U.S. SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2004
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission file number 1-14131
ALKERMES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA
23-2472830
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
88 Sidney Street, Cambridge, MA
02139-4136
(Address of principal executive offices)
(Zip Code)
Registrants telephone number including area code: (617) 494-0171
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No o
The number of shares outstanding of each of the issuers classes of common stock was:
Class
As of February 7, 2005
89,948,295
382,632
ALKERMES, INC. AND SUBSIDIARIES
INDEX
2
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited):
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
See Notes to Condensed Consolidated Financial Statements.
3
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
See Notes to Condensed Consolidated Financial Statements.
4
ALKERMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
See Notes to Condensed Consolidated Financial Statements.
5
ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements of Alkermes, Inc. (the Company) are
unaudited and have been prepared on a basis substantially consistent with the audited financial
statements. The condensed consolidated financial statements, in the opinion of management, include
all adjustments which are necessary to present fairly the results of operations for the reported
periods. The Companys condensed consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America (GAAP) and follow the
requirements of the Securities and Exchange Commission (SEC) for interim reporting.
These financial statements should be read in conjunction with the Companys audited consolidated
financial statements and notes thereto which are contained in the Companys Annual Report on Form
10-K for the year ended March 31, 2004, filed with the SEC.
The results of the Companys operations for any interim period are not necessarily indicative of
the results of the Companys operations for any other interim period or for a full fiscal year.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Alkermes Controlled
Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II (ACT II), Advanced Inhalation
Research, Inc. (AIR
®
), Alkermes Investments, Inc., Alkermes Europe, Ltd., Alkermes
Development Corporation II (ADCII) and RC Royalty Sub LLC (Royalty Sub), wholly owned
subsidiaries of the Company. Intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with GAAP necessarily requires management to
make estimates and assumptions that affect the following: (1) reported amounts of assets and
liabilities; (2) disclosure of contingent assets and liabilities at the date of the consolidated
financial statements; and (3) the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
New Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 123
(revised 2004), Share-Based Payment (SFAS 123R), which requires companies to measure and
recognize compensation expense for all stock-based payments at fair value. SFAS 123R is effective
for all interim periods beginning after June 15, 2005 and, thus, will be effective for the Company
beginning with the second quarter of fiscal 2006 (i.e. the quarter ending September 30, 2005).
Early adoption is encouraged and retroactive application of the provisions of SFAS 123R to the
beginning of the fiscal year that includes the effective date is permitted, but not required. The
Company is currently evaluating the impact of SFAS 123R on its results of operations. See Note 4
for information related to the pro forma effects on the reported net loss and net loss per share of
applying the fair value recognition provisions of the previous Statement of Financial Accounting
Standards (SFAS) 123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.
6
In November 2004, FASB issued SFAS No. 151, Inventory Costs, which amends Accounting Research
Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for idle
facility expense, freight, handling costs and waste (spoilage). This Statement is effective for
inventory costs incurred during fiscal 2007 and earlier application is permitted. The Company
believes our current accounting policies closely align to the new rules. Accordingly, the Company
does not believe this new standard will have a material impact on our financial statements.
2. COMPREHENSIVE LOSS
Comprehensive loss for the three and nine months ended December 31, 2004 and 2003 is as follows:
3. NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted-average number of common shares
outstanding during the period. For the three and nine months ended December 31, 2004 and 2003, the
Company was in a net loss position and, therefore, common equivalent shares are not included in the
per share calculation because their effect would be anti-dilutive. As such, diluted net loss per
common share is the same amount as basic net loss per common share.
The following table sets forth common stock equivalents which were excluded from the computation of
diluted net loss per common share for the three and nine months ended December 31, 2004 and 2003 as
they would have had an anti-dilutive effect due to net losses for such periods:
4. STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with an exercise price
equal to the fair market value of the shares at the date of grant. The Company accounts for stock
option and award grants to employees using the intrinsic value method. The Company accounts for
stock options and awards to non-employees using the fair-value method.
The following table illustrates the effect on net loss and net loss per common share, basic and
diluted, as if the fair-value based method had been applied to all outstanding and stock options
and awards in each period. Pro forma information for the three and nine months ended December 31,
2004 and 2003 is as follows:
7
The fair value of stock options was estimated at the date of grant using the Black-Scholes
option-pricing model, assuming no dividends, and with the following weighted average assumptions
and the resulting weighted average fair value per share of option granted during the period:
5. RESTRUCTURINGS
In August 2002, the Company announced a restructuring program to reduce the Companys cost
structure as a result of the financial impact of a delay in the U.S. launch of Risperdal Consta by
the Companys collaborative partner, Janssen (the 2002 Restructuring). The restructuring program
reduced our workforce by 122 employees, representing 23% of the Companys total workforce at that
time, and included consolidation and closure of certain leased facilities in Cambridge,
Massachusetts, closure of the Companys medical affairs office in Cambridge, England, write-off of
leasehold improvements at leased facilities being vacated and reductions of other expenses. As of
December 31, 2004, the Company had paid in cash or written off an aggregate of approximately $1.6
million in employee separation costs and approximately $4.2 million in facility closure costs in
connection with the 2002 Restructuring. The amounts remaining in the 2002 Restructuring accrual at
December 31, 2004 related to facility lease costs and are expected to be paid through fiscal 2006.
In June 2004, the Company announced a restructuring program in connection with the decision by
Alkermes and Genentech to discontinue commercialization of Nutropin Depot (the 2004
Restructuring). The decision was based on the significant resources required by both companies to
continue manufacturing and commercializing the product. In connection with this decision, the
Company ceased commercial manufacturing of Nutropin Depot in June 2004, reduced the Companys workforce by 17 employees, representing approximately 3% of the
Companys total workforce, and recorded restructuring charges in the quarter ended June 30, 2004 of
approximately $11.9 million under the caption Restructuring in the consolidated statements of
operations. The restructuring charges
8
consisted of approximately $0.2 million in employee separation costs, including severance and related benefits, and approximately $11.7 million in
facility closure costs, including fixed asset write-offs and estimates of future lease costs
relating to the Companys ability to sublease the exited facility through the end of its lease
term, August 2008. In addition to the restructuring charges recorded in the quarter ended June 30,
2004, the Company also recorded a one-time write-off of Nutropin Depot inventory of approximately
$1.3 million, which was recorded under the caption Cost of goods manufactured in the consolidated
statements of operations.
As of December 31, 2004, the Company had paid in cash or written off an aggregate of approximately
$8.6 million in facility closure costs and $0.1 million in employee separation costs in connection
with the 2004 Restructuring. The amounts remaining in the 2004 Restructuring accrual at December
31, 2004 are expected to be paid out through fiscal 2009 and relate primarily to estimates of lease
costs associated with the exited facility.
The following table displays the restructuring activities and liability balances included in
accrued restructuring costs:
6. INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined in a manner that
approximates the first-in, first-out method. The components of inventory consist of the following:
In connection with the 2004 Restructuring, the Company recorded a one-time write-off of Nutropin
Depot inventory of approximately $1.3 million in the quarter ended June 30, 2004, which was
recorded under the caption Cost of goods manufactured in the condensed consolidated statements of
operations. See Note 5 for discussion on restructuring charges.
7. DERIVATIVES
2 1/2% Subordinated Notes -
In the event that an automatic conversion of the 2 1/2% Subordinated Notes
due 2023 (the 2 1/2% Subordinated Notes) occurs on or prior to September 1, 2006, the Company would
be required to pay
9
additional interest in cash or, at the Companys option in common stock, equal
to three full years of interest on the converted notes (the Three Year Interest Make-Whole), less
any interest actually paid or provided for on the notes prior to automatic conversion. This
Three-Year Interest Make-Whole provision represents an embedded derivative that is required to be
accounted for apart from the underlying 2 1/2% Subordinated Notes. When the 2 1/2% Subordinated Notes
were issued, the Three-Year Interest Make-Whole had an estimated initial aggregate fair value of
$3.9 million, which reduced the amount of the outstanding debt and was recorded as a derivative
liability in the condensed consolidated balance sheets. The $3.9 million initially allocated to the
Three-Year Interest Make-Whole feature has been treated as a discount on the 2 1/2% Subordinated Notes
and is being accreted to interest expense over five years through September 1, 2008, the first date
on which holders of the 2 1/2% Subordinated Notes have the right to require the Company to repurchase
the 2 1/2% Subordinated Notes. The estimated fair value of the Three-Year Interest Make-Whole feature
is carried in the condensed consolidated balance sheets under Derivative liability related to
convertible subordinated notes and is being adjusted to its fair value on a quarterly basis until
it expires or is paid. Quarterly adjustments to the fair value of the Three-Year Interest
Make-Whole are charged to Derivative (losses) income related to convertible subordinated notes in
the condensed consolidated statements of operations.
During the three and nine months ended December 31, 2004, the Company recorded losses of
approximately $0.3 million and income of $2.3 million, respectively, in the condensed consolidated
statements of operations for changes in the estimated value of the feature after issuance. The
recorded value of the derivative liability related to the 2 1/2% Subordinated Notes (approximately
$2.3 million at December 31, 2004) can fluctuate significantly based on fluctuations in the market
value of the Companys common stock.
Warrants
The Company recorded net gains of approximately $0.1 million and net charges of
approximately $0.7 million in the three and nine months ended December 31, 2004, respectively, and
net charges of $0.7 million and net gains of $1.8 million in the three and nine months ended
December 31, 2003, respectively, in Other income (expense), net in the condensed consolidated
statements of operations in connection with the changes in the fair value of warrants held by the
Company which were granted in connection with licensing arrangements. The recorded value of such
warrants can fluctuate significantly based on fluctuations in the market value of the underlying
securities of the issuer of the warrants. At December 31, 2004, the warrants had a fair value of
approximately $2.2 million and were recorded under the caption Other assets in the condensed
consolidated balance sheets.
8. LITIGATION
Beginning in October 2003, the Company and certain of its current and former officers and directors
were named as defendants in six purported securities class action lawsuits filed in the United
States District Court for the District of Massachusetts. The cases were captioned: Bennett v.
Alkermes, Inc., et. al., 1:03-CV-12091 (D. Mass.); Ragosta v. Alkermes, Inc., et. al.,
1:03-CV-12184 (D. Mass.); Barry Family LP v. Alkermes, Inc., et. al., 1:03-CV-12243 (D. Mass.);
Waltzer v. Alkermes, Inc., et. al., 1:03-CV-12277 (D. Mass.); Folkerts v. Alkermes, Inc., et. al.,
1:03-CV-12386 (D. Mass.); and Slavas v. Alkermes, Inc., et. al., 1:03-CV-12471 (D. Mass.). On May
14, 2004, the six actions were consolidated into a single action captioned: In re Alkermes
Securities Litigation, Civil Action No. 03-CV-12091-RCL (D. Mass.). On July 12, 2004, a single
consolidated amended complaint was filed on behalf of purchasers of the Companys common stock
during the period April 22, 1999 to July 1, 2002. The consolidated amended complaint generally
alleges, among other things, that, during such period, the defendants made misstatements to the
investing public relating to the manufacture and FDA approval of the Companys Risperdal Consta
product. The consolidated amended complaint seeks unspecified damages. On September 10, 2004, the
Company and the individual defendants filed a motion to dismiss all claims asserted against them in
the consolidated amended complaint in their entirety. The Court heard oral argument on the motion
on January 12, 2005, and the Company is awaiting a decision on the motion. Although the Company
believes these allegations are without merit and intends to vigorously defend against them, the litigation process is inherently uncertain and
there can be no guarantee as to the ultimate outcome of these matters.
10
From time to time, we may be subject to other legal proceedings and claims in the ordinary course
of business. We are not currently aware of any such proceedings or claims that we believe will
have, individually or in the aggregate, a material adverse effect on our business, financial
condition or results of operations.
9. TERM LOAN AND COMMITMENT FOR EQUIPMENT FINANCING
On December 22, 2004, the Company entered into a term loan in the principal amount of $3.7 million
with General Electric Capital Corporation (GE). The term loan is secured by certain of the
Companys equipment pursuant to a security agreement and is subject to an ongoing financial
covenant. The loan is payable in 36 monthly installments with the final installment due on
December 27, 2007 and bears a floating interest rate equal to the one-month London Interbank
Offered Rate (LIBOR), which is determined monthly, plus a certain fixed interest rate. The
Company may prepay the term loan without any penalty, contingent on GEs approval, and further use
the $3.7 million of available credit to finance new equipment purchases with the same terms and
conditions as noted below. If the Company fails to pay any amounts when due, or is in default
under or fails to perform any term or condition of the security agreement, then GE may elect to
accelerate the entire outstanding principal amount of the loan with accrued interest such that the
amounts are immediately due and payable from the Company to GE. In addition, all amounts
accelerated shall bear interest at 18% until such amounts are paid in full. As of December 31,
2004, $3.7 million was outstanding under the term loan.
In addition, on December 22, 2004, the Company entered into a commitment for equipment financing
with GE. The equipment financing will further require an amendment to an existing Master Lease
Agreement dated as of October 16, 2002, as amended by an amendment dated November 7, 2002, by and
between the Company and GE. The equipment financing, in the form of an equipment lease line,
provides the Company the ability to finance up to $18.3 million in new equipment purchases through
December 31, 2005. The equipment financing would be secured by the purchased equipment and will be
subject to a financial covenant. The lease terms would provide the Company with the option at the
end of the lease to (a) purchase the equipment from GE at the then prevailing market value, (b)
renew the lease at a fair market rental value, subject to remaining economic useful life
requirements, or (c) return of the equipment to GE, subject to certain conditions. As of December
31, 2004, there were no amounts outstanding under this commitment.
10. SUBSEQUENT EVENT
On February 1, 2005, ACT II, pursuant to the terms of a purchase and
sale agreement, sold, assigned and contributed to Royalty Sub the rights of ACT II to collect
certain royalty payments and manufacturing fees (the Royalty Payments) payable to ACT II under
the Janssen Agreements (defined below) and certain agreements that may arise in the future, in
exchange for approximately $145 million in cash. The Royalty
Payments arise under (i) the license
agreements dated February 13, 1996 for the United States and its territories and February 21, 1996
for all countries other than the United States and its territories, by and between ACT II and
Janssen Pharmaceutica Inc. and certain of its affiliated entities (JP) and (ii) the Manufacturing
and Supply Agreement dated August 6, 1997 by and between JPI Pharmaceutica International (JPI and
together with JP, Janssen), JP and ACT II (collectively,
the Janssen Agreements). The assets of Royalty Sub will
not be available to satisfy other obligations of Alkermes.
