CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
EXHIBIT 10.17
FIRST AMENDMENT TO SUPPLY AGREEMENT
THIS FIRST AMENDMENT TO SUPPLY AGREEMENT (the "AMENDMENT") is entered into
as of July 7, 2003 (the "AMENDMENT EFFECTIVE DATE"), between ALGORX
PHARMACEUTICALS, INC., a Delaware corporation ("ALGORX"), and POWDERJECT
TECHNOLOGIES LIMITED, an English corporation ("POWDERJECT"). AlgoRx and
PowderJect may be referred to herein individually as a "PARTY" and collectively
as the "PARTIES".
RECITALS
WHEREAS, AlgoRx and PowderJect entered into a Supply Agreement effective
as of March 22, 2002 (the "SUPPLY AGREEMENT"), pursuant to which PowderJect is
obligated to supply, and AlgoRx is obligated to purchase from PowderJect,
AlgoRx's requirements of Gas Cylinders;
WHEREAS, PowderJect has been obtaining AlgoRx's requirements of Gas
Cylinders from BOC pursuant to the BOC Agreements and supplying such cylinders
to AlgoRx; and
WHEREAS, PowderJect has with AlgoRx's consent entered into a variation of
the BOC Agreements; and
WHEREAS, pursuant to guidelines promulgated by the FDA, AlgoRx will be
required to use, for pre-commercial purposes, certain quantities of Gas
Cylinders Manufactured off a Line, rather than the Pilot Plant; and
WHEREAS, the parties desire to amend the Supply Agreement, inter alia, to
establish the price that AlgoRx will pay for the supply of Gas Cylinders for
pre-commercial purposes that are manufactured off a Line, to agree to the
minimum order size of Gas Cylinders, to reduce the minimum annual capacity of
the Line, and to clarify the circumstances under which PowderJect shall be
considered the manufacturer of Gas Cylinders for purposes of determining the
Cylinder Cost payable by AlgoRx for Gas Cylinders;
NOW, THEREFORE, PowderJect and AlgoRx hereby agree that the Supply
Agreement shall be amended, effective as of the Amendment Effective Date, as
provided below:
1. All capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to such terms in the Supply Agreement.
2. PowderJect hereby agrees to use its best efforts to achieve the
successful completion of all tests and procedures for the commissioning of the
first Line as soon as reasonably practicable. PowderJect understands and
acknowledges that after such Commissioning Date, AlgoRx may require that Gas
Cylinders for use in or with Devices for pre-commercial use be Manufactured off
a Line rather than the Pilot Plant. AlgoRx shall notify PowderJect in its
forecasts provided under Section 2.4(a) and in purchase orders provided to
PowderJect under Section 2.5(a) of the Supply Agreement of the quantity of Gas
Cylinders for pre-commercial use that shall be Manufactured off a Line.
PowderJect shall ensure that all such Gas Cylinders ordered by AlgoRx shall be
Manufactured off a Line rather than the Pilot Plant and supplied to AlgoRx in
accordance with the applicable purchase order. The warranty in
Section 6.2 shall apply to all Gas Cylinders for pre-commercial use that are
Manufactured off a Line and supplied to AlgoRx hereunder.
3. "OPERATING COSTS" has the meaning set forth in the BOC Agreement.
4. Section 1.5 of the Supply Agreement shall be deleted and replaced with
the following new Section 1.5:
"1.5 "BOC AGREEMENTS" means: (a) the Services, Manufacture and Supply
Agreement made between PowderJect and BOC Limited dated 21st February
2003, (b) the Warranty, Spare Parts, Service and Maintenance and Software
Agreement made between PowderJect, BOC Edward Pharmaceutical Systems BV,
and BOC Limited dated 21st February 2003, (c) the Asset Transfer Agreement
made between PowderJect and BOC Limited dated 21st February 2003, and (d)
amendments to any of the agreements set forth in subclauses (a) through
(c) that are entered into by BOC and PowderJect after the Amendment
Effective Date with AlgoRx's written consent."
