Exhibit 10.1
EXECUTION COPY
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
AMENDMENT AGREEMENT
This amendment (this "2007 Amendment") to the Amended and Restated
Strategic Alliance Agreement dated as of April 2, 2002 (the "2002 Agreement") by
and between PENWEST PHARMACEUTICALS CO., a corporation organized and existing
under the laws of the State of Washington, with its principal place of business
at 39 Old Ridgebury Road, Danbury, Connecticut 06810 ("Penwest"), and ENDO
PHARMACEUTICALS INC., a corporation organized and existing under the laws of the
State of Delaware, with its principal place of business at 100 Painters Drive,
Chadds Ford, Pennsylvania 19317 ("Endo"), is entered into by and between Penwest
and Endo this 7th day of January, 2007.
WHEREAS, pursuant to the 2002 Agreement, Penwest and Endo have developed
and commercialized the Product, (as defined in the 2002 Agreement);
WHEREAS, under the terms of the 2002 Agreement, Endo is required to pay
Royalties (as defined in the 2002 Agreement) to Penwest with respect to the
Product based on Net Realization (as defined in the 2002 Agreement) and other
factors set forth in the 2002 Agreement;
WHEREAS, certain disagreements have arisen between Penwest and Endo
regarding the calculation of Royalties and other matters relating to the
parties' respective rights and obligations under the 2002 Agreement; and
WHEREAS, in order to resolve their differences and for other reasons, the
parties desire to modify the 2002 Agreement to provide that Royalties be
calculated based on net sales of the Product in the United States and to change
certain related provisions of the 2002 Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and conditions herein set forth, the receipt and sufficiency of which
consideration are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
Capitalized terms used in this 2007 Amendment and not defined in this 2007
Amendment shall have the meanings ascribed to them in the 2002 Agreement.
2. NET SALES DEFINITION
The Definitions Exhibit to the 2002 Agreement is hereby amended by
inserting immediately following Section 1.44 of the Definitions Exhibit to the
2002 Agreement the following:
"1.45 "U.S. Product Net Sales" shall mean the gross amount invoiced by Endo
and its Affiliates and sublicensees for the sale or other disposition
of the Product to independent third parties in the United States less
the following amounts, in each
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case determined in accordance with generally accepted accounting
principles as consistently applied to all products of Endo: (i)
discounts, including cash discounts, discounts to managed care or
similar organizations or government organizations, rebates paid,
credited, accrued or actually taken, including government rebates such
as Medicaid chargebacks or rebates, and retroactive price reductions
or allowances actually allowed or granted from the invoiced amount,
and commercially reasonable and customary fees paid to distributors;
(ii) credits or allowances actually granted upon claims, rejections or
returns of such sales of Product, including recalls, regardless of the
party requesting the claim, rejection, or return; and (iii) provisions
for actual uncollectible accounts.
1.46 "2007 Amendment" shall mean that certain Amendment Agreement dated as
of January 7, 2007 by and between Penwest and Endo.
1.47 "2007 Amendment Effective Date" shall mean January 7, 2007."
3. CERTIFICATION EXCESS
3.1 The 2002 Agreement is hereby amended by deleting Section 3.5.3 of the
2002 Agreement in its entirety and inserting the following new Section 3.5.3 in
its place:
"3.5.3 In view of Penwest having elected, as of March 18, 2003, not to
participate further in the U.S. Certification Period, Section 6.7
shall apply and the other provisions of this Agreement shall remain in
effect in accordance with their terms and the terms of Section 6.7;
provided, however, that, as the U.S. Certification Period ended prior
to the 2007 Amendment Effective Date and the parties have agreed that
the Certification Excess arising from the U.S. Certification Period
shall be deemed to be $28,000,000 and shall not be subject to further
adjustment, audit or dispute between the parties, and Endo shall have
the right to recoup such Certification Excess solely through the
Royalty reduction mechanism set forth in the immediately following
sentence. Commencing at such time as cumulative Royalties otherwise
(i.e., without giving effect to Section 4.5.2) payable to Penwest
pursuant to Section 4.5.1 exceed $41,000,000, Endo shall pay Penwest
fifty percent (50%) of the Royalties otherwise due under Section 4.5.1
until Endo has thereby recouped the $28,000,000 total Certification
Excess."