Also on February 1,
2005, Royalty Sub issued an aggregate principal amount of
$170 million of its
Risperdal Consta® PhaRMA
SM
Secured 7% Notes due 2018 (the 7% Notes) to
certain institutional investors in a private placement and at a discount for net proceeds after
transaction expenses of approximately $145 million. The Royalty Payments are the sole source of
payment for the 7% Notes. Alkermes will receive all of the Risperdal Consta revenues in excess of
interest, premium, if any, and principal payments. Principal on the 7% Notes must be paid in full
by the final legal maturity date of January 1, 2018, unless redeemed earlier. Non-payment of
principal will not be an event of default prior to January 1, 2018. The annual cash coupon rate is 7% and is payable quarterly,
beginning on April 1, 2005, however portions of the
11
principal amount that are not paid off in accordance with the expected principal repayment profile will accrue interest at 9.75%. The yield
to maturity on the 7% Notes is 9.75%. Through January 1, 2009, the 7% Note holders will receive
only the quarterly cash interest payments. In addition, beginning on April 1, 2009, principal payments will
be made to investors, subject to certain conditions. Timing of the principal repayment will be
based on the revenues received by Royalty Sub but will occur no earlier than equally over the
twelve quarters between April 1, 2009 and January 1, 2012, subject to certain conditions. The 7%
Notes, however, may be redeemed at Royalty Subs option, subject, in certain circumstances, to the
payment of a redemption premium.
12
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Alkermes, Inc. (as used in this section, together with our subsidiaries, us, we or our), a
Pennsylvania corporation organized in 1987, is a pharmaceutical company that develops products
based on sophisticated drug delivery technologies to enhance therapeutic outcomes in major
diseases. Our lead commercial product, Risperdal Consta® [(risperidone) long-acting injection], is
the first and only long-acting atypical antipsychotic medication approved for use in schizophrenia,
and is marketed worldwide by Janssen-Cilag, a subsidiary of Johnson & Johnson, together with other
affiliates (Janssen). Our lead proprietary product candidate, Vivitrex
®
[(naltrexone)
long-acting injection], is a once-a-month injection for the treatment of alcohol dependence. We
have a pipeline of extended-release injectable products and pulmonary drug products based on our
proprietary technology and expertise, ProLease and Medisorb for extended-release of injectable drug
products, and AIR
®
for inhaled drug products. Our product development strategy is
twofold: we partner our proprietary technology systems and drug delivery expertise with several of
the worlds finest pharmaceutical companies and we also develop novel, proprietary drug candidates
for our own account. Our headquarters are in Cambridge, Massachusetts, and we operate research and
manufacturing facilities in Massachusetts and Ohio. Since our inception in 1987, we have devoted a
significant portion of our resources to research and development programs and the purchase of
property, plant and equipment. At December 31, 2004, we had an accumulated deficit of approximately
$612.6 million.
We have funded our operations primarily through public offerings and private placements of debt and
equity securities, bank loans, term loans, equipment financing arrangements and payments under
research and development agreements with collaborators. We historically have developed our product
candidates in collaboration with others on whom we rely for funding, development, manufacturing
and/or marketing. While we continue to develop product candidates in collaboration with others, we
also develop proprietary product candidates for our own account that we fund on our own.
Forward-Looking Statements
Any statements herein or otherwise made in writing or orally by us with regard to our expectations
as to financial results and other aspects of our business may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not
limited to, statements concerning future operating results, the achievement of certain business and
operating goals, manufacturing revenues, research and development spending, plans for clinical
trials and regulatory approvals, financial goals and projections of capital expenditures,
recognition of revenues, restructuring charges in connection with the discontinuation of Nutropin
Depot and future financings. These statements relate to our future plans, objectives, expectations
and intentions and may be identified by words like believe, expect, may, will, should,
seek, or anticipate, and similar expressions.
Although we believe that our expectations are based on reasonable assumptions within the bounds of
our knowledge of our business and operations, the forward-looking statements are neither promises
nor guarantees and our business is subject to significant risk and uncertainties and there can be
no assurance that our actual results will not differ materially from our expectations. Factors
which could cause actual results to differ materially from our expectations set forth in our
forward-looking statements include, among others: (i) Risperdal Consta and our product candidates
(including our proprietary product candidate, Vivitrex), if approved for marketing, may not be
launched successfully in one or all indications for which marketing is approved, and, if launched,
may not produce significant revenues; (ii) we rely on our partners to determine the regulatory and
marketing strategies for Risperdal Consta and our other partnered programs; (iii) after the
completion of clinical trials for our product candidates (including our proprietary product
candidate, Vivitrex) and the submission for marketing approval, the FDA or other health authorities
could refuse to accept such filings or could request additional preclinical or clinical studies be
conducted, each of which could result in significant delays, or such authorities could refuse to
approve the product at all; (iv) we may be unable to manufacture Risperdal Consta or to scale-up or
manufacture future products, including our proprietary product candidate, Vivitrex, on a commercial
scale or economically and in addition, we may be unable to add additional production capacity for
Risperdal Consta or unexpected events could interrupt manufacturing operations
13
at our Risperdal Consta facility, which is the sole source of supply for that product; (v) whether
additional regulatory approvals will be received or whether commercial launches of Risperdal Consta
in countries where it has been or may be approved occur in a timely or successful manner; (vi)
Risperdal Consta and our product candidates (including our proprietary product candidate,
Vivitrex), in commercial use, may have unintended side effects, adverse reactions or incidents of
misuse and the FDA or other health authorities could require post approval studies or require
removal of our products from the market; (vii) we may enter into a collaboration with a third party
to market or fund a proprietary product candidate, including our proprietary product candidate,
Vivitrex, and the terms of such a collaboration may not meet our expectations or the expectations
of the financial markets; (viii) our delivery technologies or product development efforts may not
produce safe, efficacious or commercially viable products; (ix) our collaborators could elect to
terminate or delay programs at any time and disputes with collaborators or failure to negotiate
acceptable new collaborative arrangements for our technologies could occur; (x) clinical trials may
take more time or consume more resources than initially envisioned; (xi) the risk that results of
earlier clinical trials are not necessarily predictive of the safety and efficacy results in larger
clinical trials; (xii) our product candidates could be ineffective or unsafe during preclinical
studies and clinical trials and we and our collaborators may not be permitted by regulatory
authorities to undertake new or additional clinical trials for product candidates incorporating our
technologies, or clinical trials could be delayed; (xiii) we may not recoup any of our $100 million
investment in Reliant Pharmaceuticals, LLC (Reliant); (xiv) the securities litigation brought
against us may result in financial losses or require the dedication of significant management
resources; (xv) even if our product candidates appear promising at an early stage of development,
product candidates could fail to receive necessary regulatory approvals, be difficult to
manufacture on a large scale, be uneconomical, fail to achieve market acceptance, be precluded from
commercialization by proprietary rights of third parties or experience substantial competition in
the marketplace; (xvi) technological change in the biotechnology or pharmaceutical industries could
render our product candidates obsolete or noncompetitive; (xvii) difficulties or set-backs in
obtaining and enforcing our patents and difficulties with the patent rights of others could occur;
(xviii) we may not become profitable and could continue to incur losses for the foreseeable future;
and (xix) we may need to raise substantial additional funding to continue research and development
programs and clinical trials and could incur difficulties or setbacks in raising such funds.
Critical Accounting Policies
As fully described in the Management Discussion and Analysis section of the Companys Annual
Report on Form 10-K for the year ended March 31, 2004, we consider our critical accounting policies
to be:
We recorded restructuring charges in the consolidated statements of operations during the quarter
ended June 30, 2004. As discussed below, we now consider our accounting policy on restructuring to
be a critical accounting policy.
Restructuring
We recorded restructuring charges in our consolidated statements of operations in
August 2002 in connection with a restructuring program to reduce our cost structure as a result of
the financial impact of a delay in
14
the U.S. launch of Risperdal Consta by our collaborative partner, Janssen (the 2002
Restructuring). We also recorded restructuring charges in June 2004 in connection with the
decision by Alkermes and Genentech to stop commercialization of Nutropin Depot (the 2004
Restructuring).
Charges recorded in the condensed consolidated statements of operations in connection with the 2002
Restructuring and the 2004 Restructuring required that management make estimates related to our
ability to sublease exited facilities, the rates at which we may be able to sublease exited
facilities and the net realizable value of certain fixed assets. See Results of Operations
below for additional information related to the 2002 Restructuring and the 2004 Restructuring.
Results of Operations
The net loss for the three months ended December 31, 2004 was $9.0 million or $0.10 per basic and
diluted share as compared to a net loss of $20.9 million or $0.23 per basic and diluted share for
the three months ended December 31, 2003.
The net loss for the nine months ended December 31, 2004 was $59.4 million or $0.66 per basic and
diluted share as compared to a net loss of $77.7 million or $0.97 per basic and diluted share for
the nine months ended December 30, 2003.
Total revenues were $23.6 million and $53.1 million for the three and nine months ended December
31, 2004, respectively, as compared to $11.2 million and $23.0 million for the three and nine
months ended December 31, 2003, respectively.
Total manufacturing and royalty revenues were $16.6 million and $34.5 million for the three months
and nine months ended December 31, 2004, respectively, as compared to $8.6 million and $15.5
million for the three and nine months ended December 31, 2003, respectively.
Total manufacturing revenues were $13.9 million and $27.8 million for the three and nine months
ended December 31, 2004, respectively, all related to manufacturing of Risperdal Consta. This is
compared to $7.5 million and $13.1 million for the three and nine months ended December 31, 2003,
respectively, including $7.3 million and $12.5 million, respectively, of manufacturing revenues for
Risperdal Consta. The increase in manufacturing revenues for the three and nine months ended
December 31, 2004 as compared to the three months ended December 31, 2003 was due to increased
shipments of Risperdal Consta to Janssen. Risperdal Consta is marketed in more than 45 countries.
Under our manufacturing and supply agreement with Janssen, we earn manufacturing revenues upon
shipment of product by Alkermes to Janssen based on a percentage of Janssens net selling price.
These percentages are based on the volume of units shipped to Janssen in any given calendar year,
with a minimum manufacturing fee of 7.5%. We anticipate that we will earn manufacturing revenues
at an average of 8.2% of Janssens net sales price for Risperdal Consta in the fiscal year ending
March 31, 2005 as compared to 9.8% in the fiscal year ended March 31, 2004. As discussed below, in
the quarter ended June 30, 2004, we ceased commercial production of Nutropin Depot and there were
therefore no manufacturing revenues earned during the three and nine months ended December 31, 2004
related to Nutropin Depot.
Total royalty revenues were $2.7 million and $6.7 million for the three and nine months ended
December 31, 2004, respectively, including $2.6 million and $6.5 million, respectively, of royalty
revenues for Risperdal Consta. This is compared to $1.1 million and $2.4 million for the three and
nine months ended December 31, 2003, respectively, including $0.9 million and $1.8 million,
respectively, of royalty revenues from Risperdal Consta. The increase in royalty revenues for the
three and nine months ended December 31, 2004 as compared to the same period in 2003 was due to an
increase in global sales of Risperdal Consta by Janssen. Under our license agreements with
Janssen, we record royalty revenues equal to 2.5% of Janssens net sales of Risperdal Consta in the
quarter when the product is sold by Janssen.
15
Research and development revenue under collaborative arrangements was $7.0 million and $18.6
million for the three and nine months ended December 31, 2004, respectively. This compares to $2.6
million and $7.5 million for the three and nine months ended December 31, 2003, respectively. The
increase in research and development revenue for the three and nine months ended December 31, 2004
as compared to the same period in 2003 was primarily due to revenues earned related to work
performed on the Eli Lilly and Company (Lilly) AIR insulin and AIR human growth hormone (hGH)
programs and to work performed on several other collaborative programs. See discussion of the
funding of our Lilly development programs in Liquidity and Capital Resources below.
Cost of goods manufactured was $4.9 million and $12.6 million for the three and nine months ended
December 31, 2004, consisting of approximately $4.9 million and $10.3 million, respectively, for
Risperdal Consta and $0 and $2.3 million for Nutropin Depot. Cost of goods manufactured was $4.1
million and $11.2 million for three and nine months ended December 31, 2003, consisting of
approximately $2.7 million and $7.5 million, respectively, for Risperdal Consta and $1.4 million
and $3.7 million, respectively, for Nutropin Depot. The increase in cost of goods manufactured in
the three months ended December 31, 2004 as compared to the same period in 2003 was primarily the
result of increased manufacturing volumes of Risperdal Consta as well as a one-time write-off of
Nutropin Depot inventory of $1.3 million recorded under the caption Cost of goods manufactured in
our condensed consolidated statement of operations in the quarter ended June 30, 2004.
Research and development expenses were $20.1 million and $66.8 million for the three and nine
months ended December 31, 2004 as compared to $21.1 million and $66.2 million for the three and
nine months ended December 30, 2003. Research and development expenses were lower in the three
months ended December 30, 2004 as compared to the three months ended December 30, 2003 primarily
due to a decrease in external research costs related to the clinical trials of Vivitrex. The
increase in research and development expenses for the nine months ended December 30, 2004 as
compared to the nine months ended December 30, 2003 was primarily due to increases in personnel
costs related to our proprietary and collaborator product candidates and to increases in occupancy
costs, partially offset by a decrease in external research costs related to the clinical trials of
Vivitrex.
A significant portion of our research and development expenses (including laboratory supplies,
travel, dues and subscriptions, recruiting costs, temporary help costs, consulting costs and
allocable costs such as occupancy and depreciation) are not tracked by project as they benefit
multiple projects or our drug delivery technologies in general. Expenses incurred to purchase
specific services from third parties to support our collaborative research and development
activities are tracked by project and are reimbursed to us by our partners. We generally bill our
partners under collaborative arrangements using a single full-time equivalent or hourly rate. This
rate has been established by us based on our annual budget of salaries, employee benefits and the
billable non-project-specific costs mentioned above and is generally increased annually based on
increases in the consumer price index. Each collaborative partner is billed using a full-time
equivalent or hourly rate for the hours worked by our employees on a particular project, plus any
direct external research costs. We account for our research and development expenses on a
departmental and functional basis in accordance with our budget and management practices.
Below is a summary of our proprietary and collaborators commercial products and product candidates
and their respective stages of clinical development.
16
In August 2004, we announced that Lilly made a positive product decision to proceed with
significant investment for the further development of an inhaled formulation of insulin. The
decision follows the successful execution of several critical steps: the completion and analysis
of data from a Phase II study; the achievement of commercial manufacturing powder production
scale-up; and the development and testing of the commercial pulmonary insulin inhaler system.
