Manufacturing and Supply Agreement [Addendum] - JPI Pharmaceutical International, Janssen Pharmaceutica Inc. and Alkermes Controlled Therapeutics Inc. II
ADDENDUM TO MANUFACTURING AND SUPPLY AGREEMENT
This Addendum to Manufacturing and Supply Agreement (this
"Addendum"), dated as of the 1st day of August, 2001 (the "Effective Date") is
by and between JPI PHARMACEUTICA INTERNATIONAL, a division of Cilag AG
International Zug, a company duly organized and existing under the laws of
Switzerland, having its principal office in CH-6300 Zug, Kollerstrasse 38,
Switzerland ("JPI") and JANSSEN PHARMACEUTICA Inc., 1125 Trenton-Harbourton
Road, Titusville, NJ 08560, USA ("Janssen US" and, together with JPI, "Janssen")
on the one hand and Alkermes Controlled Therapeutics Inc. II, a company
organized and existing under the laws of the Commonwealth of Pennsylvania,
having its principal office at 64 Sidney Street, Cambridge MA 02139-4136, USA
("ACTII") on the other hand.
WHEREAS, Janssen and ACTII have been collaborating for the
development of a Risperidone depot formulation incorporating ACTII's proprietary
technology concerning bioabsorbable polymer technologies and have entered into a
Development Agreement and two License Agreements related thereto; and
WHEREAS, Janssen and ACTII entered into that certain Manufacturing
and Supply Agreement, dated August 6, 1997 (the "Supply Agreement"), with
respect to the commercial manufacture and supply of such Risperidone depot
formulation to Janssen; and
WHEREAS, Janssen and ACTII desire to enter into this Addendum
regarding the expansion of ACTII's manufacturing facilities, and the financial
responsibilities of each of the parties in connection with such expansion, in
order to support the increased sales forecasts for such Risperidone depot
formulation; and
WHEREAS, Janssen and ACTII further desire to enter into this
Addendum to formally provide for a collaborative effort to develop the
manufacturing facility and commercial supply of Product.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions set forth below, and intending to be legally bound hereby, the
parties agree as follows:
ARTICLE 1 - DEFINITIONS
Section 1.1. Unless provided otherwise, any capitalized terms used in
this Addendum and not defined herein or below, shall have the meaning set forth
in the Supply Agreement.
1.1.1. "Regulatory Approval" shall mean either (i) the approval of
a New Drug Application, or a comparable application, for the Product by the
United States Food and Drug Administration ("FDA"), or (ii) regulatory approval
in two (2) of the Major EU Member States (for the purpose hereof, "Major EU
Member States" means Germany, UK, France, Spain and
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Italy), together in each case with satisfaction of any related regulatory and
notification requirements of the FDA or such other regulatory authority.
ARTICLE 2 - EXPANSION PROJECT
Section 2.1. The Project. ACTII will retain the services of an
engineering firm to develop plans to expand ACTII's manufacturing facility
located in Wilmington, Ohio (the "Project"), including detailed timelines for
completion of the Project. The Project shall include the following elements:
2.1.1. The expansion to the current facility will be a detached
addition on the same campus as the original facility in Wilmington, Ohio (such
detached addition, including the equipment to be fitted therein, are referred to
herein as the "Expansion");
2.1.2. The Expansion will include the utilities for a second and
third wet process line and a second filling line;
2.1.3. Only the equipment for the second wet process line will be
installed as part of the Project; and
2.1.4. The Project is expected to be completed by [***] and cost
approximately [***], all according to the preliminary budget and timetable set
forth on Schedule A attached hereto.
2.1.5. The underlying assumption of the terms agreed in this
Addendum is that the Expansion will be dedicated to the manufacturing of the
Product. Notwithstanding the above, ACTII shall have the right to manufacture
other products in the Expansion, [***]. ACTII shall be entitled to proceed with
such intended manufacturing activities, provided that the Global Supply Team is
satisfied, in its reasonable judgment, that such activities will not affect the
quality (including GMP guidelines), the supply chain or capacity requirements
for the Product. In the event that ACTII proceeds with its intended
manufacturing activities, ACTII and Janssen will negotiate in good faith the
impact (if any) of such activities on the Minimum Revenues and/or the Guarantee
provided in this Addendum and modify it accordingly.