3.2 The parties hereby agree that the Certification Excess with respect to
the Product and the Certification Period for the Product in the United States
shall equal $28,000,000; that such amount shall not be subject to further
adjustment, audit or dispute between the parties; that neither of the parties
shall have any obligation under Section 3.7 of the 2002 Agreement, including
without limitation, no obligation on the part of Endo to issue invoices under
Section 3.7; and that Penwest's sole and exclusive liability with respect to the
Certification Excess with respect to the U.S. Certification Period and the
expenditures, costs and other resources devoted by the parties to U.S.
Certification Tasks during the Certification Period is the reduction in
Royalties payable by Endo to Penwest set forth in Section 3.5.3 of the 2002
Agreement, as
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amended by this 2007 Amendment; provided, however, that, for the sake of
clarity, the parties further acknowledge and agree that all amounts previously
borne or paid by Penwest with respect to the U.S. Certification Period shall not
be remitted to or otherwise recoupable by Penwest.
4. ROYALTIES AND OTHER PAYMENTS
4.1 The 2002 Agreement is hereby amended by deleting Section 4.5 in its
entirety and inserting the following new Section 4.5 in its place:
"4.5 Royalties; Recoupment of Certification Excess.
4.5.1 U.S. Product Net Sales. With respect to Product sold or
otherwise disposed of in the United States in a calendar year,
Endo hereby agrees to pay to Penwest Royalties equal to the
following percentages of such calendar year U.S. Product Net
Sales:
Calendar Year Royalty Rate (as a percentage
U.S. Product Net Sales of U.S. Product Net Sales)
---------------------- -----------------------------
Amounts less than $150,000,000 22%
Amounts greater than or equal to 25%
$150,000,000 and less than $[**]
Amounts greater than or equal to $[**] [**]%
and less than $[**]
Amounts greater than or equal to $[**] [**]%
and less than $[**]
Amounts greater than or equal to $[**] [**]%
and less than $1,000,000,000
Amounts greater than or equal to 30%
$1,000,000,000
4.5.2 Notwithstanding Section 4.5.1, the first $41,000,000 in
cumulative Royalties otherwise payable by Endo to Penwest
pursuant to Section 4.5.1 (including, for purposes of clarity,
Royalties on all U.S. Product Net Sales commencing with the
commercial launch of the Product in 2006) shall not be payable
and the corresponding U.S. Product Net Sales shall be excluded
from Endo's Royalty obligations under Section 4.5.1; provided,
however, that such corresponding U.S. Product Net Sales shall not
be excluded from the calculation of Calendar Year U.S. Product
Net Sales for purposes of calculating the Royalty rate under
Section 4.5.1 or of Calendar Year U.S. Product Net Sales for
purposes of Section 4.10. Any
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exclusion pursuant to this Section 4.5.2 shall be reflected in
the statements provided for in Section 4.7.
4.5.3 With respect to Product sold or otherwise disposed of in the
Territory outside the United States, Endo hereby agrees to pay to
Penwest Royalties equal to the Applicable Percentage of the
relevant Net Realization from all units of the Product sold by
Endo and its distributors and licensees in the Territory outside
the United States; provided that unless otherwise agreed by the
parties, development and commercialization of the Product in the
Territory outside the United States shall be subject to Section
5.1(c) of the 2007 Amendment.
4.5.4 Bundling; Certain Other Sales. Endo, its Affiliates and
sublicensees shall be permitted to bundle the Product together
with any other product(s) in any sale or transfer of the Product;
provided however that the revenues from such product bundles
shall be equitably allocated and none of Endo, its Affiliates or
sublicensees shall disproportionately discount the Product
compared to the other product(s) in the bundle. None of Endo, its
Affiliates or sublicensees shall make commercial sales of the
Product to independent third parties except in arm's-length
transactions for monetary consideration.