Development activities will include both clinical trials and additional manufacturing activities
for the inhaler system and the production facility.
In October 2004, Alkermes and Serono discontinued development of the sustained-release version of
recombinant human follicle stimulating hormone (r-hFSH) for the treatment of infertility.
Despite positive early-stage clinical trial results, this decision was based on a shift of
priorities within Serono.
In November 2004, we, along with partners Amylin Pharmaceuticals, Inc. and Lilly made the decision
to initiate a Phase II multi-dose study of exenatide LAR (long-acting release), in type 2 diabetes
patients using a once-a-week dosing regimen. Patient screening and enrollment for the Phase II
multi-dose study began in January 2005. The study is expected to be completed by early 2006. Data
from the ongoing Phase II single-dose study have demonstrated sustained release of exenatide with
no dose-limiting effects.
In January 2005, we announced that we will expand production capacity for Risperdal Consta by
building a third production line. This expansion at Alkermes Wilmington, Ohio, facility is
designed to meet anticipated future demand for Risperdal Consta. Under the terms of the agreement
with Janssen, we will be responsible for managing the design, engineering, construction, validation
and all other aspects of the project based upon a mutually-agreed project plan, and Janssen will
reimburse us for such costs incurred in accordance with a mutually agreed upon budget. Upon
validation of such facility, Alkermes will be responsible for on-going operating costs.
Sales, general and administrative expenses were $6.9 million and $21.3 million for the three and
nine months ended December 31, 2004 as compared to $6.5 million and $18.2 million for the three and
nine months ended December 31, 2003. Sales, general and administrative expenses for the three and
nine months ended December 31, 2004 were higher than in the three and nine months ended December
31, 2003 primarily as a result of an increase in sales and marketing costs as we prepare for the
potential future commercialization of Vivitrex.
In August 2002, we announced a restructuring program to reduce our cost structure as a result of
the financial impact of a delay in the U.S. launch of Risperdal Consta by our collaborative
partner, Janssen (the 2002 Restructuring). The restructuring program reduced our workforce by
122 employees, representing 23% of our total workforce at that time, and included consolidation and
closure of certain leased facilities in Cambridge, Massachusetts, closure of our medical affairs
office in Cambridge, England, write-off of leasehold improvements at leased facilities being
vacated and reductions of other expenses. As of December 31, 2004, we had paid in cash or written
off an aggregate of approximately $1.6 million in employee separation costs and approximately $4.2
million in facility closure costs in connection with the 2002 Restructuring. The amounts remaining
in the 2002 Restructuring accrual at December 31, 2004 related to facility lease costs and are
expected to be paid through fiscal 2006.
In June 2004, we announced a restructuring program in connection with the decision by Alkermes and
Genentech to discontinue commercialization of Nutropin Depot (the 2004 Restructuring). The
decision was based on the significant resources required by both companies to continue
manufacturing and commercializing the product. In connection with this decision, we ceased
commercial manufacturing of Nutropin Depot in June 2004, reduced our
17
workforce by 17 employees, representing approximately 3% of our total workforce, and recorded
restructuring charges in the quarter ended June 30, 2004 of approximately $11.9 million under the
caption Restructuring in the consolidated statements of operations. The restructuring charges
consisted of approximately $0.2 million in employee separation costs, including severance and
related benefits, and approximately $11.7 million in facility closure costs, including fixed asset
write-offs and estimates of future lease costs relating to our ability to sublease the exited
facility through the end of its lease term, August 2008. In addition to the restructuring charges
recorded in the quarter ended June 30, 2004, we also recorded a one-time write-off of Nutropin
Depot inventory of approximately $1.3 million, which was recorded under the caption Cost of goods
manufactured in the consolidated statements of operations.
As of December 31, 2004, we had paid in cash or written off an aggregate of approximately $8.6
million in facility closure costs and $0.1 million in employee separation costs in connection with
the 2004 Restructuring. The amounts remaining in the 2004 Restructuring accrual at December 31,
2004 are expected to be paid out through fiscal 2009 and relate primarily to estimates of lease
costs associated with the exited facility.
The following table displays the restructuring activities and liability accounts included in
accrued restructuring costs:
Interest income was $0.6 million and $1.9 million for the three and nine months ended December 31,
2004 as compared to $1.0 million and $2.6 million for the three and nine months ended December 31,
2003. The decrease for the nine month periods was primarily the result of lower average cash and
investment balances held during the nine months ended December 31, 2004 as compared to the nine
months ended December 31, 2003.
Other income (expense), net was income of $0.1 million and expense of $ 0.7 million in the three
and nine months ended December 31, 2004 as compared to expense of $0.7 million and income of $1.8
million for the three and nine months ended December 31, 2003. Other income (expense), net
represents income or expense recognized on the net changes in the fair value of warrants of public
companies held by us in connection with collaboration and licensing arrangements, which are
recorded as derivatives under the caption Other assets in the condensed consolidated balance
sheets. The recorded value of such warrants can fluctuate significantly based on fluctuations in
the market value of the underlying securities of the issuer of the warrants.
During the three and nine months ended December 31, 2004, we recorded derivative losses of $0.3
million and derivative income of $2.3 million for changes in the estimated value of the Three-Year
Interest Make-Whole feature of the 2 1/2% Convertible Subordinated Notes due 2023 (the 2 1/2%
Subordinated Notes). The estimated value of the Three-Year Interest Make-Whole feature is carried
in the consolidated balance sheets under the caption Derivative liability related to convertible
notes and will be adjusted to its fair value on a quarterly basis until it
expires or is paid. Quarterly adjustments to the fair value of the Three-Year Interest Make-Whole
will be charged to Derivative income (losses) related to convertible subordinated notes in the
condensed consolidated statements of
18
operations until it is paid out or expires. The recorded value of the derivative liability related to the 2 1/2% Subordinated Notes, approximately $2.3
million, at December 31, 2004, can fluctuate significantly based on fluctuations in the market
value of our common stock.
During the three months and nine months ended December 31, 2003, we recorded derivative income of
$0.7 million and derivative losses of $4.0 million in the condensed consolidated statements of
operations. In June 2003, we announced that we had exercised our automatic conversion right for
the 6.52% Senior Notes. In July 2003, upon conversion of the then outstanding 6.52% Senior Notes
and payment of the Two-Year Interest Make-Whole, the embedded derivative was settled in full and
the balance was reduced to zero.
Interest expense was $1.2 million and $3.5 million for the three and nine months ended December 31,
2004, respectively, as compared to $1.2 million and $5.3 million for the three and nine months
ended December 31, 2003. The decrease for the nine months ended December 31, 2004 as compared to
the nine months ended December 31, 2004 was primarily the result of a lower interest rate payable
on the convertible debt outstanding during the respective periods.
We do not believe that inflation and changing prices have had a material impact on our results of
operations.
Liquidity and Capital Resources
Cash and cash equivalents and short-term investments were approximately $78.1 million at December
31, 2004 as compared to $143.9 million at March 31, 2004. The decrease in cash and cash
equivalents and short-term investments during the nine months ended December 31, 2004 was primarily
a result of cash outflows to fund our operations and to acquire fixed assets.
We invest in cash equivalents, U.S. Government obligations, high-grade corporate notes and
commercial paper, with the exception of our $100 million investment in Reliant. Our investment
objectives for our investments, other than our investment in Reliant, are, first, to assure
liquidity and conservation of capital and, second, to obtain investment income. Investments
classified as long-term at December 31, 2004 consist of U.S. Government obligations held as
collateral under certain irrevocable standby letters of credit required under certain lease
agreements, including the lease for our corporate headquarters.
In August and September 2003, we issued an aggregate of $125.0 million principal amount of 2 1/2%
Subordinated Notes. The 2 1/2% Subordinated Notes are convertible into shares of our common stock at
a conversion price of $13.85 per share, subject to adjustment in certain events. The 2 1/2%
Subordinated Notes bear interest at 2 1/2% per year, payable semiannually on March 1 and September 1,
commencing on March 1, 2004 and are subordinated to existing and future senior indebtedness of
Alkermes.
We may elect to automatically convert the notes anytime the closing price of our common stock has
exceeded 150% of the conversion price ($20.78), for at least 20 trading days during any 30-day
trading period. We may redeem some or all of the notes on or after September 6, 2006. Holders of
the notes have the right to require us to repurchase some or all of their notes on September 1,
2008, 2013, and 2018 and upon certain events, including a change in control.
If an automatic conversion occurs on or prior to September 1, 2006, we will pay additional interest
in cash or, at our option, in common stock, equal to three full years of interest on the converted
notes, Three-Year Interest Make-Whole, less any interest actually paid or provided for on the
notes prior to automatic conversion. If we elect to pay the additional interest in common stock,
the shares of common stock will be valued at 97.5% of the average closing price of our common stock
for the five trading days immediately preceding the second trading day prior to the conversion
date.
In December 2002, we and Lilly expanded the collaboration for the development of inhaled
formulations of insulin and hGH based on our AIR pulmonary drug delivery technology. At that time,
Lilly purchased $30.0 million of our
19
Convertible Preferred Stock, the proceeds from which represented $25.0 million and $5.0 million in funding for the Lilly insulin and Lilly hGH
development programs, respectively, for the period starting January 1, 2003 and into calendar 2004.
As a result of this transaction, we did not recognize research and development revenue related to
work performed on the Lilly development programs while the proceeds from the sale of the
Convertible Preferred Stock were being spent. In addition, the royalty rate payable to us based on
revenues of potential inhaled insulin products was increased. Lilly has the right to return the
Convertible Preferred Stock to us in exchange for a reduction in this royalty rate back to its
original rate. The Convertible Preferred Stock is convertible into our common stock at the market
price at the time of conversion at our option or automatically upon the filing of a new drug
application with the FDA for a pulmonary insulin product. The collaboration cannot terminate
without cause until January 2005. We will register for resale all of our shares of common stock
issued upon conversion of the Convertible Preferred Stock.
In December 2003, Lilly made additional payments to us totaling approximately $7.0 million in order
to fund an increase in the scope of our joint development programs, $3.0 million of which
represented funding for the Lilly insulin development program and the remaining $4.0 million
represented funding for the Lilly hGH development program. The $7.0 million payment was recorded
as deferred revenue in the consolidated balance sheets in the quarter ended December 31, 2003. When
the funding for a program provided for by the proceeds from the sale of Convertible Preferred Stock
has been spent, we will begin to recognize revenue on that program as work is performed. As of
June 30, 2004, the entire $5.0 million of funding from the Convertible Preferred Stock related to
the Lilly hGH program had been spent. As of September 30, 2004, the entire $25.0 million of
funding from the Convertible Preferred Stock related to the Lilly insulin program had been spent.
Therefore, beginning in the quarter ended June 30, 2004 for the Lilly hGH program and beginning in
the quarter ended September 30, 2004 for the Lilly insulin program, we recorded revenue for work
performed on the Lilly hGH and Lilly insulin programs in our condensed consolidated statements of
operations. As of December 31, 2004, all of the funding was fully earned and there are no amounts
recorded as a current liability under the caption of Deferred revenue in the condensed
consolidated balance sheets.
Under an addendum to our manufacture and supply agreement with Janssen, Janssen is required to pay
us certain minimum amounts of manufacturing revenues relating to our sales of Risperdal Consta to
Janssen beginning in 2003. The actual amount of such minimum manufacturing revenues will be
determined by a formula and is currently estimated to aggregate approximately $150.0 million. As
of December 31, 2004, we had recognized approximately $65 million of cumulative manufacturing
revenues against the estimated $150.0 million minimum. Janssens minimum revenue obligation will
be satisfied when Alkermes reaches approximately $150.0 million in cumulative manufacturing
revenues earned from sales of Risperdal Consta to Janssen. While the manufacture and supply
agreement with Janssen specifies annual minimum revenues expected to be paid to Alkermes over a ten
year period beginning in calendar 2003, we expect our annual manufacturing revenues to exceed those
annual minimums. In December 2002, Janssen prepaid the first two years of minimum manufacturing
revenues to us, totaling $23.9 million and these amounts were recorded as deferred revenue in our
consolidated balance sheets. We have assigned and contributed to Royalty Sub the right to all
manufacturing fees payable to ACT II under the manufacturing and supply agreement see Subsequent
Event in the notes to the condensed consolidated financial statements. As of December 31, 2004,
all of the prepayment was earned and there were no amounts recorded as a current liability under
the caption Deferred revenue in the condensed consolidated balance sheets.
We do not have any off-balance sheet arrangements, other than operating leases in the ordinary
course of business. Capital expenditures were approximately $12.7 million for the nine months
ended December 31, 2004, principally reflecting equipment purchases and building expansion and
improvements. We expect our capital expenditures to total approximately $25.0 million during
fiscal year 2005, primarily to expand our manufacturing infrastructure for Risperdal Consta and
Vivitrex in addition to continued improvements to our manufacturing and development facilities in
Massachusetts and Ohio. Our capital expenditures for equipment, facilities and building
improvements have been financed to date primarily with proceeds from bank loans and the sales of
debt and equity securities. Under the provisions of the existing loans, General Electric Capital Corporation (GE) and Johnson
& Johnson Finance Corporation have security interests in certain of our assets.
20
On December 22, 2004, we entered into a term loan in the principal amount of $3.7 million with GE.
The term loan is secured by certain of our equipment pursuant to a security agreement and is
subject to an ongoing financial covenant. The loan is payable in 36 monthly installments with the
final installment due on December 27, 2007 and bears a floating interest rate equal to the one
month London Interbank Offered Rate (LIBOR), which is determined monthly, plus a certain fixed
interest rate. We may prepay the term loan without any penalty, contingent on GEs approval, and
further use the $3.7 million of available credit to finance new equipment purchases with the same
terms and conditions as noted below. If we fail to pay any amounts when due, or is in default
under or fails to perform any term or condition of the security agreement, then GE may elect to
accelerate the entire outstanding principal amount of the loan with accrued interest such that the
amounts are immediately due and payable from us to GE. In addition, all amounts accelerated shall
bear interest at 18% until such amounts are paid in full.
Additionally, on December 22, 2004, we entered into a commitment for equipment financing with GE.
The equipment financing will further require an amendment to an existing Master Lease Agreement
dated as of October 16, 2002, as amended by Amendment dated November 7, 2002, by and between us and
GE. The equipment financing, in the form of an equipment lease line, provides us the ability to
finance up to $18.3 million in new equipment purchases through December 31, 2005. The equipment
financing would be secured by the purchased equipment and will be subject to a financial covenant.
The lease terms would provide us with the option at the end of the lease to (a) purchase the
equipment from GE at the then prevailing market value, (b) renew the lease at a fair market rental
value, subject to remaining economic useful life requirements, or (c) return of the equipment to
GE, subject to certain conditions.