Section 2.2. The Project Plan. Upon completion of the work by the
engineering firm, which is expected to be completed prior to July 31, 2001,
Janssen and ACTII shall meet to review the plans, budget and timetable for
completion of the Project, determine the actions to be taken by each of the
parties and to finalize the plans, budget and timetable for the Project (the
"Project Plan"). The Project Plan, including the budget, must be amended by
mutual agreement of the parties (after consultation with the Global Supply Team
(defined in Section 5.2)) if the change impacts the timeline, capacity or budget
with respect to the Product. At any time the parties amend the budget included
in the Project Plan, a corresponding amendment to the Guarantee Cap (defined in
Section 3.2) shall also be made.
Section 2.3. Contractors and Construction. Upon approval by both parties
of the Project Plan, ACTII shall engage the services of any contractors
necessary to begin and complete
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actual construction of the Project and shall oversee such construction. ACTII
shall cause the timetable for completion of the Project that is part of the
Project Plan to be incorporated into all contracts and agreements with such
contractors.
ARTICLE 3 - FINANCIAL RESPONSIBILITY FOR THE PROJECT
Section 3.1. ACTII's Responsibility. ACTII shall be responsible for
payment of all costs and expenses related to construction of the Project,
including the design of and engineering services related to the Project, subject
to the Guarantee and Minimum Revenues (each as defined in Sections 3.2 and 3.4,
respectively).
Section 3.2. The Guarantee. In the event that Janssen terminates
development of the Product prior to commercial launch or Janssen terminates the
Project, Janssen will reimburse ACTII for all cumulative out-of-pocket expenses
made or actually and irrevocably committed by ACTII for the Project through the
date of ACTII's receipt of written notice of such termination (such
reimbursement payment referred to herein as the "Guarantee"). The Guarantee
shall not exceed [***] (the "Guarantee Cap"), unless the parties have mutually
agreed to amend the budget and the Guarantee Cap pursuant to Section 2.2.
Section 3.3. Refund of the Guarantee. If Janssen pays to ACTII the
Guarantee due to Janssen's termination of the Project and if the Expansion is
utilized by ACTII for another product with another corporate partner within
[***] of Janssen's termination of the Project, then ACTII shall refund that
portion of the Guarantee that is proportional to the actual utilization of the
Expansion during the [***] period which shall be paid to Janssen in installments
over the months remaining in the [***] period and so long as the utilization
continues.
Section 3.4. Minimum Revenues. For a period of ten (10) calendar years,
Janssen shall guarantee a certain minimum amount of revenues to ACTII from
Janssen from the purchase of Product under the Supply Agreement (the "Minimum
Revenues"), unless Janssen realizes the cumulative Minimum Revenues prior to the
expansion of such 10-year period, all in accordance with this Section 3.4 and
the subsections below.
3.4.1. Upon completion of the work by the engineering firm, which is
expected to be completed prior to July 31, 2001, Janssen and ACTII shall meet to
review the Project cost. If the aggregate Project cost is [***] or more, but
less than [***], the Minimum Revenues shall be:
Scenario 1: Detached Plant without filling line
Capital Cost: [***]
Calendar Year Minimum Revenue for Alkermes
of Minimum $ million
Revenues
[***] [***]
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3.4.2. If the aggregate Project cost is less than [***] or greater
than [***], then Janssen and ACTII shall re-calculate the Minimum Revenue
amounts based on the Project cost and assumptions and preliminary Minimum
Revenue amounts set forth below.
(a) The Minimum Revenues are intended to derive a minimum
revenue that drives a net present value of [***] using a [***] discount rate for
ACTII's manufacturing facility investment.