4.2 The 2002 Agreement is hereby amended by deleting Section 4.6.1 in its
entirety and inserting the following new Section 4.6.1 in its place:
"4.6.1 Endo has agreed to make the payments specified in Section 4.5
hereof, which payments shall be deemed allocable one-third for
Penwest's anticipated contributions of know-how, resources, time
and money, and two-thirds to the licenses contained in Sections
6.3.1, 6.5, 6.6, 6.9.2 and 6.11 hereof. Royalties shall be paid
in accordance with Section 4.5 hereof, irrespective of whether
any Penwest Patents or patents on Penwest Product Technology
cover the Product; provided, however, that in the event of an
occurrence of a condition set forth in Section 6.7 (b) or (c)
hereof, but subject (in the case of Section 6.7(c) hereof) to the
provisions of Section 5.10 hereof, Endo shall be obligated to pay
to Penwest only that portion of the Royalties that are allocated
to the licenses in Section 6.3.1, 6.5, 6.6, 6.9.2 and 6.11 hereof
as described above (i.e., the Net Realization or U.S. Product Net
Sales in the applicable nation shall be reduced by one-third
prior to the calculation of the proportion thereof to be paid to
Penwest as Royalties hereunder); and provided further that if
there are any U.S. Product Net Sales from the Product sold in the
United States to which no license to U.S. Penwest Patents or to
U.S. Penwest Product Technology Patents (including patent
applications, as if patents had issued thereon) is applicable to
the making, using, sale, offer for sale, or import thereof, such
U.S. Product Net Sales shall be reduced by one-third prior to the
calculation of the proportion thereof to be paid to Penwest as
Royalties
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hereunder (it being agreed that any such reduction in U.S.
Product Net Sales shall not reduce U.S. Product Net Sales for
purposes of calculating the Royalty Rate under Section 4.5.1 or
U.S. Product Net Sales under Section 4.10). For clarity and
without limiting the provisions of Section 5.10, no royalty
reduction shall apply as a result of the occurrence of a
condition set forth in Section 6.7(a) and, in any case, the
maximum royalty reduction under this Section 4.6.1 shall be a
one-third reduction, regardless of whether multiple bases for a
royalty reduction hereunder occur."
4.3 The 2002 Agreement is hereby amended by deleting Section 4.7 in its
entirety and inserting the following new Section 4.7 in its place:
"4.7 Timing of Royalty Payments. All Royalties shall be due quarterly
within 60 days following the end of each calendar quarter for Net
Realization and/or U.S. Product Net Sales in such calendar
quarter. Each payment shall be accompanied by a statement of Net
Realization and/or U.S. Product Net Sales for the quarter and the
calculation of the Royalties payable hereunder. In addition,
within twenty (20) days following the end of each calendar
quarter, an estimated statement of Net Realization and/or U.S.
Product Net Sales for the quarter and the calculation of
estimated Royalties for such completed quarter payable hereunder
shall be provided by the party paying Royalties. Notwithstanding
the foregoing, (a) all Royalties due for calendar year 2006 shall
be due within sixty (60) days following the end of calendar year
2006 and shall be accompanied by a statement of Net Realization
and/or U.S. Product Net Sales for the year and the estimated
statement of Net Realization and/or U.S. Product Net Sales for
the year shall be provided to Penwest within twenty (20) days
following the end of such year, and (b) the statements and
calculations required under this Section 4.7 shall be provided to
Penwest, whether or not any Royalties are actually due hereunder
as a result of the operation of Section 4.5.2. All Royalties and
all other amounts payable under this Agreement will bear interest
at the rate of one and one-half percent (1.5%) per month (or the
maximum interest allowable by applicable law, whichever is less),
from the thirty-first (31st) day after the date due through the
date of payment. Notwithstanding the foregoing, if any
adjustments or inaccuracies in the amounts paid or payable are
determined by the auditors of either Penwest or Endo in their
review of financial results as provided in Section 4.8 hereof,
and the other party agrees to such adjustment, such adjustments
for the immediately preceding quarter may be reconciled and
described in the next due written report and the Royalty payment
then next due shall be adjusted to reflect the determination of
such auditors and such agreement."
