THE GENERICS GROUP, B.V.
Exhibit 10.27
April 30, 1993
Pharmaceutical Resources, Inc.
One Ram Ridge Road
Spring Valley, New York 10977
Attn: Kenneth Sawyer, President
Dear Ken:
We are writing to confirm our agreement on the following matters:
New Products
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The Generics Group B.V. and its affiliates (collectively referred to
herein as "Amerpharm") will appoint Pharmaceutical Resources, Inc. and its
affiliates (collectively referred to herein as "Par") as its exclusive U.S.
distributor for the products listed on Schedule A hereto (collectively the
"New Products").
Subject to the following provisions, definitive distribution
agreements and related documentation to be entered into in furtherance of
this Letter Agreement with respect to the New Products (collectively the
"Distribution Agreements") shall be upon substantially the same terms and
conditions as those previously executed and delivered in connection with
the distribution arrangements between our affiliate, Genpharm, Inc. and Par
for Piroxicam and Pindolol (the "Prior Transaction"). Capitalized terms
used herein and not defined herein shall have the meanings given the Prior
Transaction.
While the Distribution Agreements will be executed and delivered in
advance, the obligations of the parties thereto thereunder will only become
effective (on a product by product basis) upon the appropriate approval
letters being issued in respect of ANDAs as filed by Amerpharm in respect
of the New Products.
With the exception for Product 1 and certain Substantial Customer
sales, Gross Profits (as defined in the Prior Transaction) will be
allocated to Amerpharm and to Par (except on Excluded Contracts [as
defined in the Prior Transaction] where the allocation will be % and
except that the first __ million of aggregate Gross Profits from Net Sales
of the New Products will be allocated to Amerpharm and to Par).
The Distribution Agreements will also provide that if, after the
expiry of six months from the initial shipment of a New Product in a
commercial quantity to you, you have not sold any of that product to a
Substantial Customer (as defined below) or Par at any time has received
notice or other reasonably reliable information ("Termination Notice")
indicating that such Substantial Customer will not reorder a New Product,
Amerpharm, at its option, may give you thirty days (ninety days in the
case of a Termination Notice) prior written notice of its intention to sell
such New Product to the named Substantial Customer in question, or, as the
case may be, have had the Termination Notice rescinded within the notice
period, Amerpharm will be free to sell the Product in question to that
Substantial Customer directly. In the event Amerpharm shall determine to
sell such Product to such Substantial Customer, it shall, in the following
order of priority, (i) sell, package and deliver such Product itself
directly to such Substantial Customer, (ii) to the extent practicable, put
the order from such Substantial Customer through Par (for repackaging
and/or distribution or otherwise) or (iii) if Par, in its discretion,
refuses or it shall be impracticable for Amerpharm to put such order
through Par, sell, package and deliver such Product to such Substantial
Party through a third party. In the event of (ii) above, the Gross Profits
from such sale will be allocated to Amerpharm and to Par. In the
event of (i) or (iii) above, the Gross Profits from such sale shall be
allocated to Amerpharm and to Par.
"Substantial Customer" shall mean any chain, wholesaler or other
purchaser having significant combined purchasing power and constituting one
of the top 100 generic drug purchasers in the United States.
Gross Profits from Net Sales of Product 1 will be allocated to
Amerpharm, to Par until the earlier of two years from the first
commercialization of the product by Par and the date that other generic
competition commences selling the same product in the market and thereafter
Gross Profits will be allocated to Amerpharm and to Par (subject to
the other exceptions herein described).
The Distribution Agreements shall contemplate the following Product's
Sales Thresholds (as that term is defined in the Prior Transaction) in
respect of the following New Products:
(a) for Product 1 (i) for the first twelve months ("Year 1")
commencing on the Commencement Date, the sum of (A) _______
multiplied by the number of months ("NonComp Months") during Year
1 for which there is no generic competition plus (B) _______
multiplied by the number of months ("Comp Months") in Year 1 for
which there is generic competition, (ii) for the second twelve
months ("Year 2") after the Commencement Date (subject to the
following proviso) the sum of (A) ________ multiplied by the
number of NonComp Months in Year 2 plus (B) _______ multiplied by
the number of Comp Months in Year 2, (iii) for the third twelve
months, 80% of the number of Annualized Units (as defined below)
sold in the preceding twelve months and (iv) for each twelve
month period thereafter, 90% of the number of units sold in the
preceding twelve months; provided, however, that if any generic
competition shall commence in Year 1, the threshold for Year 2
shall be as set forth in (iii) above and the threshold for all
succeeding periods as will be set forth in (iii) above and the
threshold for all succeeding periods as will be set forth in (iv)
above.