(b) For the purpose of calculating the Minimum Revenues
under this Section 3.4, the Project cost shall not exceed [***], unless the
parties have mutually agreed to amend the budget pursuant to Section 2.2.
(c) The Minimum Revenues under this Section 3.4.2 shall be
calculated in substantially the same way as the Minimum Revenues under Section
3.4.1 were calculated as shown on Schedule C.
3.4.3. First Calendar Year. The first calendar year in which
Minimum Revenues shall be guaranteed, shall begin on the earlier of (a) the
January 1 immediately following Regulatory Approval or (b) January 1, 2004,
unless the parties agree otherwise.
3.4.4. Excess. If the aggregate amount of Product purchased by
Janssen under the Supply Agreement in any one calendar year (an "Actual Purchase
Amount") exceeds the Minimum Revenue amount for such calendar year, then such
excess (the "Excess Credit") shall be credited against any future calendar year
in which Janssen's Actual Purchase Amount is less than the Minimum Revenue
amount for such calendar year.
3.4.5. Shortfall. If an Actual Purchase Amount is less than the
Minimum Revenue amount for the relevant calendar year, then any available Excess
Credit shall be added to the Actual Purchase Amount for such calendar year. If
the sum of Actual Purchase Amount plus any such Excess Credit are less than the
Minimum Revenue amount for such calendar year, then Janssen shall pay to ACTII
the difference between the Minimum Revenue and the sum of the Actual Purchase
Amount plus such Excess Credit (if any). A portion of an Excess Credit may be
used if only a portion is necessary to bring the sum of the Actual Purchase
Amount plus the Excess Credit up to the Minimum Revenue amount for the relevant
calendar year, in which case the balance of the Excess Credit can be used for
another future calendar year; provided, however, that the aggregate amount of
Excess Credit may only be added to an Actual Purchase Amount once.
3.4.6. Reporting. Within seventy-five (75) days of the end of each
calendar year after Regulatory Approval, ACTII shall prepare and deliver to
Janssen a report showing (a) the Actual Purchase Amount and the Minimum Revenue
amount for such calendar year, (b) any Excess Credit added to the Actual
Purchase Amount, (c) any Excess Credit from a prior or the current calendar year
available but not added to the Actual Purchase Amount, and (d) any amount due to
ACTII under Section 3.4.5.
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3.4.7. Prepayment. If (i) sales of Product are such that Janssen
determines that the expanded facility will not be utilized or (ii) Janssen
ceases to sell Product or terminates the Supply Agreement after Regulatory
Approval but before all Minimum Revenues have been achieved, then Janssen may,
in its discretion, (a) prepay the Minimum Revenues in a lump sum that is the
then net present value of the Minimum Revenues not yet achieved or (b) continue
to pay any shortfall under Minimum Revenues over time as provided in this
Section 3.4. If Janssen prepays the Minimum Revenues in a lump sum under this
Section 3.4.7 and if the Expansion is utilized by ACTII for another product
incorporating its bioabsorbable polymer technology with another corporate
partner within [***] of such prepayment, then ACTII shall refund that portion of
the lump sum payment that is proportional to the actual utilization of the
Expansion during the [***] which shall be paid to Janssen in installments over
the months remaining in the [***] and so long as the utilization continues.
ARTICLE 4 - SECOND FILLING LINE AND FUTURE EXPANSIONS
Section 4.1. Second Filling Line. The parties may mutually determine that
a second filling line needs to be added to the manufacturing facility. If such a
determination is made, it is anticipated that the cost of adding a second
filling line will be approximately [***]. Janssen and ACTII shall amend the
Guarantee Cap and the Minimum Revenues to take into account such additional
cost, taking into consideration the assumptions set forth in Section 3.4
(including the subsections) and the subsections below.