In January 2005, we announced that we will expand production capacity for Risperdal Consta by
building a third production line. This expansion at our Wilmington, Ohio, facility is designed to
meet anticipated future demand for Risperdal Consta. Under the terms of the agreement, we will be
responsible for managing the design, engineering, construction, validation and all other aspects of
the project based upon a mutually-agreed project plan, and Janssen will reimburse us for such costs
incurred in accordance with a mutually agreed upon budget. Upon validation of such facility,
Alkermes will be responsible for on-going operating costs.
On February 1, 2005, Alkermes Controlled Therapeutics Inc. II (ACT II), a Pennsylvania
corporation and wholly-owned subsidiary of Alkermes, Inc., pursuant to the terms of a purchase and
sale agreement, sold, assigned and contributed to RC Royalty Sub LLC, a Delaware limited liability
company, and wholly-owned subsidiary of ACT II (Royalty Sub) the rights of ACT II to collect
certain royalty payments and manufacturing fees (the Royalty Payments) payable to ACT II under
the Janssen Agreements (defined below) and certain agreements that may arise in the future, in
exchange for approximately $145 million in cash. The Royalty
Payments arise under (i) the license
agreements dated February 13, 1996 for the United States and its territories and February 21, 1996
for all countries other than the United States and its territories, by and between ACT II and
Janssen Pharmaceutica Inc. and certain of its affiliated entities (JP) and (ii) the Manufacturing
and Supply Agreement dated August 6, 1997 by and between JPI Pharmaceutica International (JPI and
together with JP, Janssen), JP and ACT II (collectively,
the Janssen Agreements). The assets of Royalty Sub will not
be available to satisfy other obligations of ours.
Also on February 1,
2005, Royalty Sub issued an aggregate principal amount of
$170 million of its
Risperdal Consta® PhaRMA
SM
Secured 7% Notes due 2018 (the 7% Notes) to
certain institutional investors in a private placement and at a discount for net proceeds after
transaction expenses of approximately $145 million. The Royalty Payments are the sole source of
payment for the 7% Notes. We will receive all of the Risperdal Consta revenues in excess of
interest, premium, if any, and principal payments. Principal on the 7% Notes must be paid in full
by the final legal maturity date of January 1, 2018, unless redeemed earlier. Non-payment of
principal will not be an event of default prior to January 1, 2018. The annual cash coupon rate is 7% and is payable
quarterly, beginning on April 1, 2005, however portions of the principal amount that are not paid
off in accordance with the expected principal repayment profile will accrue interest at 9.75%. The
yield to maturity on the 7% Notes is 9.75%. Through January 1, 2009, the 7% Note holders will
receive only the quarterly cash interest payments. In addition, beginning on April 1, 2009, principal
payments will be made to investors, subject to certain conditions. Timing of the principal repayment will be based
on the revenues received by Royalty Sub but will occur no earlier than equally over the twelve
quarters between April 1, 2009 and
21
January 1, 2012, subject to certain conditions. The 7% Notes, however, may be redeemed at Royalty Subs option, subject, in certain circumstances, to the payment
of a redemption premium.
The 7% Notes have not been and will not be registered under the Securities Act of 1933 and may not
be offered or sold in the United States absent an applicable exemption from the registration
requirements of the Act. A more detailed description of the obligations of Alkermes and Royalty
Sub can be found in our Form 8-K, filed with the Securities and Exchange Commission in connection
with this transaction.
We will continue to pursue opportunities to obtain additional financing in the future. Such
financing may be sought through various sources, including debt and equity offerings, corporate
collaborations, bank borrowings, arrangements relating to assets or other financing methods or
structures. The source, timing and availability of any financings will depend on market
conditions, interest rates and other factors. Our future capital requirements will also depend on
many factors, including continued scientific progress in our research and development programs
(including our proprietary product candidates), the magnitude of these programs, progress with
preclinical testing and clinical trials, the time and costs involved in obtaining regulatory
approvals, the costs involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the establishment of additional collaborative arrangements,
the cost of manufacturing facilities and of commercialization activities and arrangements and the
cost of product in-licensing and any possible acquisitions and, for any future proprietary
products, the sales, marketing and promotion expenses associated with marketing products.
We believe that our current cash and cash equivalents and short-term investments combined with
anticipated manufacturing and royalty revenues, research and development revenues under
collaborative arrangements, the approximately $145 million in net proceeds received from the
private placement of the 7% Notes and interest income, will be sufficient to meet out anticipated
capital requirements through at least March 31, 2007.
The contractual cash obligations disclosure included in our annual report on Form 10-K for the year
ended March 31, 2004 has not materially changed since we filed that report, except for the term
loan and purchase obligations as follows:
We may need to raise substantial additional funds for longer-term product development, including
development of our proprietary product candidates, regulatory approvals and manufacturing and sales
and marketing activities that we might undertake in the future. There can be no assurance that
additional funds will be available on favorable terms, if at all. If adequate funds are not
available, we may be required to curtail significantly one or more of our research and development
programs and/or obtain funds through arrangements with collaborative partners or others that may
require us to relinquish rights to certain of our technologies, product candidates or future
products.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As part of our investment portfolio we own financial instruments that are sensitive to market
risks. The investment portfolio is used to preserve our capital until it is required to fund
operations, including our research and development activities. Our short-term investments and
restricted investments consist of U.S. Government obligations, high-grade corporate notes and
commercial paper. All of our investments in debt securities are classified as available-for-sale
and are recorded at fair value. Our investments are subject to interest rate risk, and could
decline in value if interest rates increase. Due to the conservative nature of our short-term
investments and investments policy we do not believe that we have a material exposure to interest
rate risk. Although our
22
investments are subject to credit risk, our investment policies specify
credit quality standards for our investments and limit the amount of credit exposure from any
single issue, issuer or type of investment.
Our available-for-sale investments are sensitive to changes in interest rates. Interest rate
changes would result in a change in the net fair value of these financial instruments due to the
difference between the market interest rate and the market interest rate at the date of purchase of
the financial instrument. A 10% decrease in market interest rates would not result in a material
impact on the net fair value of such interest-sensitive financial instruments.
A 10% increase or decrease in market interest rates on our term loan with GE would not result in a
material impact on our operations. Since the interest rates on our 2
1
/
2
% Subordinated Notes, 3.75%
Convertible Subordinated Notes, capital leases and the Notes issued in the private placement in
February 2005 are fixed, we are not subject to interest rate risk on these financial instruments.
We hold warrants of public companies received in connection with collaboration and licensing
arrangements, which are recorded as derivatives under the caption Other assets in the condensed
consolidated balance sheets. The recorded value of such warrants, and accordingly our Other income
(expense), net, can fluctuate significantly based on fluctuations in the market value of the
underlying securities of the issuer of the warrants
Foreign Currency Exchange Rate Risk
The royalty revenues we recognize and report in our condensed consolidated statements of operations
and the related payments we receive on our Risperdal Consta product are calculated as a percentage
of the net sales made by our collaborative partner. Some of these sales made by our collaborative
partner are made in foreign countries. These foreign sales are initially denominated in foreign
currency in which the sale is made and subsequently converted into U.S. dollars at the then foreign
currency spot rate to determine the amount that our collaborative partner pays us as royalties.
Fluctuations in the foreign currency exchange ratio between the U.S. dollars and these foreign
currencies will have the effect of increasing or decreasing our recognized and reported royalty
revenues and the related payments we receive even if there is a constant amount of sales in foreign
currencies. For example, if the U.S. dollar strengthens against a foreign currency, then our
royalty revenues and related payments will decrease given a constant amount of sales in such
foreign currency.
The impact on our royalty revenues and related payment from fluctuations in foreign currency
exchange rates is based on a number of factors, including the amount of sales in any foreign
currency, the exchange ratio (and the change in the foreign currency exchange ratio from the prior
period) between a foreign currency and the U.S. dollar, and the amount of sales by our
collaborative partner that are denominated in foreign currencies. We do not currently hedge our
foreign currency exchange rate risk.
Item 4. Controls and Procedures
As of December 31, 2004, our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures
pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that, as of December 31, 2004, our disclosure controls and procedures were
effective in ensuring that material information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commissions rules and forms, including
ensuring that such material information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. During the period covered by this report, there have been
no changes in our internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
23
December 31,
March 31,
(In thousands, except share and per share amounts)
2004
2004
A S S E T S
$
35,716
$
9,899
42,400
134,037
14,371
11,526
3,128
2,605
1,772
2,156
97,387
160,223
235
235
16,250
15,718
64,762
69,016
464
464
45,995
56,809
11,097
3,489
138,803
145,731
(46,420
)
(49,988
)
92,383
95,743
4,906
5,012
7,135
9,052
$
201,811
$
270,030
L I A B I L I T I E S
A N D
S H A R E H O L D E R S
E Q U I T Y
$
19,100
$
18,209
1,052
264
1,311
1,138
17,173
2,307
4,650
1,123
87
82
24,980
41,516
2,338
272
338
2,553
122,152
121,570
676
676
30,000
30,000
899
893
4
4
630,154
627,446
(276
)
342
1,010
(612,559
)
(553,147
)
18,840
75,930
$
201,811
$
270,030
Table of Contents
Three Months Ended December 31,
Nine Months Ended December 31,
(In thousands, except share and per share amounts)
2004
2003
2004
2003
$
16,574
$
8,636
$
34,476
$
15,491
7,011
2,585
18,617
7,482
23,585
11,221
53,093
22,973
4,930
4,069
12,561
11,197
20,058
21,148
66,780
66,226
6,868
6,538
21,286
18,236
11,896
31,856
31,755
112,523
95,659
(8,271
)
(20,534
)
(59,430
)
(72,686
)
646
957
1,936
2,600
131
(746
)
(729
)
1,762
(347
)
650
2,343
(4,014
)
(1,158
)
(1,190
)
(3,532
)
(5,317
)
(728
)
(329
)
18
(4,969
)
$
(8,999
)
$
(20,863
)
$
(59,412
)
$
(77,655
)
$
(0.10
)
$
(0.23
)
$
(0.66
)
$
(0.97
)
90,176,261
89,013,535
90,010,880
79,719,932
Table of Contents
Nine Months Ended December 31,
(In thousands)
2004
2003
$
(59,412
)
$
(77,655
)
8,006
8,235
(40
)
(96
)
11,896
3,046
2,802
729
(1,762
)
(2,343
)
4,014
(2,845
)
(1,912
)
(1,513
)
(3,815
)
1,678
(762
)
(1,235
)
(1,843
)
(17,173
)
(1,553
)
(59,206
)
(74,347
)
(12,696
)
(12,704
)
66
784
(19,101
)
(194,388
)
110,513
105,119
(130
)
(98
)
78,652
(101,287
)
2,756
1,955
3,676
125,000
(61
)
(7,825
)
(3,962
)
6,371
115,168
(64
)
25,817
(60,530
)
9,899
72,479
$
35,716
$
11,949
$
1,600
$
7,894
84
177,264
464
Table of Contents
Table of Contents
Three Months Ended December 31,
Nine Months Ended December 31,
(In thousands)
2004
2003
2004
2003
$
(8,999
)
$
(20,863
)
$
(59,412
)
$
(77,655
)
(10
)
(31
)
(85
)
(425
)
(668
)
1,033
$
(9,084
)
$
(21,298
)
$
(60,080
)
$
(76,653
)
(In thousands)
2004
2003
18,123
16,013
9,025
9,025
10
10
2,064
2,305
29,222
27,353
Table of Contents
Three Months Ended December 31,
Nine Months Ended December 31,
(In thousands, except per share amounts)
2004
2003
2004
2003
$
(8,999
)
$
(20,863
)
$
(59,412
)
$
(77,655
)
74
167
235
1,303
(5,023
)
(5,482
)
(14,226
)
(16,393
)
$
(13,948
)
$
(26,178
)
$
(73,403
)
$
(92,745
)
$
(0.10
)
$
(0.23
)
$
(0.66
)
$
(0.97
)
(0.15
)
(0.29
)
(0.82
)
(1.16
)
Three Months Ended December 31,
Nine Months Ended December 31,
2004
2003
2004
2003
4
4
4
4
3.63
%
3.17
%
3.60
%
2.91
%
71
%
74
%
71
%
73
%
$
8.11
$
7.31
$
7.65
$
6.43
Table of Contents
Balance
Balance
(In thousands)
March 31,
Non-cash
December 31,
Type of Liability
2004
Charges
Payments
Write-downs
2004
$
$
$
$
$
1,138
(655
)
483
1,138
(655
)
483
146
(137
)
9
11,750
(443
)
(8,150
)
3,157
11,896
(580
)
(8,150
)
3,166
$
1,138
$
11,896
$
(1,235
)
$
(8,150
)
$
3,649
December 31,
March 31,
(In thousands)
2004
2004
$
1,796
$
1,147
761
1,037
571
421
$
3,128
$
2,605
Table of Contents
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Table of Contents
Table of Contents
Revenue recognition;
Equity method investment in Reliant Pharmaceuticals, Inc.;
Derivatives embedded in certain debt securities;
Warrant valuations;
Cost of goods manufactured;
Research and development expenses; and
Restructuring.
Table of Contents
Table of Contents
Product
Phase of Clinical
Candidate
Indication
Development (1)
Schizophrenia
Marketed
Alcohol dependence
Phase III
Opioid dependence
Phase II
Diabetes
Phase II
Diabetes
Phase II
Growth hormone deficiency
Phase I
Anaphylaxis
Phase I
Various
Preclinical
Table of Contents
(1)
Phase I clinical trials indicates that the compound is being tested in humans for safety
and preliminary indications of biological activity in a limited patient population. Phase II
clinical trials indicates that the trial is being conducted in patients to provide information
on dosing and is testing for safety and preliminary evidence of efficacy. Phase III clinical
trials indicates that the trial is being conducted in patients and is testing the safety and
efficacy of the compound. Preclinical indicates that we or our partners are conducting
formulation, efficacy, pharmacology and/or toxicology testing of a compound in animal models or
biochemical assays.
Table of Contents
Balance
Balance
(In thousands)
March 31,
Non-cash
December 31,
Type of Liability
2004
Charges
Payments
Write-downs
2004
$
$
$
$
$
1,138
(655
)
483
1,138
(655
)
483
146
(137
)
9
11,750
(443
)
(8,150
)
3,157
11,896
(580
)
(8,150
)
3,166
$
1,138
$
11,896
$
(1,235
)
$
(8,150
)
$
3,649
Table of Contents
Table of Contents
Table of Contents
Table of Contents
One to
Four to
After
Less Than
Three Years
Five Years
Five Years
One
Year
(Fiscal
(Fiscal
(After
(In thousands)
Total
(Fiscal 2005)
2006 - 2008)
2009-2010)
Fiscal 2010)
$
4,178
$
212
$
3,966
$
$
5,580
4,860
720
(1)
The 7% Notes were issued by RC Royalty Sub LLC, a wholly-owned subsidiary of Alkermes. The 7%
Notes are non-recourse to Alkermes.