For purposes hereof, "Annualized Units" shall mean (a) with respect to
any twelve month period consisting of only NonComp Months, the number of
units sold in such twelve-month period and (b) with respect to any other
twelve month period, the number of units which would be required to be sold
in such twelve month period in order to meet the applicable threshold
therefor if such period consisted solely of Comp Months.
(b) for Product 3 (i) _______ in the first twelve month period
commencing on the Commencement Date; (ii) eighty percent of the
number of units sold in such initial twelve-month period for the
second twelve month period and (iii) for each twelve month period
thereafter, ninety percent of the number of units sold in the
preceding twelve month period.
With respect to the other New Products, the Product Sales Threshold
shall be as set forth in (b) above except that the following shall be used
for purpose of (b)(i) above:
Product 2
________
Product 4
________
Product 5
________
It is understood and agreed that the Distribution Agreement shall
provide that Par shall use reasonable efforts to develop a market for and
sell the New Products in the United States, such efforts to be at least as
good as those used by Par in relation to their other products and that the
satisfaction of a Product Sales Threshold in respect of a New Product for a
period shall only be a prima facie evidence that Par has satisfied its
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obligation to use reasonable efforts, as aforesaid, in respect of such
period.
The Distribution Agreements shall also contemplate that if a
pharmaceutical company carrying on business in the United States (the
"Competitor") acquires securities of Pharmaceutical Resources, Inc. or
either of its subsidiaries, Para Pharmaceutical, Inc. of PRX Distributors,
Ltd., to which are attached more than fifty percent of the votes attaching
to all of its outstanding securities having full voting rights under all
circumstances, or which otherwise provide it with de facto control, or
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acquires all or substantially all of the operating assets of Par
Pharmaceutical, Inc. and the Competitor or any of its affiliates is
marketing a product which directly competes with the New Products or any
other products which Par is then marketing or is under a commitment to
market on behalf of Amerpharm, then, Amerpharm shall have the right to
convert Par to a non-exclusive distributor of the affected New Products or
products upon terms similar to those in the Prior Transaction for the
conversion of Par from an exclusive to a non-exclusive distributor for
failure to satisfy a Product Sales Threshold. In the event of any such
conversion, Par's obligations with respect to market development and sales
of the affected product will be to use reasonable efforts consistent with
efforts used in
relation to other Par Products, taking into consideration the changed
circumstances then obtaining; provided, however, that if Amerpharm, in its
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discretion, is not satisfied with the results of Par's efforts at any time,
it may terminate the agreement with respect to such product on 60 days'
written notice.
Warrants
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In consideration of Amerpharm entering into this Letter Agreement and
the above-captioned Distribution Agreements in furtherance hereof,
Pharmaceutical Resources, Inc., has agreed to grant to Amerpharm a warrant
to acquire 150,000 common shares of Pharmaceutical Resources, Inc. at a
price equal to $__ per share.
The warrant as to 100,000 shares will become vested upon Par achieving
aggregate sales of the New Products of $__ million and the balance of the
shares will become vested when Par's sales of these products reaches $__
million. The terms of the warrant will be substantially similar to those
contained in the Warrant Agreement which was executed and delivered in
connection with the Prior Transaction (the "Warrant Agreement"). The price
to Amerpharm for the option shall be the sum of $_______, which price shall
be satisfied by the allocation of Gross Profits on the first $__ million of
New Products sales (i.e., that Amerpharm has foregone $_______ of profit by
reducing its share of Gross Profits from to in respect of the first
$__ million of Gross Profits).
Additional Products of Amerpharm
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Amerpharm shall have the right to require Par to distribute in the
United States on behalf of Amerpharm up to fourteen additional products
(the "Additional Products") upon the following terms and the parties shall
incorporate the terms herein contemplated and the terms relating to the
sharing of profit (as defined below) from Third Party Products and from
_______, as contemplated below, into a definitive agreement or agreements
(the "Additional Products Agreement") which shall be executed and delivered
simultaneously with the Distribution Agreements.