4.1.1. Upon completion of the work by the engineering firm with
regard to the Project, including the second filling line, Janssen and ACTII
shall meet to review the Project cost. If the aggregate Project cost is [***] or
more, but less than [***], the Minimum Revenues, if a second filling line is
included, shall be:
Scenario 2:
Detached Plant filling line
Calendar Year Capital Cost: [***]
of Minimum Minimum Revenue for Alkermes
Revenues $ million
[***] [***]
4.1.2. If the aggregate Project cost, including a second filling
line, is less than [***] or greater than [***], then Janssen and ACTII shall
re-calculate the Minimum Revenue amounts based on the Project cost, including
the second filling line, and assumptions and preliminary Minimum Revenue amounts
set forth below.
(a) The Minimum Revenues are intended to derive a minimum
revenue that drives a net present value of [***] using a [***] discount rate for
ACTII's manufacturing facility investment.
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(b) For the purpose of calculating the Minimum Revenues
under this Section 4.1.2, the Project cost shall not exceed [***], unless the
parties have mutually agreed to amend the budget pursuant to Section 2.2.
(c) The Minimum Revenues under this Section 4.1.2 shall be
calculated in substantially the same way as the Minimum Revenues under Section
4.1.1 were calculated as shown on Schedule C.
Section 4.2. Reimbursement of Incremental Capital Cost. In the event that
the parties determine to include a second filling line (the "2nd Line") in the
Project, Janssen shall reimburse ACTII for the financial cost of the incremental
capital associated with the 2nd Line. To that end, Janssen shall pay to ACTII,
on a quarterly basis, an amount equal to the Prime Rate times the capital
expenses associated with the 2nd Line in excess of the capital expenses
associated with the Project excluding the 2nd Line. For purposes hereof, "Prime
Rate" shall be the prime rate as reported in the eastern edition of The Wall
Street Journal on the first day of the relevant calendar quarter on which The
Wall Street Journal is published. Janssen's obligation under this Section 4.2
shall terminate upon the occurrence of both of the following two conditions: (a)
Product delivered by ACTII to Janssen under the Supply Agreement meets or
exceeds [***] period and (b) Janssen's [***] supply forecast for Product to be
delivered by ACTII under the Supply Agreement exceeds the vial filling capacity
of the existing filling line in any [***] period in such [***] forecast.
Section 4.3. Future Expansions. If the Global Supply Team determines that
an additional process line is required, then such additional line will be
included in the Project under conditions to be negotiated by Janssen and ACTII
at the time of such determination.
ARTICLE 5 - MANAGEMENT OF PROJECT AND COMMERCIAL SUPPLY
Section 5.1. Collaborative Efforts. Both parties acknowledge and agree
that the management of the commercial supply chain of Product is of critical
importance, as is (i) the timely expansion of the capacity for the manufacturing
of the bulk Product and the vial filling, (ii) the transition of the current
activities to a continuous commercial manufacturing and supply process and (iii)
the eventual commercial supply and logistics chain. Therefore, the parties shall
actively collaborate with each other, including a free exchange of expertise and
knowledge, with the following goals: (a) the timelines of expansion and supply
are respected, (b) a robust manufacturing and supply process is developed, (c)
Product will comply with all relevant quality and regulatory requirements and
(d) a continued supply of Product in accordance with current forecasts is
achieved.
Section 5.2. Global Supply Team. ACTII shall be responsible for the
operation and management of the Project and the manufacture and supply of
Product. Notwithstanding the foregoing, a Global Supply Team shall be
established under this Section 5.2 whose goal will be to enhance and facilitate
the collaborative effort described in Section 5.1.
5.2.1. Formation and Make-Up. Within thirty (30) days after the
Effective Date, the parties shall form the Global Supply Team. The Global Supply
Team shall consist of an
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equal number of representatives of each party. The Global Supply Team may
delegate its responsibilities and authority to one or more Sub-Teams. The
members of the Global Supply Team and any Sub-Teams shall have expertise in the
functional disciplines that either party believes should be represented at the
team or sub-team. The representatives of a party may be changed from time to
time at the discretion of that party upon written notification by the party
making such change to the other.