Table of Contents
Table of Contents
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Beginning in October 2003, we and certain of our current and former officers and directors were
named as defendants in six purported securities class action lawsuits filed in the United States
District Court for the District of Massachusetts. The cases were captioned: Bennett v. Alkermes,
Inc., et. al., 1:03-CV-12091 (D. Mass.); Ragosta v. Alkermes, Inc., et. al., 1:03-CV-12184 (D.
Mass.); Barry Family LP v. Alkermes, Inc., et. al., 1:03-CV-12243 (D. Mass.); Waltzer v. Alkermes,
Inc., et. al., 1:03-CV-12277 (D. Mass.); Folkerts v. Alkermes, Inc., et. al., 1:03-CV-12386 (D.
Mass.); and Slavas v. Alkermes, Inc., et. al., 1:03-CV-12471 (D. Mass.). On May 14, 2004, the six
actions were consolidated into a single action captioned: In re Alkermes Securities Litigation,
Civil Action No. 03-CV-12091-RCL (D. Mass.). On July 12, 2004, a single consolidated amended
complaint was filed on behalf of purchasers of our common stock during the period April 22, 1999 to
July 1, 2002. The consolidated amended complaint generally alleges, among other things, that,
during such period, the defendants made misstatements to the investing public relating to the
manufacture and FDA approval of our Risperdal Consta product. The consolidated amended complaint
seeks unspecified damages. On September 10, 2004, we and the individual defendants filed a motion
to dismiss all claims asserted against us and them in a consolidated amended complaint in their
entirety. The Court heard oral argument on the motion on January 12, 2005, and we are awaiting a
decision on the motion. Although we believe these allegations are without merit and intend to
vigorously defend against them, the litigation process is inherently uncertain and there can be no
guarantee as to the ultimate outcome of these matters.
From time to time, we may be subject to other legal proceedings and claims in the ordinary course
of business. We are not currently aware of any such proceedings or claims that we believe will
have, individually or in the aggregate, a material adverse effect on our business, financial
condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
24
25
Exhibit No.
Promissory Note by and between Alkermes, Inc. and General
Electric Capital Corporation, dated December 22, 2004
(filed herewith).
Master Security Agreement by and between Alkermes, Inc. and
General Electric Capital Corporation dated December 22,
2004 (filed
herewith).
Addendum No. 001 To Master Security Agreement by and
between Alkermes, Inc. and General Electric Capital
Corporation, dated December 22, 2004 (filed herewith).
Fourth Amendment To Development Agreement and First
Amendment To Manufacturing and Supply Agreement by and
between JPI Pharmaceutica International, Janssen
Pharmaceutica Inc. and Alkermes Controlled Therapeutics
Inc. II, dated December 20, 2000 (with certain confidential
information deleted) (filed herewith).
Third Amendment To Development Agreement, Second Amendment
To Manufacturing and Supply Agreement and First Amendment
To License Agreements by and between JPI Pharmaceutica
International, Janssen Pharmaceutica Inc. and Alkermes
Controlled Therapeutics Inc. II, dated April 1, 2000 (with
certain confidential information deleted) (filed herewith).
Agreement by and between JPI Pharmaceutica International,
Janssen Pharmaceutica Inc. and Alkermes Controlled
Therapeutics Inc. II, dated December 21, 2002 (with certain
confidential information deleted) (filed herewith).
Amendment to Agreement by and between JPI Pharmaceutica
International, Janssen Pharmaceutica
Table of Contents
Exhibit No.
Inc. and Alkermes Controlled Therapeutics Inc. II, dated December 16, 2003
(with certain confidential information deleted) (filed
herewith).
Amendment to Manufacturing and Supply Agreement by and
between JPI Pharmaceutica International, Janssen
Pharmaceutica Inc. and Alkermes Controlled Therapeutics
Inc. II, dated December 22, 2003 (with certain confidential
information deleted) (filed herewith).
Fourth Amendment To Manufacturing and Supply Agreement by
and between JPI Pharmaceutica International, Janssen
Pharmaceutica Inc. and Alkermes Controlled Therapeutics
Inc. II, dated January 10, 2005 (with certain confidential
information deleted) (filed herewith).
Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).
Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (furnished herewith).
*
Confidential treatment requested for portions of this document and is pending
clearance with the Securities and Exchange Commission.
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
26
ALKERMES, INC.
(Registrant)
Date: February 8, 2005
By:
/s/ Richard F. Pops
Richard F. Pops
Chief Executive Officer and Director
(Principal Executive Officer)
Date: February 8, 2005
By:
/s/ James M. Frates
James M. Frates
Vice President, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
Table of Contents
Exhibit Index
Exhibit No.
Promissory Note by and between Alkermes, Inc. and General
Electric Capital Corporation, dated December 22, 2004
(filed herewith).
Master Security Agreement by and between Alkermes, Inc. and
General Electric Capital Corporation dated December 22,
2004 (filed
herewith).
Addendum No. 001 To Master Security Agreement by and
between Alkermes, Inc. and General Electric Capital
Corporation, dated December 22, 2004 (filed herewith).
Fourth Amendment To Development Agreement and First
Amendment To Manufacturing and Supply Agreement by and
between JPI Pharmaceutica International, Janssen
Pharmaceutica Inc. and Alkermes Controlled Therapeutics
Inc. II, dated December 20, 2000 (with certain confidential
information deleted) (filed herewith).
Third Amendment To Development Agreement, Second Amendment
To Manufacturing and Supply Agreement and First Amendment
To License Agreements by and between JPI Pharmaceutica
International, Janssen Pharmaceutica Inc. and Alkermes
Controlled Therapeutics Inc. II, dated April 1, 2000 (with
certain confidential information deleted) (filed herewith).
Agreement by and between JPI Pharmaceutica International,
Janssen Pharmaceutica Inc. and Alkermes Controlled
Therapeutics Inc. II, dated December 21, 2002 (with certain
confidential information deleted) (filed herewith).
Amendment to Agreement by and between JPI Pharmaceutica
International, Janssen Pharmaceutica Inc. and Alkermes
Controlled Therapeutics Inc. II, dated December 16, 2003
(with certain confidential information deleted) (filed
herewith).
Amendment to Manufacturing and Supply Agreement by and
between JPI Pharmaceutica International, Janssen
Pharmaceutica Inc. and Alkermes Controlled Therapeutics
Inc. II, dated December 22, 2003 (with certain confidential
information deleted) (filed herewith).
Fourth Amendment To Manufacturing and Supply Agreement by
and between JPI Pharmaceutica International, Janssen
Pharmaceutica Inc. and Alkermes Controlled Therapeutics
Inc. II, dated January 10, 2005 (with certain confidential
information deleted) (filed herewith).
Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).
Rule 13a-14(a)/15d-14(a) Certification (furnished herewith).
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 (furnished herewith).
* | Confidential treatment requested for portions of this document and is pending clearance with the Securities and Exchange Commission. |
27
EXHIBIT 10.1
(FPFR-LIBOR30)(R032204)4160000001 *LOAN5404*
PROMISSORY NOTE
FOR VALUE RECEIVED, ALKERMES, INC. a corporation located at the address stated below ("MAKER") promises, jointly and severally if more than one, to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION or any subsequent holder hereof (each, a "PAYEE") at its office located at 83 WOOSTER HEIGHTS ROAD, DANBURY, CT 06810 or at such other place as Payee or the holder hereof may designate (written notice of which will be provided by Payee to Maker), the principal sum of THREE MILLION SIX HUNDRED SEVENTY-SIX THOUSAND ONE HUNDRED FORTY AND 94/100 DOLLARS ($3,676,140.94), with interest on the unpaid principal balance, from the date hereof through and including dates of payment, at a floating per annum simple interest rate ("Contract Rate") as hereinafter calculated.
The Contract Rate for any given period ("Effective Period") following the first Effective Period shall be equal to the sum of (i) Five and Forty-Five Hundredths percent (5.45%) per annum plus (ii) a variable per annum interest rate ("Current LIBOR"), which shall be equal to the rate listed for one month London Interbank Offered Rate ("LIBOR") which is published in the "Money Rates" column of the Wall Street Journal, Eastern Edition (or, in the event such rate is not so published, in such other nationally recognized publication as Payee may specify) on the first Business Day of the calendar month in which the applicable Effective Period ends (notwithstanding any statement in such publication as to the effective date of any published rate). As used herein, the term "Business Day" shall mean and include any calendar day other than a day on which all commercial banks in the City of New York, New York are required or authorized to be closed.
The first Effective Period shall begin on the date hereof, and shall continue through the earlier of (w) the date the first Periodic Installment (or part thereof) is received by Payee and (x) the date on which the first Periodic Installment is due. Each subsequent Effective Period shall begin on the day after the last day of the previous Effective Period and shall continue through the earlier of (y) the date the earliest due and unpaid Periodic Installment (or part thereof) is received by Payee and (z) the date on which the next Periodic Installment is due. The Contract Rate for the first Effective Period shall be equal to the sum of (i) Five and Forty-Five Hundredths percent (5.45%) per annum plus (ii) a variable per annum interest rate, which shall be equal to the rate listed for one month London Interbank Offered Rate ("LIBOR"), which is published in the "Money Rates" column of the Wall Street Journal, Eastern Edition on the first Business Day of the current month in which the first Effective Period ends.
Subject to the other provisions hereof, the principal and interest on this Note is payable in lawful money of the United States in Thirty-Six (36) consecutive monthly installments as follows:
Periodic Installment Amount ---------------- ----------- Thirty-Five (35) $105,834.93 |
each ("Periodic Installment") and a final installment which shall be in the amount of Four Hundred Seventy-Three Thousand Four Hundred Forty-Nine and 03/100 Dollars ($473,449.03) plus any outstanding principal and interest. The first Periodic Installment shall be due and payable on 2/01/05 and the following Periodic Installments shall be due and payable on the same day of each succeeding period (each, a "Payment Date"). All payments shall be applied first to interest and then to principal. The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee's right to receive payment in full at such time or at any prior or subsequent time. Interest shall be calculated on the basis of a 365 day year (366 day leap year) and will be charged at the Contract Rate for each calendar day on which any principal is outstanding.
The amount and number of the Periodic Installments will not change with fluctuations in the Contract Rate. Any increase in the Contract Rate shall be reflected by a corresponding decrease in the portion of the Periodic Installment credited to the remaining unpaid principal balance. Any decrease in the Contract Rate shall be reflected as a corresponding increase in the portion of the Periodic Installment credited to the remaining unpaid principal balance. Notwithstanding the foregoing, at the end of each three (3) month period commencing with the first Payment Date hereof, Maker agrees to pay to Payee forthwith an additional sum ("Quarterly Payment") sufficient to amortize the unpaid principal over the balance of the original term hereof at the Contract Rate applicable for the first Periodic Installment.
If, and for so long as, the amount of interest due exceeds the amount of the Periodic Installment, Maker agrees to pay forthwith, in addition to (i) any Periodic Installment then due and (ii) any Quarterly Payment, the amount by which said interest exceeds the Periodic Installment. In the event interest only is required to be paid during any period, the interest for such period shall be due and payable monthly as it accrues and shall be calculated on the unpaid principal balance existing at the commencement of such period.
The Maker hereby expressly authorizes the Payee to insert the date value is actually given in the blank space on the face hereof and on all related documents pertaining hereto.
This Note may be secured by a security agreement, chattel mortgage, pledge agreement or like instrument (each of which is hereinafter called a "SECURITY AGREEMENT").
Time is of the essence hereof. If any installment or any other sum due under this Note or any Security Agreement is not received within ten (10) days after its due date, the Maker agrees to pay, in addition to the amount of each such installment or other sum, a late payment charge of five percent (5%) of the amount of said installment or other sum, but not exceeding any lawful maximum. If (i) Maker fails to make payment of any amount due hereunder within ten (10) days after the same becomes due and payable; or (ii) Maker is in default under, or fails to perform under any term or condition contained in any Security Agreement, then the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or any Security Agreement, at the election of Payee (written notice of which will be provided by Payee to Maker), shall immediately become due and payable, with interest thereon at the lesser of eighteen percent (18%) per annum or the highest rate not prohibited by applicable law from the date of such accelerated maturity until paid (both before and after any judgment).
Maker may not prepay in full or in part at any time any indebtedness hereunder without the express written consent of Payee in its sole discretion, provided however that if Maker prepays all indebtedness under this Note in connection with the closing of additional financing under the Master Lease Agreement dated as of October 16, 2002 in an amount equal to or greater than the original principal balance under this Note, then no premium or penalty shall be due.
It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Note or any Security Agreement, in no event shall this Note or any Security Agreement require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Note or any Security Agreement, or if all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or any Security Agreement on the principal balance shall exceed the maximum amount of interest permitted by applicable law, then in such event (a) the provisions of this paragraph shall govern and control, (b) neither Maker nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Maker, at the option of the Payee, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note or any Security Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise by Payee in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for the Payee to receive a greater interest per annum rate than is presently allowed, the Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America.
The Maker consents hereby to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Note or any Security Agreement or any term and provision of either, which may be made, granted or consented to by Payee, and agrees that suit may be brought and maintained against Maker, at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Note. The Maker hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all expenses reasonably incurred in collection, including Payee's actual attorneys' fees.
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT WAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
This Note and other Debt Documents (as defined in any Security Agreement) constitute the entire agreement of the Maker and Payee with respect to the subject matter hereof and supercedes all prior understandings, agreements and representations, express or implied.
No variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given.
Any provision in this Note or any of the other Debt Documents which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto.
ALKERMES, INC.
______________________________ By: /s/ James Frates (Witness) ---------------- ______________________________ Name: James Frates (Print name) ______________________________ Title: VP (Address) Federal Tax ID #: 232472830 |
Address: 88 Sidney Street, Cambridge, Middlesex County, MA 02139
EXHIBIT 10.2
(R011304) *LOAN7000*
MASTER SECURITY AGREEMENT
dated as of DECEMBER 22, 2004 ("AGREEMENT")
THIS AGREEMENT is between GENERAL ELECTRIC CAPITAL CORPORATION (together with its successors and assigns, if any, "SECURED PARTY") and ALKERMES, INC. ("DEBTOR"). Secured Party has an office at 83 Wooster Heights Road, Danbury, CT 06810. Debtor is a corporation organized and existing under the laws of the state of Pennsylvania ("the State"). Debtor's mailing address and chief place of business is 88 Sidney Street, Cambridge, MA, 02139.