Within three months from the date hereof, Amerpharm shall deliver to
Par a list of up to the fourteen Additional Products, which list shall
include only products in solid dosage form, but shall not include the
products listed on product list ("List") signed by the parties which List
and the Additional Products list the parties agree to keep confidential.
At any time prior to the first anniversary of the date on which the
Additional Products list is delivered, Amerpharm shall be entitled to
replace, from time to time, up to four products in the aggregate named on
the Additional Products list (which Amerpharm, acting reasonably,
determines to be a problem product) with another product (which again is in
solid dosage form and does not appear on the List) and provided Par, at the
time of being notified of the proposed substitution, has not commenced in a
substantial way (and is continuing diligently) to develop such product nor
has it entered into an agreement with a third party to distribute such
product on behalf of the third party. The product so substituted shall be
treated as an Additional Product (notwithstanding that is was not initially
included on the Additional Product list for which it was substituted shall
thereupon cease to be an Additional Product.
Par will distribute exclusively for Amerpharm (as Amerpharm's
exclusive distributor in the United States) the Additional Products upon
the same terms as are contemplated above for the New Products (on a -
basis, subject to Excluded Contracts and Significant Customer
exceptions contemplated above provided that the Product Sales Threshold for
each such product shall be established in a manner contemplated below)
provided that Amerpharm diligently proceeds to develop, test and obtain
regulatory approval of the manufacture, importation and sale thereof in the
United States, within time periods specified in the Additional Products
Agreement to be executed in furtherance hereof or, failing agreement of the
parties as to such time periods, within such reasonable period of time as
shall reasonably be required to obtain such approvals having regard to the
circumstances and the diligent and good faith efforts made by Amerpharm to
obtain same.
The Product Sales Threshold for each Additional Product for the first
twelve months after the Commencement Date shall be the aggregate of, as
applicable:
(i) 25% of the total market units (both brand name and generic) of
such product sold in the United States for the period within the
first twelve months that such Additional Product of Amerpharm is
the only generic product being marketed in the United States;
(ii) 10% of the total market units (both brand name and generic) of
such product sold in the
United States for the period within the first twelve months where
there are not more than two other competitive generic products
(including Amerpharm's Additional Product) being marketed in the
United States;
(iii) 5% of the total market units (both brand name and generic) of
such product sold in the United States for the period within the
first twelve months where there are more than two other
competitive generic products (including Amerpharm's Additional
Product) but less than 5 being marketed in the United States;
(iv) 1% of the total market units (both brand name and generic) of
such product sold in the United States for the period within the
first twelve months in any case not contemplated in (i), (ii) or
(iii) above.
Second year thresholds will be 80% of the annualized number of units
required to have been sold by Par in the first twelve months on the
assumption that the competition which existed in such last month of such
twelve month period existed for the entire initial twelve months. For the
third year and each succeeding year, the thresholds will be 90% of the
number of units sold in the year preceding it. Notwithstanding the
foregoing, at the time each Additional product is designated the parties
shall consider the particular circumstances then existing with respect to
such Additional Product in order to determine whether adjustments should be
made to the above thresholds.
Third Party Products
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If Amerpharm introduces Par to a third party (for whom Par is not then
distributing any products at the time of the introduction and has not
distributed a product for such third party within the prior two years) who
agrees to use Par for the distribution of a product in the United States
and Par, directly or indirectly, enters into an agreement with such third
party for the distribution of that product (and/or within two years of such
introduction, directly or indirectly, enters into or is negotiating (and
subsequently enters into) any other agreement to distribute any other
products of such third party) then Par shall split profits earned from the
distribution of those products with Amerpharm on a basis. Once
introduced to Par, Amerpharm will not introduce such third party to any
other party for marketing the same product in the United States so long as
Par is diligently and in good faith negotiating the agreement. For
purposes hereof, "profits" shall mean the net revenue of Par from the
distribution of products minus, without duplication, (i) Par's direct out-
of-pocket costs in connection with the distribution of such products
(including, without limitation, acquisition costs (including net duties),
royalties, testing, promotion, packaging, labeling, shipping and any other
out-of-pocket costs it incurs in connection with the agreement), (ii) a
reasonable allowance for overhead (in an amount to be specified in the
agreement with Amerpharm but not to exceed 2% of sales of such products by
Par) and (iii) any other payments (not specifically referred to or
contemplated above) which it makes to the third party for the product on
account of such sales.
