Health will not perform the additional work until it receives Client’s approval in writing.
3.1.5 Cancellations . Client may cancel any Project at any time with or without cause, subject to the payment provisions of this Section 3.1.5. If Client cancels any Project which
Client has authorized Cardinal Health to initiate, without cause, Client shall pay Cardinal Health as described in Section 12.4 and in this Section 3.1.5: (a) for batch manufacture or packaging, Client shall pay a fee in accordance with the following schedule:
and (b) for any Project that is not batch manufacture or packaging, Client shall pay (i) all costs for materials purchased and labor for the time spent by Cardinal Health in performing the Services up to the point of cancellation based on the rates provided in the Project Plan for such cancelled Project, plus (ii) [* * *]. If a Project that Client has authorized Cardinal Health to initiate is delayed by more than [* * *] at Client’s request, Cardinal Health, at its option, may consider such Project cancelled without cause and will charge Client the applicable charges. If Client cancels any Project which Client has authorized Cardinal Health to initiate, for cause as provided in Section 12.3(b) of this Agreement. Client shall pay Cardinal Health the amount described in clause (b)(i), above, and any applicable charges described in Section 12.4, below. The fees payable by Client to Cardinal Health under this Section 3.1.5 and Section 12.4, below, constitute Client’s entire obligation and Cardinal Health’s sole and exclusive remedy in the event Client cancels any Project under this Agreement. Upon such payment being made by Client, the materials referred to in clause (b)(i) above shall be returned by Cardinal Health to Client, at Client’s expense.
3.2 Invoicing . Cardinal Health shall invoice Client as follows:
3.2.1 For lot manufacture and/or packaging, Cardinal Health shall invoice Client upon [* * *]. The invoice must itemize each completed milestone in accordance with the milestones for the applicable Project as described in the applicable Project Plan.
3.2.2 For any Project activity that can be completed within [* * *] (other than lot manufacture and/or packaging), Cardinal Health shall invoice Client upon completion of the applicable Project.
3.2.3 For any Project activity that cannot be completed within [* * *] (other than lot manufacture and/or packaging), Cardinal Health shall invoice Client on a [* * *] basis but no earlier than [* * *] for the work performed during the prior [* * *].
3.3 Payment Terms . [* * *]
3.4 Advance Payment . If Client has failed to timely pay any fees due on more than [* * *] occasions in any [* * *] period, Client’s credit shall be deemed impaired, and Cardinal Health shall have the right to require payment in advance before making any further shipment of the Product. If Client shall fail, within a reasonable time, to make such payment in advance, Cardinal Health shall have the right, at its option, to suspend any further deliveries hereunder until such default is corrected, without thereby releasing Client from its payment obligations accrued under this Agreement.
3.5 Taxes . All taxes, duties and other amounts assessed (excluding tax based on net income and franchise taxes) on the services, components, API or the Product prior to or upon sale to Client and on any Client owned tooling and equipment are the responsibility of Client, and Client shall reimburse Cardinal Health for any such taxes, duties or other expenses paid by Cardinal Health.
3.6 Shipments . All product, raw materials and components shipped by Cardinal Health are shipped F.O.B., Facility. All product, raw materials, and components will be shipped in accordance with Client’s packing and shipping instructions.
4.1 Applicability of Terms . The terms set forth in this Article shall apply only in the event that Cardinal Health is providing pre-commercial manufacturing and packaging services pursuant to this Agreement.
4.2 Non-Conforming Product . Client shall notify Cardinal Health within [* * *] following delivery of Product to Client if Client has determined that such Product does not conform to Specifications and shall provide Cardinal Health a sample of such non conforming Product. If Cardinal Health agrees that the batch is non-conforming, Cardinal Health shall, at Client’s option, promptly replace the non-conforming Product at no charge in accordance with this Article, or credit or refund any payments made by Client for such Product including reimbursing Client for the cost of the API (subject to the limitations set forth in Article 10, below), if Cardinal Health does not agree with Client’s determination that such Product fails to meet the Specifications, then after reasonable efforts to resolve the disagreement, either party may submit a sample of such Product to a mutually agreed upon independent third party laboratory to determine whether the Product meets the Specifications. The independent party’s results shall be final and binding. Unless otherwise agreed to by the parties in writing, the costs associated with such testing and review shall be borne by the non-prevailing party.
4.3 Replacement of Non-Conforming Product . THE OBLIGATION OF CARDINAL HEALTH TO REPLACE NON-CONFORMING PRODUCT IN ACCORDANCE WITH THE SPECIFICATIONS OR REFUND OR CREDIT ANY PAYMENTS MADE FOR SUCH PRODUCT (INCLUDING REFUNDING THE COST OF THE API) SHALL BE CLIENT’S SOLE AND EXCLUSIVE REMEDY UNDER THIS AGREEMENT FOR PRODUCT THAT DOES NOT CONFORM AND IS IN LIEU OF ANY OTHER WARRANTY, EXPRESS OR IMPLIED.