1. CREATION OF SECURITY INTEREST.
Debtor grants to Secured Party, its successors and assigns, a security interest in and against all property listed on any collateral schedule now or in the future annexed to or made a part of this Agreement ("COLLATERAL SCHEDULE"), and in and against all additions, attachments, accessories and accessions to such property, all substitutions, replacements or exchanges therefor, and all insurance and/or other proceeds thereof (all such property is individually and collectively called the "COLLATERAL"). This security interest is given to secure the payment and performance of all debts, obligations and liabilities of any kind whatsoever of Debtor to Secured Party, now existing or arising in the future, including but not limited to the payment and performance of certain Promissory Notes from time to time identified on any Collateral Schedule (collectively "NOTES" and each a "NOTE"), and any renewals, extensions and modifications of such debts, obligations and liabilities (such Notes, debts, obligations and liabilities are called the "INDEBTEDNESS").
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.
Debtor represents, warrants and covenants as of the date of this Agreement and as of the date of each Collateral Schedule that:
(a) Debtor's exact legal name is as set forth in the preamble of this Agreement and Debtor is, and will remain, duly organized, existing and in good standing under the laws of the State set forth in the preamble of this Agreement, has its chief executive offices at the location specified in the preamble, and is, and will remain, duly qualified and licensed in every jurisdiction wherever necessary to carry on its business and operations;
(b) Debtor has adequate power and capacity to enter into, and to perform its obligations under this Agreement, each Note and any other documents evidencing, or given in connection with, any of the Indebtedness (all of the foregoing are called the "DEBT DOCUMENTS");
(c) This Agreement and the other Debt Documents have been duly authorized, executed and delivered by Debtor and constitute legal, valid and binding agreements enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws or by general equitable principles;
(d) No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into, or performance by Debtor of any of the Debt Documents, except any already obtained;
(e) The entry into, and performance by, Debtor of the Debt Documents will not (i) violate any of the organizational documents of Debtor or any judgment, order, law or regulation applicable to Debtor, or (ii) result in any breach of or constitute a default under any contract to which Debtor is a party, or result in the creation of any lien, claim or encumbrance on any of Debtor's property (except for liens in favor of Secured Party) pursuant to any indenture, mortgage, deed of trust, bank loan, credit agreement, or other agreement or instrument to which Debtor is a party;
(f) There are no suits or proceedings pending in court or before any commission, board or other administrative agency against or affecting Debtor which could, in the aggregate, have a material adverse effect on Debtor, its business or operations, or its ability to perform its obligations under the Debt Documents, nor does Debtor have reason to believe that any such suits or proceedings are threatened;
(g) All financial statements delivered to Secured Party in connection with the Indebtedness have been prepared in accordance with generally accepted accounting principles, and since the date of the most recent financial statement, there has been no material adverse change in Debtors financial condition which has resulted or could reasonably be expected to result in Debtor being unable to perform its obligations under this Agreement for the remainder of the term of this Agreement;
(h) The Collateral is not, and will not be, used by Debtor for personal, family or household purposes;
(i) The Collateral is, and will remain, in good condition and repair and Debtor will not be negligent in its care and use;
(j) Debtor is, and will remain, the sole and lawful owner, and in possession of, the Collateral, and has the sole right and lawful authority to grant the security interest described in this Agreement;
(k) The Collateral is, and will remain, free and clear of all liens,
claims and encumbrances of any kind whatsoever, except for (i) liens in favor of
Secured Party, (ii) liens for taxes not yet due or for taxes being contested in
good faith and which do not involve, in the judgment of Secured Party, any
material risk of the sale, forfeiture or loss of any of the Collateral, and
(iii) inchoate materialmen's, mechanic's, repairmen's and similar liens arising
by operation of law in the normal course of business for amounts which are not
delinquent (all of such liens are called "PERMITTED LIENS"); and
(l) Debtor is and will remain in compliance in all material respects with all laws and regulations applicable to it including, without limitation, (i) ensuring that Debtor is not and shall not be (Y) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control ("OFAC"), Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (Z) a person designated under Section 1(b), (c) or (d) of Executive Order No. 13224 (September 23, 2001), any related enabling legislation or any other similar Executive Orders.
3. COLLATERAL.
(a) Until the declaration by Secured Party of any default hereunder, Debtor shall remain in possession of the Collateral; except that Secured Party shall have the right to possess (i) any chattel paper or instrument that constitutes a part of the Collateral, and (ii) any other Collateral in which Secured Party's security interest may be perfected only by possession. Secured Party may inspect any of the Collateral during normal business hours after giving Debtor reasonable prior notice. If Secured Party asks, Debtor will promptly notify Secured Party in writing of the location of any Collateral.
(b) Debtor shall (i) use the Collateral only in its trade or business,
(ii) maintain all of the Collateral in good operating order and repair, normal
wear and tear excepted, (iii) use and maintain the Collateral only in compliance
in all material respects with manufacturers recommendations and all applicable
laws, and (iv) keep all of the Collateral free and clear of all liens, claims
and encumbrances (except for Permitted Liens).
(c) Secured Party does not authorize and Debtor agrees it shall not (i) part with possession of any of the Collateral (except to Secured Party or for maintenance and repair), (ii) remove any of the Collateral from the continental United States, or (iii) sell, rent, lease, mortgage, license, grant a security interest in or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral.
(d) Debtor shall pay promptly when due all taxes, license fees, assessments and public and private charges levied or assessed on any of the Collateral, on its use, or on this Agreement or any of the other Debt Documents. At its option, Secured Party may discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance, insurance and preservation of the Collateral and effect compliance with the terms of this Agreement or any of the other Debt Documents. Debtor agrees to reimburse Secured Party, on demand, all costs and expenses reasonably incurred by Secured Party in connection with such payment or performance and agrees that such reimbursement obligation shall constitute Indebtedness.
(e) Debtor shall, at all times, keep accurate and complete records of the Collateral, and Secured Party shall have the right to inspect and make copies of all of Debtor's books and records relating to the Collateral during normal business hours, after giving Debtor reasonable prior notice.
(f) Debtor agrees and acknowledges that any third person who may at any time possess all or any portion of the Collateral shall be deemed to hold, and shall hold, the Collateral as the agent of, and as pledge holder for, Secured Party. Secured Party may at any time give notice to any third person described in the preceding sentence that such third person is holding the Collateral as the agent of, and as pledge holder for, the Secured Party.
4. INSURANCE.
(a) Debtor shall at all times that the Collateral is not in Secured Party's possession bear the entire risk of any loss, theft, damage to, or destruction of, any of the Collateral from any cause whatsoever.
(b) Debtor agrees to keep the Collateral insured against loss or damage by fire and extended coverage perils, theft, burglary, and for any or all Collateral which are vehicles, for risk of loss by collision, and if requested by Secured Party, against such other risks as Secured Party may reasonably require. The insurance coverage shall be in an amount no less than the full replacement value of the Collateral, and deductible amounts, insurers and policies shall be acceptable to Secured Party. Debtor shall deliver to Secured Party policies or certificates of insurance evidencing such coverage. Each policy shall name Secured Party as a loss payee, shall provide for coverage to Secured Party regardless of the breach by Debtor of any warranty or representation made therein, shall not be subject to co-insurance (other than standard deductibles), and shall provide that coverage may not be canceled or altered by the insurer except upon thirty (30) days prior written notice to Secured Party. Debtor appoints Secured Party as its attorney-in-fact to make proof of loss, claim for insurance and adjustments with insurers, and to receive payment of and execute or endorse all documents, checks or drafts in connection with insurance payments. Secured Party shall not act as Debtor's attorney-in-fact unless Debtor is in default hereunder. Proceeds of insurance in an amount in excess of $500,000 per claim shall be applied, at the option of Secured Party, to repair or replace the Collateral or to reduce any of the Indebtedness.
5. REPORTS.
(a) Debtor shall promptly notify Secured Party of (i) any change in the name of Debtor, (ii) any change in the state of its incorporation, organization or registration, (iii) any relocation of its chief executive offices, (iv) any relocation of any of the Collateral, (v) any of the Collateral being lost, stolen, missing, destroyed, materially damaged or worn out, or (vi) any lien, claim or encumbrance other than Permitted Liens attaching to or being made against any of the Collateral.
(b) Debtor will deliver to Secured Party financial statements as follows. Debtor agrees to provide quarterly unaudited statements and annual audited statements, certified by a recognized firm of certified public accountants, within 10 days after the statements are provided to the Securities and Exchange Commission ("SEC"). Annually, Debtor will be required to provide a board approved operating plan for the subsequent year, and a copy of the Debtor's Report of Independent Auditor. Debtor will also provide, on an as requested basis, other information, including monthly financial statements, as reasonably requested by the Secured Party. All quarterly and annual statements shall be prepared using generally accepted accounting principles ("GAAP") and shall be in compliance with SEC requirements.
6. FURTHER ASSURANCES.
(a) Debtor shall, upon request of Secured Party, furnish to Secured Party such further information, execute and deliver to Secured Party such documents and instruments (including, without limitation, Uniform Commercial Code financing statements) and shall do such other acts and things as Secured Party may at any time reasonably request relating to the perfection or protection of the security interest created by this Agreement or for the purpose of carrying out the intent of this Agreement. Without limiting the foregoing, Debtor shall cooperate and do all acts reasonably requested by Secured Party to continue in Secured Party a perfected first security interest in the Collateral, and shall obtain and furnish to Secured Party any subordinations, releases, landlord waivers, lessor waivers, mortgagee waivers, or control agreements, and similar documents as may be from time to time reasonably requested by, and in form and substance satisfactory to, Secured Party.
(b) Debtor authorizes Secured Party to file a financing statement and amendments thereto describing the Collateral and containing any other information required by the applicable Uniform Commercial Code. Debtor irrevocably grants to Secured Party the power to sign Debtor's name and generally to act on behalf of Debtor to execute and file applications for title, transfers of title, financing statements, notices of lien and other documents pertaining to any or all of the Collateral; this power is coupled with Secured Party's interest in the Collateral. Debtor shall, if any certificate of title be required or permitted by law for any of the Collateral, obtain and promptly deliver to Secured Party such certificate showing the lien of this Agreement with respect to the Collateral. Debtor ratifies its prior authorization for Secured Party to file financing statements and amendments thereto describing the Collateral and containing any other information required by the Uniform Commercial Code if filed prior to the date hereof.
(c) Debtor shall indemnify and defend the Secured Party, its successors and assigns, and their respective directors, officers and employees, from and against all claims, actions and suits (including, without limitation, related attorneys' fees) of any kind whatsoever arising, directly or indirectly, in connection with any of the Collateral, except for claims, actions or suites arising from the gross negligence or willful misconduct of the Secured Party.
7. DEFAULT AND REMEDIES.
(a) Debtor shall be in default under this Agreement and each of the other Debt Documents if:
(i) Debtor breaches its obligation to pay when due any installment or other amount due or coming due under any of the Debt Documents and fails to cure the breach within ten (10) business days;
(ii) Debtor, without the prior written consent of Secured Party, attempts to or does sell, rent, lease, license, mortgage, grant a security interest in, or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral;
(iii) Debtor breaches any of its insurance obligations under
Section 4;
(iv) Debtor breaches any of its other obligations under any of the Debt Documents and fails to cure that breach within thirty (30) days after written notice from Secured Party;
(v) Any warranty, representation or statement made by Debtor in any of the Debt Documents or otherwise in connection with any of the Indebtedness shall be false or misleading in any material respect when made;
(vi) Any of the Collateral is subjected to attachment, execution, levy, seizure or confiscation in any legal proceeding or otherwise, or if any legal or administrative proceeding is commenced against Debtor or any of the Collateral, which in the reasonable commercial judgment of Secured Party subjects any of the Collateral to a material risk of attachment, execution, levy, seizure or confiscation and no bond is posted or protective order obtained to negate such risk;
(vii) Debtor breaches or is in default under any other agreement between Debtor and Secured Party;
(viii) Debtor or any guarantor or other obligor for any of the Indebtedness (collectively "GUARANTOR") dissolves, terminates its existence, becomes insolvent or ceases to do business as a going concern;
(ix) If Debtor or any Guarantor is a natural person, Debtor or any such Guarantor dies or becomes incompetent;
(x) A receiver is appointed for all or of any material part of the property of Debtor or any Guarantor, or Debtor or any Guarantor makes any assignment for the benefit of creditors;
(xi) Debtor or any Guarantor files a petition under any bankruptcy, insolvency or similar law, or any such petition is filed against Debtor or any Guarantor and is not dismissed within forty-five (45) days;
(xii) Debtor's improper filing of an amendment or termination statement relating to a filed financing statement describing the Collateral;
(xiii) There is a material adverse change in the Debtor's financial condition which results or could reasonably be expected to result in Debtor being unable to perform its obligations under this Agreement for the remainder of the term of this Agreement;
(xiv) Any Guarantor revokes or attempts to revoke its guaranty of any of the Indebtedness or fails to observe or perform any covenant, condition or agreement to be performed under any guaranty or other related document to which it is a party;
(xv) Debtor defaults under any other material obligation for (A) borrowed money, (B) the deferred purchase price of property or (C) payments due under any lease agreement; or
(xvi) At any time during the term of this Agreement Debtor sells more than 50% of its interest in the company to another corporation or business or all or substantially all of its assets without Secured Party's prior written consent, which consent will not be unreasonably withheld.
(b) If Debtor is in default hereunder, the Secured Party, at its option, may upon written notice to Debtor declare any or all of the Indebtedness to be immediately due and payable, without demand or notice to Debtor or any Guarantor. The accelerated obligations and liabilities shall bear interest (both before and after any judgment) until paid in full at the lower of eighteen percent (18%) per annum or the maximum rate not prohibited by applicable law.
(c) During a default hereunder, Secured Party shall have all of the rights and remedies of a Secured Party under the Uniform Commercial Code, and under any other applicable law. Without limiting the foregoing, Secured Party shall have the right to (i) notify any account debtor of Debtor under any account or any obligor on any instrument which constitutes part of the Collateral to make payment to the Secured Party, (ii) with or without legal process, peaceably enter any premises where the Collateral may be and take possession of and remove the Collateral from the premises or store it on the premises, (iii) sell the Collateral at public or private sale, in whole or in part, and have the right to bid and purchase at said sale, or (iv) lease or otherwise dispose of all or part of the
Collateral, applying proceeds from such disposition to the obligations then in default. If requested by Secured Party, Debtor shall promptly assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties. Secured Party may also render any or all of the Collateral unusable at the Debtor's premises (subject to the rights of third parties) and may dispose of such Collateral on such premises without liability for rent or costs. Any notice that Secured Party is required to give to Debtor under the Uniform Commercial Code of the time and place of any public sale or the time after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to constitute reasonable notice if such notice is given to the last known address of Debtor at least ten (10) days prior to such action.