Joint Products
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Par and Amerpharm shall each endeavor, in good faith, to independently
develop and file an ANDA seeking regulatory approval to market the products
set forth on Schedule B ("Joint Products") hereto in the United States. If
Par files and receives an ANDA on a Joint Product prior to any filing by
Amerpharm, the parties shall have no further rights or obligations to each
other with respect to such Joint Product. If Amerpharm files and receives
an ANDA on a Joint Product prior to Par filing, such Joint Product shall be
treated as an Additional Product for purposes hereof with profits to be
split to Amerpharm and to Par. If both parties have filed on a
Joint Product, and one receives an ANDA and final FDA marketing clearance
("Clearance"), such Joint Product will be manufactured (by the ANDA and
Clearance holder) and marketed by Par under the first issued ANDA and
Clearance thereon and the party to whom such ANDA and Clearance is first
issued shall receive of profits thereon and the other party shall
receive . If problems arise with the ANDA in use with respect to a
Joint Product as the result of which the parties utilize an ANDA and
Clearance issued to the other, the percentage split of profits and
manufacturing obligations will reverse. For purposes hereof, "profits"
shall mean the net revenue of Par from the distribution of products minus,
without duplication, (i) Par's direct out-of-pocket costs in connection
with the distribution of such products (including, without limitation,
acquisition costs (including net duties), royalties, testing, promotion,
packaging, labeling and shipping, (ii) a reasonable allowance for overhead
related to distribution (the amount to be specified in the agreement with
Amerpharm but not to exceed 2% of sales of such products by Par) and (iii)
the fully loaded manufacturing cost for manufacturing the product (which
shall be paid to whichever of Par of Amerpharm
manufactures the product pursuant to the regulatory approval) determined in
accordance with generally accepted accounting principles and the usual
business practices of such party, consistently applied.
Fixed Price Contracts
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Where Par has entered into a fixed price contract to supply a
Amerpharm product for which Amerpharm may be liable for excess re-
procurement costs if it fails to deliver the required product and Par
fulfills their contract to their customer by sourcing the products from a
third party (which sourcing was required because of Amerpharm's inability
to deliver the product), any profit (being revenue less out-of-pocket
costs and expenses) which Par earns from its fulfillment of such contract
shall be split % between Par and Amerpharm.
Amending Prior Transactions
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The distribution agreement executed and delivered in respect of the
Prior Transactions shall be amended to (i) correct any typographical errors
or omissions in such agreement including incorrect cross-references, (ii)
to add the provisions herein contemplated for the Fixed Price Contracts,
for Substantial Customers and for the right of Amerpharm's affiliate,
Genpharm Inc. to convert Par into a non-exclusive distributor upon a
pharmaceutical company acquiring the shares or assets of Par as hereinabove
contemplated and the parties shall execute and deliver an amending
agreement (the "Amending Agreement") amending the terms of the distribution
agreement as herein contemplate.
* * *
It is understood and agreed that the terms of this Letter Agreement
shall be legally binding upon us and shall regulate the conduct of
negotiations for finalization of the Distribution Agreements, the Warrant
Agreement, if applicable, the Additional Products Agreement, if necessary,
and the Amending Agreement (collectively, the "Definitive Agreements").
Upon signing this Letter Agreement we shall both negotiate in good faith
and as expeditiously as possible the detailed terms of the Definitive
Agreements, which shall include the provisions based on the terms outlined
in this Letter Agreement. During negotiations for the Definitive
Agreements the parties shall conduct business according to the terms of
this Letter Agreement to the extent practicable. Each party shall bear its
own costs and expenses relating to the negotiation and execution of the
Definitive Agreements and shall share the costs of any mediator.
Please confirm your agreement with the foregoing by signing and
returning to the undersigned the duplicate copy of this letter enclosed
herewith.
THE GENERICS GROUP B.V.
by its authorized signatory
Name: ____________________
Title: ____________________
Accepted and Agreed
PHARMACEUTICAL RESOURCES, INC.
by its authorized officer
Name: ____________________
Title: ____________________
Date: ____________________