4.4 Supply of Material for Defective Product . In the event Cardinal Health is required to replace Product pursuant to Section 4.2, above, Cardinal Health shall supply, at its sole cost, the manufacturing and/or packaging components necessary, as applicable, to manufacture and/or package replacement Product, and Client shall supply sufficient quantities of the API for Cardinal Health to complete such replacement (provided, however, that Cardinal Health will reimburse Client, within [* * *] after Cardinal Heath receives notice of rejection from Client, the cost of such API, subject to the limitations of liability described in Article 10, below).
4.5 Loss or Destruction of API . Title to the API will remain with Client at all times. Cardinal Health will use diligent efforts to protect the API in its possession from loss or damage at all times. Subject to the limitation of liability described in Article 10, below, Cardinal Health will be responsible for any loss or damage to API in excess of normal manufacturing and/or packaging losses to the extent such loss or damage is caused by any negligent or intentional acts or omissions by Cardinal Health or its employees or contractors. Upon receiving the API, Cardinal Health will review the batch records and release data for the API to confirm that the API is acceptable. If Cardinal Health fails to reject the API within [* * *] of receiving the API, Cardinal Health will be deemed to have accepted the API. Cardinal Health will segregate the API from other products or inventory of third parties maintained on its premises and indicate Client’s ownership of the API in a prominent manner.
4.6 Non-Validated Processes . Notwithstanding any other term in this Agreement, Client is liable to Cardinal Health for all costs incurred and all payments due to Cardinal Health under this Agreement even if Cardinal Health does not ultimately manufacture a Product meeting the Specifications applicable to such Product, including without limitation all costs for Product lots manufactured which do not satisfy Client’s Specifications if the non-compliance to the Specifications is solely due to Client’s failure to deliver accurate and complete information which impacts the production process and which failure prevented Cardinal Health from properly manufacturing the Product.
4.7 Unlabeled Product . If Cardinal Health is to provide Client with Product that is not labeled, Client represents and warrants that it will comply with all applicable regulations, including without limitation 21 CFR § 201.150.
4.8 Failure to Take Delivery . If Client fails to take delivery on any scheduled delivery date, Client shall be invoiced on the first day of each month for the stored Product and reasonable administration and storage costs. For each such batch of undelivered Product, Client agrees that: (a) Client has made a fixed commitment to purchase such Product; (b) risk of ownership for such Product passes to Client; (c) such Product shall be on a bill and hold basis for legitimate business purposes; (d) unless the parties mutually agree to a revised delivery date at the time of billing, Cardinal Health shall have the right to ship the Product to Client within four (4) months after billing; and (e) Client will be responsible for any decrease in market value of such Product that relates to factors and circumstances outside of Cardinal Health’s control. Within [* * *] following a written request from Cardinal Health, Client shall provide Cardinal Health with a letter confirming items (a) through (e) of this Section for each Batch of undelivered Product.
5.1 Audit . [* * *] during the Term of this Agreement, and subject to Cardinal Health’s obligations of confidentiality to third parties, Cardinal Health will permit Client to conduct an audit of those portions of the Facility where Services are being conducted upon reasonable advance notice during regular business hours. Upon request, Client may conduct additional audits, provided that Client shall reimburse Cardinal Health for time and expenses incurred by Cardinal Health in connection with any such additional audit, unless a prior audit has
revealed that Cardinal Health has failed to perform in accordance with the terms of this Agreement.
5.2 Observation . In addition to the right to audit, Client may have up to three (3) representatives at the Facilities (but only two (2) at a time in the encapsulation suite) to observe the Services, provided that Client provides Cardinal Health at least ten (10) advance written notice of the attendance of such Client representatives. Such representatives shall comply with Cardinal Health’s rules and regulations. Client shall indemnify and hold harmless Cardinal Health for any action or activity of such representatives while on Cardinal Health’s premises.
5.3 Regulatory Inspections . Each party shall: (a) notify the other party promptly of any inspection or inquiry by any Regulatory Authority concerning any Project or Product of Client; and (b) forward to the other party copies of any correspondence from any Regulatory Authority relating to such a Project or Product, including, but not limited to, Form FD-483 notices, FDA refusal to file, rejection or warning letters. Where reasonably practicable, each party will be given the opportunity to have a representative present during an inspection by a Regulatory Authority. Each party acknowledges that it may not direct the manner in which the other party fulfills its obligations to permit inspection by a Regulatory Authority.
5.4 Record Retention . Unless the parties otherwise agree in writing, Cardinal Health will retain batch, laboratory and other technical records for the minimum period required by applicable laws, rules, regulations and guidelines.
5.5 Quality Agreement . Any quality agreement executed by the parties related to the Services shall in no way determine liability or financial responsibility of the parties for the responsibilities set forth therein. In the event of a conflict between the terms of this Agreement and the quality agreement, this Agreement shall con