5.2.2. Oversight of the Project and Commercial Supply. The Global
Supply Team shall be responsible for recommending actions to ACTII and Alkermes
management following periodic reviews of the Project and the commercial supply
process. Within fifteen (15) days after the receipt of the Project Plan, or any
amendment or supplement to the Project Plan, the Global Supply Team or the
appropriate Sub-Team shall meet to evaluate the Project Plan, amendment or
supplement and recommend actions. The Global Supply Team or the appropriate
Sub-Team shall periodically review the Project Plan and the progress of the
activities called for under the plan. ACTII and Alkermes management shall keep
the Global Supply Team and any Sub-Teams informed on a periodic basis of issues
and decisions affecting the commercial supply chain and the construction of the
Project and shall consult with it on such issues before making decisions
whenever possible.
5.2.3. Meetings. The Global Supply Team and any Sub-Teams shall
meet from time to time as determined by the team members. It is expected that
the teams shall meet in person at least once in each calendar quarter. The
location of team meetings shall alternate between ACTII's and Janssen's offices
unless otherwise agreed by the parties, with the first meeting being held at
ACTII's Ohio office. Consultants and non-member employees of the parties may
attend team meetings as required to further the team's goals. Minutes of all
meetings setting forth decisions of the Global Supply Team or Sub-Team will be
prepared and circulated by the party hosting the meeting within thirty (30) days
of such meeting. Such minutes will become official when agreed to by all team
members. Each party will bear all expenses associated with attendance of its
employees and consultants at such meetings. If the team members all agree, a
meeting may be held by means of telephone conference or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.
5.2.4. Decisions. Recommendations of the Global Supply Team or
Sub-Teams shall be made by unanimous vote, with the representatives of each
party having one collective vote. If the Global Supply Team or a Sub-Team is
unable to reach a unanimous vote on any issue, then the issue shall be referred
to the President of Alkermes (or successor position) and the Senior Vice
President of Manufacturing of Janssen (or successor position) for further
discussion and resolution. These individuals shall, as soon as practicable,
attempt in good faith to resolve the dispute and, thereby, make the
recommendation on behalf of the Global Supply Team or Sub-Team. These
individuals may obtain the advice of other employees as they deem necessary or
advisable in order to make the recommendation. If such issue (a) is not resolved
within thirty (30) days after it has been referred to such persons for
resolution, (b) would cause a serious interruption of the manufacturing and
supply chain and (c) is related to the Logistic Systems, Quality System, Control
of Change, Validation, timelines of the Project Plan or
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commercialization ramp-up, the issue shall be resolved in accordance with the
views of the Senior Vice President of Manufacturing of Janssen. Any issue
related to the budget for the Project shall be discussed in good faith to
determine the appropriate modification or outcome and shall be agreed to by the
parties in good faith. Also, in the event ACTII is reasonably of the opinion
that Janssen's standpoint on any of the above issues could adversely affect its
obligations under the Supply Agreement, it will raise such issue and the parties
will duly consider it and its ramifications in resolving the issue at hand. In
the event Janssen nevertheless decides to proceed in accordance with its
standpoint, the parties will in good faith discuss the modifications that may be
warranted in relation to the other obligations with respect to which ACTII had
raised concerns.
Section 5.3. Janssen Representative at the Project. In order to implement
the collaborative effort set forth under Section 5.1, Janssen will have the
right to have one or more Janssen representatives visit the Project and/or the
entire manufacturing facility in Wilmington, Ohio for short or extended periods
of time. Any such visits shall be at Janssen's expense; provided that ACTII
shall provide some accommodation at the site upon reasonable request and
provided that there is no disruption to the course of business at the site. In
the event that there is any dispute under this Section 5.3 or either party has a
concern related to the Janssen representative(s) at the manufacturing facility,
the Global Supply Team shall attempt to resolve such dispute or address such
concern.