5. Section 1.12 of the Supply Agreement shall be deleted and replaced with
the following new Section 1.12;
"1.12 "CYLINDER COST" means the following:
(a) For so long as the BOC Agreement is in effect and is not amended
in a manner that impacts PowderJect's costs and expenses related to the
manufacture of Gas Cylinders thereunder, "Cylinder Cost" means the per
cylinder cost of Gas Cylinders for commercial use that are Manufactured
off a Line and supplied to AlgoRx by PowderJect, which shall be equal to
the sum of (i) and (ii) below, divided by **********.
(i) Operating Costs (but excluding, for clarity,(A) any costs
or expenses relating to the operation and maintenance of the Pilot
Plant or the Manufacture of Gas Cylinders off the Pilot Plant, and
(B) Operating Costs associated with the supply of Gas Cylinders by
BOC to third parties in accordance with Clause 10.4 of the BOC
Agreement) and the applicable Gas Cylinder Price and Annual
Management Fee (as defined in the BOC Agreement) payable by
PowderJect under the terms of the BOC Agreement; and
(ii) the costs payable by PowderJect under the Warranty, Spare
Parts, Service and Maintenance and Software Agreement made between
PowderJect, BOC Edwards Pharmaceutical Systems BV, and BOC Limited
dated 21st February 2003.
For the avoidance of doubt, capital costs, depreciation of
machinery, systems, and equipment required for the Manufacture of Gas
Cylinders, corporate overhead
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(such as administrative expenses) shall not be included as part of, or
considered in determining, the Cylinder Cost.
(b) If the BOC Agreement either is terminated or is amended in a
manner that negatively impacts PowderJect's costs and expenses related to
the manufacture of Gas Cylinders thereunder, "Cylinder Cost" shall mean
the per cylinder cost of Gas Cylinders Manufactured off a Line and
supplied to AlgoRx, which shall be determined based on the sum of the
following costs actually incurred by PowderJect, to the extent reasonably
allocable to the Manufacture of Gas Cylinders supplied to AlgoRx: (i)
PowderJect's cost of direct materials; (ii) direct labor costs; and (iii)
fixed and variable overhead costs for that portion of the utilities and
rent for manufacturing facilities directly allocable to the Manufacture of
Gas Cylinders for AlgoRx; in each case to the extent reasonably allocated
to the Gas Cylinders based on production activity. Any capital costs,
depreciation of specific machinery, systems, and equipment required for
the Manufacture of Gas Cylinders, and corporate overhead (such as
administrative expenses) shall not be considered in determining the
Cylinder Cost. Cylinder Cost shall be calculated in a manner consistent
with Generally Accepted Accounting Principles consistently applied, and
the methodology used in making the allocations referred to above shall be
consistent with PowderJect's methodology for other similar products and
shall be consistent from year to year. PowderJect shall disclose such
methodology to AlgoRx upon request.
6. Section 1.24 of the Supply Agreement shall be deleted in its entirety
and replaced with the following new Section 1.24:
"1.24 "LINE" means all of the plant, machinery, systems, and other
equipment that is necessary to Manufacture Gas Cylinders in accordance
with the Gas Cylinder Specification and package them in accordance with
the Packaging Specification, which has a minimum annual capacity
significantly greater than that of the Pilot Plant, but in no event less
than a minimum annual capacity of ********** Gas Cylinders.
Notwithstanding the foregoing, the first line commissioned and validated
under the BOC Agreements shall have a minimum annual capacity of
approximately ********** Gas Cylinders. However, each additional Line
shall have an annual capacity of at least ********** Gas Cylinders."
7. Section 1.30 of the Supply Agreement shall be deleted in its entirety
and replaced with the following new Section 1.30:
"1.30 "PILOT PLANT CYLINDER COST" means ********************************
per Gas Cylinder."
8. Section 2.2 of the Supply Agreement shall be deleted in its entirety
and replaced with the following new Section 2.2:
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"2.2 SC SUBCOMMITTEE REPRESENTATION. Promptly after the Amendment Effective
Date, PowderJect shall appoint an individual designated by AlgoRx who is
reasonably acceptable to PowderJect to the gas cylinder sublicensee subcommittee
("SC Subcommittee") organized under the provisions of clause 6.4 of the BOC
Agreement. In addition, PowderJect shall provide reasonable advance notice to
AlgoRx of all scheduled meetings of the SC Subcommittee with BOC regarding the
Gas Cylinder Specification, the Packaging Specification, Line construction, the
specifications for Lines, the Budget (as defined in the BOC Agreement) and any
amendments thereto, and quality control issues, and AlgoRx shall have the right
to amend all such meetings. AlgoRx shall bear its own expenses related to
attending each SC Subcommittee meeting."