(d) Proceeds from any sale or lease or other disposition shall be applied:
first, to all costs of repossession, storage, and disposition including without
limitation attorneys', appraisers', and auctioneers' fees; second, to discharge
the obligations then in default; third, to discharge any other Indebtedness of
Debtor to Secured Party, whether as obligor, endorser, guarantor, surety or
indemnitor; fourth, to expenses incurred in paying or settling liens and claims
against the Collateral; and lastly, to Debtor, if there exists any surplus.
Debtor shall remain fully liable for any deficiency.
(e) Debtor agrees to pay all reasonable attorneys' fees and other costs incurred by Secured Party in connection with the enforcement, assertion, defense or preservation of Secured Party's rights and remedies under this Agreement, or if prohibited by law, such lesser sum as may be permitted. Debtor further agrees that such fees and costs shall constitute Indebtedness.
(f) Secured Party's rights and remedies under this Agreement or otherwise
arising are cumulative and may be exercised singularly or concurrently. Neither
the failure nor any delay on the part of the Secured Party to exercise any
right, power or privilege under this Agreement shall operate as a waiver, nor
shall any single or partial exercise of any right, power or privilege preclude
any other or further exercise of that or any other right, power or privilege.
SECURED PARTY SHALL NOT BE DEEMED TO HAVE WAIVED ANY OF ITS RIGHTS UNDER THIS
AGREEMENT OR UNDER ANY OTHER AGREEMENT, INSTRUMENT OR PAPER SIGNED BY DEBTOR
UNLESS SUCH WAIVER IS EXPRESSED IN WRITING AND SIGNED BY SECURED PARTY. A waiver
on any one occasion shall not be construed as a bar to or waiver of any right or
remedy on any future occasion.
(g) DEBTOR AND SECURED PARTY UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
8. MISCELLANEOUS.
(a) This Agreement, any Note and/or any of the other Debt Documents may be assigned, in whole or in part, by Secured Party without notice to Debtor, and Debtor agrees not to assert against any such assignee, or assignee's assigns, any defense, set-off, recoupment claim or counterclaim which Debtor has or may at any time have against Secured Party for any reason whatsoever. Debtor agrees that if Debtor receives written notice of an assignment from Secured Party, Debtor will pay all amounts payable under any assigned Debt Documents to such assignee or as instructed by Secured Party. Debtor also agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by Secured Party or assignee.
(b) All notices to be given in connection with this Agreement shall be in writing, shall be addressed to the parties at their respective addresses set forth in this Agreement (unless and until a different address may be specified in a written notice to the other party), and shall be deemed given (i) on the date of receipt if delivered in hand or by facsimile transmission, (ii) on the next business day after being sent by express mail, and (iii) on the fourth business day after being sent by regular, registered or certified mail. As used herein, the term "business day" shall mean and include any day other than Saturdays, Sundays, or other days on which commercial banks in New York, New York are required or authorized to be closed.
(c) Secured Party may correct patent errors and fill in all blanks in this Agreement or in any Collateral Schedule consistent with the agreement of the parties, and will provide notice thereof to Debtor.
(d) Time is of the essence of this Agreement. This Agreement shall be binding, jointly and severally, upon all parties described as the "Debtor" and their respective heirs, executors, representatives, successors and assigns, and shall inure to the benefit of Secured Party, its successors and assigns.
(e) This Agreement and its Collateral Schedules constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior understandings (whether written, verbal or implied) with respect to such subject matter. THIS AGREEMENT AND ITS COLLATERAL SCHEDULES SHALL NOT BE CHANGED OR TERMINATED ORALLY OR BY COURSE OF CONDUCT, BUT ONLY BY A WRITING SIGNED BY BOTH PARTIES. Section headings contained in this Agreement have been included for convenience only, and shall not affect the construction or interpretation of this Agreement.
(f) This Agreement shall continue in full force and effect until all of the Indebtedness has been indefeasibly paid in full to Secured Party or its assignee, and shall thereupon terminate. The surrender, upon payment or otherwise, of any Note or any of the other documents evidencing any of the Indebtedness shall not affect the right of Secured Party to retain the Collateral for such other Indebtedness as may then exist or as it may be reasonably contemplated will exist in the future. This Agreement shall automatically be reinstated if Secured Party is ever required to return or restore the payment of all or any portion of the Indebtedness (all as though such payment had never been made).
(g) Upon prior written consent of Debtor, Debtor authorizes Secured Party to use its name, logo and/or trademark without notice to or consent by Debtor, in connection with certain promotional materials that Secured Party may disseminate to the public. The promotional materials may include, but are not limited to, brochures, video tape, internet website, press releases, advertising in newspaper and/or other periodicals, lucites, and any other materials relating the fact that Secured Party has a financing relationship with Debtor and such materials may be developed, disseminated and used without Debtor's review. Nothing herein obligates Secured Party to use Debtor's name, logo and/or trademark, in any promotional materials of Secured Party.
(h) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CONNECTICUT (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE COLLATERAL.
IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally bound hereby, have duly executed this Agreement in one or more counterparts, each of which shall be deemed to be an original, as of the day and year first aforesaid.
SECURED PARTY: DEBTOR: GENERAL ELECTRIC CAPITAL CORPORATION ALKERMES, INC. By: /s/ John Edel By: /s/ James Frates ------------- ---------------- Name: John Edel Name: James Frates Title: SVP Title: VP |
EXHIBIT 10.3
FINANCIAL COVENANTS
ADDENDUM NO. 001
TO MASTER SECURITY AGREEMENT
DATED AS OF DECEMBER 22, 2004
THIS ADDENDUM NO. 001 (this "ADDENDUM NO. 001") is made as of the 22 day of December 2004, amends and supplements the above referenced agreement (the "AGREEMENT"), between GENERAL ELECTRIC CAPITAL CORPORATION (together with its successors and assigns, if any, "SECURED PARTY") and ALKERMES, INC. ("DEBTOR") and is hereby incorporated into the Agreement as though fully set forth therein. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Lease.
The Agreement is hereby amended by adding the following:
FINANCIAL COVENANTS.
"(a) Debtor shall, at all times during the term of the Agreement, comply with the following:
Maintain minimum Unrestricted Cash (as defined below) equal to the greater of (i) $50,000,000 or (ii) 6 months of Monthly Cash Burn (as defined below). Unrestricted Cash is defined as cash, cash equivalents and investments in marketable securities with maturities of less than 12 months, less any such cash, cash equivalents and investments in marketable securities pledged to other parties. Monthly Cash Burn is defined as the sum of net income (or loss) plus non-cash charges for the most recent 3 months ended divided by 3, minus current portions of long-term debt divided by 12. Long-term debt shall include all indebtedness for borrowed money, other than indebtedness of limited-purpose or special-purpose subsidiaries of Debtor which indebtedness is non-recourse to Debtor so long as the terms and conditions of the governing documents of each such subsidiary and the purchase and sale agreement between Debtor and each such subsidiary are satisfactory to Secured Party.
All financial items in the preceding paragraph shall be derived in accordance with generally accepted accounting principles in the United States of America ("GAAP").
If this covenant is violated, Debtor will (i) provide Secured Party within
ten (10) business days of such occurrence a security deposit in an amount equal
to 75% of Debtor's then obligations to Secured Party under the Agreement and
(ii) execute any documentation requested by Secured Party related to the
security deposit."
(b) COMPLIANCE REPORTS. Debtor's Authorized Representative shall certify
periodically that Debtor is in compliance with the requirements of subsection
(a) above. Such notification and certification shall be provided within thirty
(30) days after the end of each fiscal
month (the "COMPLIANCE DATE"), reflecting such information as of the end of such fiscal month. If Debtor fails timely to provide such notification and compliance certificates, within fifteen (15) days after the Compliance Date, such failure shall be deemed a default under the Agreement if not cured within two (2) business days after notice from Secured Party. The reports required under this section are in addition to and not a substitute for the reports required under the REPORTS Section of the Agreement.
Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect. This Addendum No.00l is not binding or effective with respect to the Agreement until executed on behalf of Secured Party and Debtor by authorized representatives of Secured Party and Debtor.
IN WITNESS WHEREOF, Debtor and Secured Party have caused this Addendum No. 001 to be executed by their duly authorized representatives as of the date first above written.
SECURED PARTY: DEBTOR: GENERAL ELECTRIC CAPITAL CORPORATION ALKERMES, INC. By: /s/ John Edel By: /s/ James Frates ------------- ---------------- Name: John Edel Name: James Frates Title: SVP Title: VP ATTEST By:_______________________________________ |
Name:_____________________________________
EXHIBIT 10.4
WHEREVER CONFIDENTIAL INFORMATION IS OMITTED HEREIN (SUCH OMISSIONS ARE DENOTED BY AN ASTERISK), SUCH CONFIDENTIAL INFORMATION HAS BEEN SUBMITTED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
FOURTH AMENDMENT TO DEVELOPMENT AGREEMENT
FIRST AMENDMENT TO MANUFACTURING AND SUPPLY AGREEMENT
This Agreement shall be the Fourth Amendment to the Development Agreement by and between Janssen Pharmaceutica International, a division of Cilag International AG, having its place of business in CH-6300 Zug, Switzerland ("JANSSEN") and Medisorb Technologies International, A Delaware limited partnership ("Medisorb"), which agreement has in the meantime been duly assigned from Medisorb to Alkermes Controlled Therapeutics Inc. II, a company organized and existing under the laws of the Commonwealth of Pennsylvania, 64 Sidney Street, Cambridge, MA 02139-4136, U.S.A. ("ACT II") by a deed of assignment dated. March 1, 1996.
This Agreement shall also be the First Amendment to the Manufacturing and Supply Agreement 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 (hereinafter referred to as "JPI"), and JANSSEN PHARMACEUTICA Inc., 1125 Trenton-Harbourton Road, Titusville, NJ 08560, USA (hereinafter referred to as "JANSSEN US") and ACT II, which agreement has since been duly transferred from JANSSEN PHARMACEUTICA INC. TO JANSSEN PHARMACEUTICA PRODUCTS, L.P. (JPI and JANSSEN US collectively referred to herein as "JANSSEN").
WHEREAS JANSSEN and ACT II desire to amend certain terms of the Development Agreement and the Manufacturing and Supply Agreement with respect to the ownership of certain capital equipment.
NOW THEREFORE, the parties agree to amend the Development Agreement and the Manufacturing and Supply Agreement as follows:
1. Notwithstanding the provisions of Section 4 of the SECOND AMENDMENT to the Development Agreement and Section 2.2 of the Manufacturing and Supply Agreement, JANSSEN agrees to sell to ACT II and ACT II agrees to purchase from JANSSEN the equipment described on Exhibit A, attached hereto and made a part hereof (the "Equipment") for good and valuable consideration of $1.00 (one U.S. dollar).
2. THE EQUIPMENT IS SOLD "WHERE IS; AS IS" WITHOUT ANY REPRESENTATION OR WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY AS TO THE DESIGN, QUALITY OR CONDITION OF THE EQUIPMENT, ANY WARRANTY OF MERCHANTABILITY OR FITNESS OF THE
EQUIPMENT FOR ANY PARTICULAR PURPOSE OR AS TO THE OTHER MATTER RELATING TO THE EQUIPMENT OR ANY PART THEREOF. ACT II CONFIRMS THAT IT HAS SELECTED THE EQUIPMENT ON THE BASIS OF ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS RELIANCE UPON ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY JANSSEN.
3. ACT II HEREBY ASSUMES AND RELEASES JANSSEN FROM ANY AND ALL CLAIMS ARISING FROM THE USE OR OPERATION OF THE EQUIPMENT (OR THE FAILURE TO OPERATE OR OTHER IMPROPER FUNCTIONING OF THE EQUIPMENT), OR ANY PART THEREOF, FROM AND AFTER THE DATE HEREOF AND HEREBY INDEMNIFIES AND HOLDS HARMLESS JANSSEN FOR ANY AND ALL DAMAGES RESULTING FROM THE USE OR OPERATION OF THE EQUIPMENT (OR THE FAILURE TO OPERATE OR OTHER IMPROPER FUNCTIONING OF THE EQUIPMENT), OR ANY PART THEREOF, FROM AND AFTER THE DATE HEREOF, INCLUDING, WITHOUT LIMITATION, ALL INCIDENTAL OR CONSEQUENTIAL DAMAGES FOR LOSS OF REVENUE OR PROFIT, LOSS OF USE OF THE EQUIPMENT, DOWNTIME COSTS OR COST OF ANY SUBSTITUTE EQUIPMENT.
4. THIS AMENDMENT SHALL BE EFFECTIVE AS OF DECEMBER 20, 2000.
WITNESS, the signature of all parties hereto by their duly authorized officers.
JANSSEN PHARMACEUTICA INTERNATIONAL
Represented by CILAG AG INTERNATIONAL
CILAG AG INTERNATIONAL
Landis + Gyr-Strasse 1 CH-6300 Zug /s/ E. Rombouts /s/ H. Schmid ---------------------- ----------------------- (title) EXECUTIVE DIRECTOR OPERATIONS (title) GENERAL MANAGER E. ROMBOUTS H. SCHMID ALKERMES CONTROLLED THERAPEUTICS INC. II /s/ James Frates /s/ Michael Landine ---------------------- ---------------------- (title) VICE PRESIDENT (title) VICE PRESIDENT JANSSEN PHARMACEUTICA PRODUCTS, L.P. /s/ Michael Chester ---------------------- ----------------------- (title) (title) SECRETARY |
EXHIBIT A
[***]
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.5
WHEREVER CONFIDENTIAL INFORMATION IS OMITTED HEREIN (SUCH OMISSIONS ARE DENOTED BY AN ASTERISK), SUCH CONFIDENTIAL INFORMATION HAS BEEN SUBMITTED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
THIRD AMENDMENT TO DEVELOPMENT AGREEMENT
SECOND AMENDMENT TO MANUFACTURING AND SUPPLY AGREEMENT
FIRST AMENDMENT TO LICENSE AGREEMENTS
This Third Amendment amends the Development Agreement (the "Development Agreement"), dated December 23, 1993, by and between Janssen Pharmaceutica International, a division of Cilag International AG, having its place of business in CH-6300 Zug, Switzerland ("JANSSEN") and Medisorb Technologies International, a Delaware limited partnership ("Medisorb"), which agreement has in the meantime been duly assigned from Medisorb to Alkermes Controlled Therapeutics Inc. II, a Pennsylvania corporation, 64 Sidney Street, Cambridge, MA 02139-4136, U.S.A. ("ACT II") by a deed of assignment dated March 1, 1996.