Section 5.4. Janssen Support. At ACTII's request, Janssen shall
reasonably assist ACTII in its contacts with manufacturing and supply
contractors and shall support ACTII in connection with its vendor relations.
ARTICLE 6 - MISCELLANEOUS
Section 6.1. [***].
Section 6.2. Bankruptcy provisions. In the event ACTII or Alkermes, Inc.
files a petition in bankruptcy, insolvency or reorganization for the benefit of
its creditors or if a receiver or trustee is appointed as provided for in
Section 10.2.3 of the Supply Agreement, ACTII shall, unless and until the Supply
Agreement would be rejected by the bankruptcy trustee in accordance with the
relevant bankruptcy codes, continue to perform all its obligations under the
Supply Agreement, including this Addendum, unless and until Janssen elects to
terminate the Supply Agreement in accordance with Section 10.2.3 of the Supply
Agreement. By October 31, 2001, ACTII shall submit to a neutral escrow agent
mutually agreeable to the parties, such as DSI Technology Escrow Services, Inc.
(the "Escrow Agent"), to hold in escrow all of the standard operating procedures
and batch records, which shall contain detailed descriptions of all steps and
operations involved in the approved Manufacturing Process (the "Escrow
Documents"). ACTII shall update the Escrow Documents annually. In the event that
Janssen terminates the Agreement under Section 10.2.3 of the Supply Agreement,
Janssen shall be free to access the Escrow Documents. Janssen, ACTII and the
Escrow Agent shall execute an escrow agreement which will control the deposit,
possession and release of the Escrow Documents and any conflict between this
Addendum and such escrow agreement shall be controlled by the escrow agreement.
Janssen, as a licensee of intellectual property rights granted under the
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License Agreement dated February 13, 1996, by and between Janssen US and ACT II
and the License dated February 21, 1996, by and between JPI and ACT II, shall in
addition to any rights or remedies expressly provided herein, retain any and all
of its rights under the bankruptcy code to resort to other remedies as may now
or hereafter exist at law or in equity in such event.
Section 6.3. Amendments to the Supply Agreement. To the extent that the
provisions of this Addendum are in conflict with Sections 2.2 and 2.9 of the
Supply Agreement, Sections 2.2 and 2.9 shall be deemed to be amended by this
Addendum. The provision regarding Minimum Revenues in this Addendum shall
supersede the provisions for minimum number of Product to be purchased by
Janssen pursuant to Section 2.11 of the Supply Agreement for the ten (10)
calendar years following Regulatory Approval of Product. Except as provided in
the foregoing two sentences, all of the provisions of the Supply Agreement shall
remain in full force and effect.
Section 6.4. Prior Agreements. The parties hereto acknowledge that this
Addendum and the Supply Agreement contain the entire agreement between the
parties pertaining to the manufacture and supply of Product in Territory and
terminates and supersedes all prior agreements, understandings, letters or other
instruments whatsoever, whether written or oral, between the parties or any of
their affiliates with respect to such matters.
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IN WITNESS WHEREOF, JPI, Janssen US and ACTII have caused this
Addendum to Manufacturing and Supply Agreement to be executed by their
respective duly authorized officers on the date first set forth above.
JANSSEN PHARMACEUTICA INTERNATIONAL represented by
CILAG AG INTERNATIONAL
By: /s/ Erik Rombouts
------------------------------------
Name: Erik Rombouts
Title: Vice President
JANSSEN PHARMACEUTICA INC.
By: /s/ David Y. Norton
------------------------------------
Name: David Y. Norton
Title: President
ALKERMES CONTROLLED THERAPEUTICS INC. II
By: /s/ Robert A. Breyer
------------------------------------
Name: Robert A. Breyer
Title:
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SCHEDULE A
PRELIMINARY TIMETABLE AND BUDGET
[***]
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SCHEDULE B
SALES FORECASTS AS OF THE EFFECTIVE DATE
AS OF JUNE 2001
[***]
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SCHEDULE C
CALCULATION OF MINIMUM REVENUES
[***]
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