4.4 The 2002 Agreement is hereby amended by inserting the following new
Section 4.10 immediately following Section 4.9 of the 2002 Agreement:
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"4.10 Success Payments. Endo will make each of the following
non-creditable, one-time success payments to Penwest within sixty (60)
days following the end of the calendar quarter in which the
corresponding event first occurs during the term of this Agreement:
Event Success Payment
----- ---------------
Calendar year U.S. Product
Net Sales exceed $400,000,000 $15,000,000
Calendar year U.S. Product
Net Sales exceed $[**] $25,000,000
Calendar year U.S. Product
Net Sales exceed $[**] $50,000,000"
4.5 The 2002 Agreement is hereby amended by inserting the following new
Section 4.11 immediately following Section 4.10 of the 2002 Agreement, as
amended by this 2007 Amendment:
"4.11 Milestones and Licensing Fees from Sublicensing in the United States.
(a) Endo shall, within 60 days following the receipt by Endo or any of its
Affiliates of any license fees and milestone payments in connection with
the licensing or sublicensing of the Product in the United States(or other
amounts included in Applicable Sublicense Consideration as provided below),
other than royalties received from the licensee or sublicensee based on
Product sales by the licensee or sublicensee and any amounts received by
Endo or its Affiliates expressly reflecting payment or reimbursement by the
licensee or sublicensee of Endo's or its Affiliates' actual fully allocated
cost in performing activities or services pursuant to such license or
sublicense after the effective date thereof (such license fees and
milestone payments, collectively, "Applicable Sublicense Consideration"),
pay Penwest [**] of all Applicable Sublicense Consideration. Applicable
Sublicense Consideration shall also include any amounts received by Endo or
any of its Affiliates for the sale of debt or equity securities in excess
of the fair market value thereof and any payment or reimbursement amounts
received by Endo or any of its Affiliates for costs incurred by Endo or its
Affiliates in performing activities or services pursuant to such license or
sublicense in excess of Endo's or its Affiliates' actual fully allocated
cost therefor. The obligations and rights of Endo and Penwest under Section
4.8, including without limitation, with respect to recordkeeping and audit
rights, shall apply to Applicable Sublicense Consideration and the
derivation of Applicable Sublicense Consideration.
(b) Endo shall, within 14 days of the execution of any agreement for the
licensing or sublicensing of the Product in the United States, provide
Penwest with a copy of such agreement. Penwest acknowledges and agrees that
any such agreement provided to Penwest shall constitute confidential
information of Endo for purposes of Section 10.1 of
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this Agreement."
5. ALLIANCE COMMITTEE AND MARKETING PLANS
5.1 The parties acknowledge and agree that:
(a) nothing in the 2002 Agreement, as amended by this 2007
Amendment, shall be construed as providing, or shall provide the Alliance
Committee or Penwest with any oversight or decision-making authority with
respect to the marketing, promotion and sale by Endo of, or other activities of
Endo with respect to, the Product in the United States; and
(b) notwithstanding anything in Section 1.25 of the Definitions
Exhibit to the 2002 Agreement to the contrary, the Manufacturing and Marketing
Plan(s) with respect to the Product in the United States shall not be subject to
adoption or approval by Penwest or the Alliance Committee.