9. The following two sentences shall be inserted after the first sentence of
Section 2.5 of the Supply Agreement:
"All purchase orders submitted by AlgoRx hereunder shall be in multiples of
****** Gas Cylinders, and the minimum order size that PowderJect shall be
required to accept shall be ****** Gas Cylinders,"
10. The first sentence of Section 2.8 of the Supply Agreement shall be deleted
and replaced with the following new sentence:
"Shipments will be FCA (INCOTERMS 2000) Leatherhead, UK or such other location
in the UK as PowderJect shall reasonably specify, by a common carrier selected
by AlgoRx."
11. Section 5.1 of the Supply Agreement shall be deleted in its entirety and
replaced with the following new Section 5.1:
"5.1 PAYMENT. AlgoRx shall pay PowderJect the price set forth in this Section
5.1 for each Gas Cylinder supplied to AlgoRx under this Agreement, as such price
may be adjusted, if applicable, in accordance with Section 5.2.
(a) PILOT PLANT PRICE. For each Gas Cylinder ordered by AlgoRx in
accordance with Sections 2.4(a) and 2.5(a) and Manufactured off the Pilot Plant,
AlgoRx shall pay PowderJect the Pilot Plant Cylinder Cost, plus the reasonable
costs of packaging, transport, including handling charges, insurance, and any
applicable governmental taxes or duties (including, without limitation, any
valued added taxes or sales taxes). The costs of packaging shall not include any
share of the capital costs relating to packaging equipment.
(b) PRE-COMMERCIAL LINE PRICE. For Gas Cylinders ordered by AlgoRx in
accordance with Sections 2.4(a) and 2.5(a) and Manufactured off a Line, AlgoRx
shall pay PowderJect a price of ********************* per Gas Cylinder (the
"Pre-Commercial Cylinder Line Price"), plus the reasonable costs of packaging.
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(c) LINE PRICE. For each Gas Cylinder ordered by AlgoRx in accordance with
Sections 2.4(b) and 2.5(b), AlgoRx shall pay PowderJect the Cylinder Cost (if
PowderJect Manufactured such Gas Cylinder) or the actual amount of PowderJect's
out-of-pocket cost of procuring Gas Cylinders from a Third Party Manufacturer
(the price payable by AlgoRx, the "Line Price"), plus the reasonable costs of
packaging, transport, including handling charges, insurance, and any applicable
governmental taxes or duties (including, without limitation, any valued added
taxes or sales taxes). The costs of packaging shall not include any share of the
capital costs relating to packaging equipment. Except as set forth in Section
5.2, the Line Price of Gas Cylinders shall not exceed ************************
per Gas Cylinder (the "Capped Price"). The Parties acknowledge and agree that
the Line Price is expected to decrease as the volume of Gas Cylinders being
Manufactured increases. In the event that PowderJect is Manufacturing Gas
Cylinders for supply to AlgoRx, PowderJect acknowledges and agrees that it shall
be obligated to use best efforts to run all Lines as efficiently as possible in
order to reduce the Cylinder Cost. If PowderJect is Manufacturing Gas Cylinders,
the Cylinder Cost for the first twelve (12) months that PowderJect is
Manufacturing such cylinders (the "Initial Production Period") shall be the
Capped Price. After the Initial Production Period, PowderJect shall be in a
position to establish the actual cost of Manufacture of such Gas Cylinders. If
the actual Cylinder Cost upon the expiration of the Initial Production Period is
less than the Capped Price, PowderJect shall promptly reimburse AlgoRx for its
overpayment for Gas Cylinders during the Initial Production Period.