(c) in connection with the above Sections 5.1(a) and 5.1(b), and
notwithstanding anything to the contrary in the 2002 Agreement, the 2002
Agreement is hereby amended in its entirety to give effect to the following
terms (and to the extent there is any inconsistency between the 2002 Agreement
as amended by this 2007 Amendment and the following terms, the following terms
shall control):
(i) the parties acknowledge and agree that there will be no
further Certification Periods anywhere in the Territory and that further
development and commercialization of the Product in the Territory outside the
United States, if any, shall be accomplished through licensing of the
development and commercialization activities relating to the Product to third
parties selected by mutual agreement of the parties;
(ii) the parties acknowledge and agree that any fees,
royalties, payments, or other revenue received by the parties with respect to
the Product through the licensing activities for the Product outside the United
States ("Licensing Revenue") contemplated under the foregoing clause (i) shall
be divided equally between the parties after payment of any third-party expenses
associated with entering into such licenses, and the receiving party will remit
to the other party such other party's share of such Licensing Revenue within
thirty (30) days of receiving any such Licensing Revenue;
(iii) the parties acknowledge and agree that there shall be
no Minimum Net Realization applicable to Endo's or its Affiliates' or
sublicensee's activities relating to the Product anywhere in the Territory, and
all references (express or implied) relating to Minimum Net Realization in the
2002 Agreement or this 2007 Amendment shall have no effect; and
(d) For the avoidance of doubt, Section 6.4 of the 2002 Agreement
shall continue to operate as it did immediately prior to the 2007 Amendment
Effective Date.
5.2 Endo hereby agrees that (a) on an annual basis, at least thirty (30)
days prior to the start of each calendar year, Endo shall provide to Penwest a
Manufacturing and Marketing Plan
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with respect to the Product in the United States for such calendar year and (b)
it shall provide quarterly updates to such Plan to Penwest within thirty (30)
days of the start of each of the first, second and third calendar quarter of
each calendar year.
6. MISCELLANEOUS.
6.1 Except as set forth herein, no other portion of the 2002 Agreement is
hereby amended and the terms of the 2002 Agreement shall continue in full force
and effect. The parties agree that all references in the 2002 Agreement to "this
Agreement" shall be deemed to include the provisions of this 2007 Amendment.
6.2 This 2007 Amendment, together with the 2002 Agreement, constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral between the parties hereto with respect to the subject matter
hereof.
6.3 This 2007 Amendment shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns; provided,
however, that except (i) as permitted under this 2007 Amendment or the 2002
Agreement, or (ii) as part of the transfer of all or substantially all assets to
a single buyer or pursuant to a merger or other corporate reorganization,
neither party shall assign or delegate any of its rights or obligations
hereunder at any time without the prior written consent of the other party
hereto, which consent shall not be unreasonably withheld.
6.4 Any terms of this 2007 Amendment may be amended, modified or waived
only in a writing signed by both parties.
6.5 This 2007 Amendment shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without regard to its
conflict of laws rules.
6.6 The parties acknowledge that they intend to issue a joint press release
regarding the subject matter of this 2007 Amendment. Neither party shall issue
any press release or make any public announcements regarding the subject matter
of this 2007 Amendment and related provisions of the 2002 Agreement, as amended
hereby, without the prior written consent of the other party, which will not be
unreasonably withheld; provided, however, that notwithstanding the foregoing,
either party shall have the right to issue press releases and to make public
announcements regarding the subject matter of this 2007 Amendment and related
provisions of the 2002 Agreement, as amended hereby, without the consent of the
other party in order to comply with disclosure obligations that are imposed by
applicable law, regulation or legal process, including without limitation by
rules and regulations under applicable securities laws and by rules and
regulations of any stock exchange or NASDAQ, provided that the party complying
with any such disclosure requirement shall, if practicable, provide the other
party with an opportunity to review and comment on the content of any such
disclosure, to the extent such content has not previously been disclosed
publicly.
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IN WITNESS WHEREOF, Penwest and Endo have executed this 2007 Amendment effective
as of the date first written above.
PENWEST PHARMACEUTICALS CO. ENDO PHARMACEUTICALS INC.
By: /s/ Jennifer Good By: /s/ Peter A. Lankau
--------------------------------- ------------------------------------
Printed Name: Jennifer Good Printed Name: Peter A. Lankau
Title: President and CEO Title: President and CEO
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