Notwithstanding the foregoing, if at any time during the term of this Agreement
the Line Price at which PowderJect is supplying Gas Cylinders to AlgoRx is less
than PowderJect's actual Cylinder Cost or out-of-pocket cost due to the Capped
Price (such differences, the "Loss"), then PowderJect shall be obligated to
reimburse AlgoRx for overpayment for Gas Cylinders during the Initial Production
Period only to the extent that the amount of such overpayment is greater than
PowderJect's aggregate Loss during such period, and PowderJect may continue to
charge AlgoRx the Capped Price for each Gas Cylinder after the Initial
Production Period even if the Line Price is subsequently less than the Capped
Price, until powderJect has recovered the full amount of its Loss.
(d) INVOICE AND PAYMENT. PowderJect shall invoice AlgoRx for each shipment
of Gas Cylinders delivered to AlgoRx, and AlgoRx, shall pay such invoice not
later than twenty-five (25) days after delivery of the applicable Gas Cylinders.
Notwithstanding the foregoing, if AlgoRx rejects any Gas Cylinders in good faith
pursuant to Section 3.3(a) or Section 3.3(b), AlgoRx shall have no payment
obligation to PowderJect with respect to such Gas Cylinders unless and until any
such Gas Cylinders have been replaced pursuant to Section 3.3(c) or any dispute
regarding whether such Gas Cylinders are defective is resolved in PowderJect's
favor pursuant to Section 3.3(d). For Gas Cylinders for commercial use supplied
to AlgoRx, PowderJect shall estimate the Cylinder Cost using the Operating Costs
set forth in the current Budget (as defined in the BOC Agreement), and shall
invoice AlgoRx for such estimated Cylinder Cost
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multiplied by the number of Gas Cylinders in such shipment (the "Estimated
Cylinder Cost"). By April 30 of each calendar year, PowderJect shall provide
AlgoRx with a written report setting forth (i) the actual Operating Costs for
the proceeding 12-month period from April 1 through March 31, (ii) the number of
Gas Cylinders supplied to AlgoRx during such 12-month period, and (iii) the
actual Cylinder Cost for such Gas Cylinders. If the Estimated Cylinder Cost paid
by AlgoRx for such Gas Cylinders exceeds the actual Cylinder Cost for such Gas
Cylinders, PowderJect shall pay AlgoRx the difference between such amounts at
the time that it provides the annual written report to AlgoRx. If the Estimated
Cylinder Cost paid by AlgoRx for such Gas Cylinders is less than the actual
Cylinder Cost for such Gas Cylinders, AlgoRx shall pay PowderJect the difference
between such amounts within thirty (30) days after AlgoRx's receipt from
PowderJect of the annual written report."
12. The fourth sentence of Section 10.1 of the Agreement shall be amended by
deleting the word "PowderJect" where it appears in such sentence between the
words "the occurrence of a force majeure event" and "shall have the right to
seek an order", and inserting in its place the word "AlgoRx".
13. For so Long as the BOC Agreement is in effect, PowderJect shall be
considered to be the Manufacturer of Gas Cylinders for commercial use supplied
to AlgoRx for purposes of determining the Line Price, and accordingly AlgoRx
shall pay PowderJect the Cylinder Cost for such Gas Cylinders. If PowderJect
amends the BOC Agreement or enters into a Third Party Manufacturer Agreement as
permitted under the Supply Agreement, then for purposes of determining the Line
Price payable under the Supply Agreement by AlgoRx for Gas Cylinders
manufactured under such amended BOC Agreement or Third Party Manufacturer
Agreement, PowderJect shall be deemed to have Manufactured such Gas Cylinders
and the Cylinder Cost shall be the Line Price if PowderJect and/or its
Affiliates either (a) owns more than ****** percent (**%) of the packaging and
other related machinery, equipment, fixtures, and fittings comprising the Line,
or (b) pays more than ****** percent (**%) of the expenses of operating and
maintaining the Line.
14. Except as amended hereby, the Agreement shall remain in full force and
effect.
15. This Amendment may be executed in one or more counterparts, each of which
shall be an original, and all of which shall constitute together the same
document.
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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed:
ALGORX PHARMACEUTICALS, INC. POWDERJECT TECHNOLOGIES LIMITED
By: /s/ Gordon M. Saul By: /s/ C.S.W. Swingland
------------------------- -------------------------------
Name: Gordon M. Saul Name: C.S.W. SWINGLAND
Title: Vice President Title: DIRECTOR
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