This Second Amendment amends the Manufacturing and Supply Agreement (the "Manufacturing Agreement"), dated August 6, 1997, by and between JANSSEN and Janssen Pharmaceutica Inc., a New Jersey corporation ("Janssen US") on the one hand, and ACT II on the other hand.
This First Amendment amends both the License Agreement (the "US License"), dated February 13, 1996, by and between Janssen US and Medisorb, which agreement has in the meantime been duly assigned from Medisorb to ACT II and the License Agreement (the "EX-US License"), dated February 21, 1996, by and between JANSSEN and Medisorb, which agreement has in the meantime been duly assigned from Medisorb to ACT II (both licenses together referred to as the "License Agreements").
WHEREAS, JANSSEN desires to evaluate the possibility of developing a
* formulation of the Product and ACT II is prepared to undertake such
feasibility study under the terms set forth hereinafter.
NOW, THEREFORE, the parties, intending to be legally bound hereby, agree as follows:
All capitalised terms used herein shall have the meaning set forth in the Development Agreement, Manufacturing Agreement or License Agreements, as applicable, unless clearly indicated otherwise. This agreement will be referred to herein as this "Amendment".
1. ACT II and JANSSEN will undertake the activities set forth in the protocol for a * Product feasibility attached to this Amendment as Exhibit I (hereinafter "Protocol"). Such activities will be undertaken in accordance with the time and event schedule specified in the Protocol with a view to allow JANSSEN to evaluate candidate formulations against the target profile specified in the Protocol within a 12 month period following the effective date of this Amendment.
2. JANSSEN will reimburse ACT II for the activities to be undertaken by it in accordance with the budget provided for in the Protocol. ACT II will invoice JANSSEN and JANSSEN will pay ACT II within * following receipt of the invoice.
3. Following the internal analysis by JANSSEN of the various formulations prepared by ACT II, JANSSEN will promptly inform ACT II of its decision whether or not it wants to proceed with the development of a * Product. In the event JANSSEN elects to proceed with the further development, the parties will immediately meet to discuss a full development plan, including a time and event schedule and related budget. Such development plan shall be governed by the terms of the Development Agreement, as amended, unless specifically agreed otherwise.
4. Section 4.A of the Development Agreement shall be amended to add the following sentence; "The term of this Agreement, as the terms of this Agreement shall relate to performance of the Protocol, as defined in the Fourth Amendment to this Agreement, shall continue until completion of all activities in the Protocol are performed, and if Janssen elects to proceed with a * Product, until completion of the activities in the development plan to be agreed upon according to Section 3 of the Fourth Amendment to this Agreement."
5. In the event JANSSEN elects to proceed with a * Product development as aforementioned, JANSSEN's rights in connection with the * Product shall be governed by the terms of the License Agreements. In such an event, the parties hereby amend the License Agreements as follows:
(a) Section 1(i) of both the US License and the EX-US License (the definition of "Product") shall be amended to add the following sentence at the end of such section: "Any formulation of a Product which is designed to provide release of Risperdone over a * shall be referred to as a "*".
(b) Section 3(a) of the US License shall be amended to add the following sentences, to be inserted as the second and third sentences of such section: "Notwithstanding the foregoing, Janssen US shall pay or cause to be paid to Act II a running royalty at the rate of * of the Net Sales of each unit of * sold to customers in the Territory by Janssen US, its Affiliates and Sublicensees, if such unit of * was manufactured by Act II, or (ii) *, if such unit of * was manufactured by Janssen. Such royalties shall be payable quarter- annually in arrears within * days following the end of Janssen US's regular fiscal quarters in any year during the term hereof."
(c) Section 3(a) of the EX-US License shall be amended to add the following sentences, to be inserted as the second and third sentences of such section: "Notwithstanding the foregoing, Janssen. shall pay or cause to be paid to Act II a running royalty at the rate of (i) * of the Net Sales of each unit of * sold to customers in the Territory by Janssen, its Affiliates and Sublicensees, if such unit of * was manufactured by Act II, or (ii) *, if such unit of * was manufactured by Janssen. Such royalties shall be payable quarter- annually in arrears within * days following the end of each three (3) month period ending on March 31, June 30, September 30 or December 31 in any year during the term hereof."
6. (a) Section 1.10 of both the Manufacturing Agreement (the definition of "Product") shall be amended to add the following sentence at the end of such section: "Any formulation of a Product which is designed to provide release of Risperdone over a four-week period shall be referred to as a "*".
(b) Section 6.1 of the Manufacturing Agreement shall be amended to add the following sentences as the 4th, 5th and 6th sentences of such section: "For purposes of calculating the Manufacturing Fee due by JANSSEN/Janssen US for Manufacture the *, the volume breaks with the number of vials to determine the percentage (Exhibit D of the Manufacturing Agreement) will be adjusted to reflect the difference of mg per vial, the number of vials and the difference in manufacture cost. The final Fee will be agreed when all the manufacturing parameters are known to both parties." The attached model using * of the * versus the non-* (based on the manufacturing assumptions on the date of signature of this Amendment) shall be used as basis for said discussions.
(c) At the time that JANSSEN decides to proceed with the development of the * Product, the parties will then evaluate the total capacity required for both the * and the * formulations of the Product.
7. In the event that any findings generated as a result of the feasibility program are deemed patentable, the provisions of Article 5 of the License Agreements will apply to any such invention and JANSSEN and Janssen US' rights in relation thereto shall be governed by the provisions of Article 2 of said License Agreements.
8. ACT II recognises and acknowledges that JANSSEN is under no obligation to proceed with the further development of a * Product and that the decision to do so is at its sole discretion, irrespective of the outcome of the feasibility study,
9. This Amendment is deemed to be effective as of April 1, 2000.
WITNESS, the signature of all parties hereto by their duly authorized officers.
JANSSEN Pharmaceutica International, a division of Cilag International AG
/s/ Erik Rombouts --------------------------------- Name: Title: |
ALKERMES CONTROLLED
THERAPEUTICS NC. II
/s/ Michael Landine --------------------------------- Name: Michael Landine Title: Vice President |
JANSSEN PHARMACEUTICA INC.
/s/ Michael Chester --------------------------------- Name: Michael Chester Title: CORPORATE SECRETARY |
*
SUMMARY
[***]
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.6
WHEREVER CONFIDENTIAL INFORMATION IS OMITTED HEREIN (SUCH OMISSIONS ARE DENOTED BY AN ASTERISK), SUCH CONFIDENTIAL INFORMATION HAS BEEN SUBMITTED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
AGREEMENT
This Agreement (this "Agreement"), dated as of the 21st day of December, 2002 (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 Landis & Byr Strasse 1 CH-6300 Zug, 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 88 Sidney Street, Cambridge MA 02139-4136, USA ("ACTII") on the other hand.
WHEREAS, Janssen and ACTII have developed a Risperidone depot formulation incorporating ACTII's proprietary technology concerning bioabsorbable polymer technologies and have entered into two License Agreements related thereto; and
WHEREAS, Janssen and ACTII entered into that certain Manufacturing and Supply Agreement, dated August 6,1997, as amended (the "Supply Agreement"), with respect to the commercial manufacture and supply of such Risperidone depot formulation to Janssen; and
WHEREAS, Janssen and ACTII entered into that certain Addendum to Manufacturing and Supply Agreement, dated as of August 1,2001 (the "Addendum") regarding the expansion of ACTII's manufacturing facilities, the financial responsibilities of each of the parties in connection with such expansion and to formally provide for a collaborative effort to develop the manufacturing facility and commercial supply of Product; and
WHEREAS, Janssen and ACTII desire to enter into this Agreement to provide for a prepayment of a portion of the Minimum Revenues owed by Janssen under the Addendum in exchange for credits against Manufacturing Fees to be owed over the next two years, the transfer and sale of certain manufacturing equipment, reassurance of the supply of Risperdal Consta and the planned plant expansion within the agreed upon quality standards and timelines, and expansion of the role of the Global Supply Team.
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:
1. Definitions. Unless provided otherwise, any capitalized terms used in this Agreement and not defined herein, shall have the meaning set forth in the Supply Agreement or the Addendum.
2. Pre-Payment. Within * of the Effective Date, Janssen shall pre-pay to ACTII by wire transfer a portion of the Minimum Revenues owed under the Addendum equal to twenty-three million nine hundred four thousand ninety U.S. dollars ($23,904,090)(the "Pre-Payment Amount") which is a discounted value of the first two years of Minimum Revenues that total twenty five million two hundred fifty thousand U.S. dollars ($25,250,000).
3. Reconciliation.
(a) Reconciliation Credit. In each month of the calendar years 2003 and 2004, ACTII shall grant Janssen a certain credit against any Manufacturing Fees owed under the Supply Agreement (each such monthly credit a "Reconciliation Credit"). Each Reconciliation Credit during the calendar year 2003 shall be equal to nine hundred seventeen thousand U.S. dollars ($917,000). Each Reconciliation Credit during the calendar year 2004 shall be equal to one million one hundred eighty-seven thousand five hundred U.S. dollars ($1,187,500).
(b) Monthly Excess of Reconciliation Credit; Invoices; Excess of Actual Purchase Amount. If the amount of the Reconciliation Credit for any month exceeds the amount of Manufacturing Fees reflected in invoices issued by ACTII to Janssen in such month, then ACTII shall not issue any credit for such excess in such month but shall add such excess amount to the amount of the Reconciliation Credit applicable to the next succeeding month in such calendar year. The remaining applicable Reconciliation Credit (plus any excess from the preceding month in such calendar year) shall be reflected in and applied against Manufacturing Fees set forth in each invoice issued by ACTII to Janssen covering all Product delivered by ACTII to Janssen during calendar years 2003 and 2004. Any amount by which the Actual Purchase Amount exceeds the aggregate Reconciliation Credits for calendar year 2003 or 2004 shall be an Excess Credit (as defined in the Addendum) to be applied in all calendar years after 2004 as provided in the Addendum.
(c) Expiration of Reconciliation Credits. At the end of each of the calendar years 2003 and 2004, any remaining Reconciliation Credit not applied to an invoice for Manufacturing Fees issued by ACTII to Janssen covering Product delivered by ACTII to Janssen during such calendar year shall expire and become null and void and shall not be used as a credit against any Manufacturing Fees owed by Janssen to ACTII in any future calendar year; provided, however, if in calendar years 2003 and 2004, Janssen orders at least enough Product so that invoices for such ordered Product would equal the aggregate Reconciliation Credits for such year and ACTII fails to deliver any amount of such Product for any reason other than a reason caused by Janssen (for example, a failure to or delay in delivering the required amounts of Compound, testing Product, validating shipping containers, receipt of test results, protocols, reports or approvals of Janssen required under the Quality Agreement for shipment of Product, receipt of delivery instructions, releasing Product by Janssen, etc.), then the remaining Reconciliation Credit in such year will (i) for a failure to deliver in 2003, be added to the total amount of Reconciliation Credits to be applied to invoices in calendar year 2004 and (ii) for a failure to deliver in 2004, be credited against Manufacturing Fees owed under the Supply Agreement in calendar year 2005.
4. Factoring; Repayment of Pre-Payment.
(a) Factoring of the Minimum Revenues. Janssen hereby acknowledges that it is ACTII's intention to explore the possibility of factoring the Minimum Revenues to an independent financial institution. In the event that such a factoring transaction is consummated and the net proceeds to ACTII are at least *, it is the intent of Janssen and ACTII that ACTII will pay to Janssen the amount, if
any, by which the Pre-Payment Amount exceeds the aggregate amount of Reconciliation Credits applied to Manufacturing Fees owed by Janssen, and no further Reconciliation Credits will be applied against Manufacturing Fees owing to ACTII by Janssen thereafter.
(b) Repayment of the Pre-Payment. ACTII may, at any time and for any reason, pay to Janssen the amount, if any, by which the Pre-Payment Amount exceeds the aggregate amount of Reconciliation Credits applied to Manufacturing Fees owed by Janssen, and no further Reconciliation Credits will be applied against Manufacturing Fees owing to ACTII by Janssen thereafter.
5. Equipment.
(a) Existing Line. Within * of the Effective Date, ACTII shall sell to Janssen (or its Affiliate designee) and Janssen (or its Affiliate designee) shall purchase from ACTII the equipment listed on Exhibit A in consideration of three U.S. dollars ($3).
(b) New Line. Within * of the Effective Date, ACTII shall
sell to Janssen (or its Affiliate designee) and Janssen (or its Affiliate
designee) shall purchase from ACTII the equipment listed on Exhibit B in
consideration of the payment of *. Janssen (or its Affiliate designee) shall
lease the equipment to ACTII pursuant to a * lease at a monthly lease payment of
* pursuant to a lease agreement in a form mutually satisfactory to the parties,
provided that the terms of such lease agreement are consistent with this
Agreement.
(c) Title; Documents of Transfer; Taxes. Upon payment therefor, Janssen (or its Affiliate designee) shall have title to and ownership of all equipment listed on Exhibits A and B (the "Janssen Equipment"). ACTII agrees to execute all deeds, assignments, bills of sale and other documents reasonably requested by Janssen to evidence and perfect Janssen's (or its Affiliate designee's) ownership of the Janssen Equipment, including the preparation and filing of a Form UCC-1 to provide notice of Janssen's (or its Affiliate designee's) ownership of the Janssen Equipment. ACTII shall be responsible for all applicable taxes, including personal property and sales taxes, excluding any income taxes owing by Janssen (or its Affiliate designee).
(d) The Janssen Equipment:
(i) will be located at ACTII's manufacturing facilities located at 265 Olinger Circle, Wilmington, Ohio (the "ACTII Facilities");
(ii) will be used by ACTII in performing its obligations under and as permitted by the Supply Agreement and the Addendum;
(iii) will at all times be owned by Janssen (or its Affiliate designee) and shall not be transferred, encumbered or maintained by ACTII in any manner inconsistent with Janssen's (or its Affiliate designee's) ownership rights;
(iv) will bear an identifying tag denoting Janssen's (or its Affiliate designee's) ownership; and
(v) will be maintained and repaired by ACTII as necessary to meet its supply obligations to Janssen.
(e) Facility Oversight and Management. ACTII shall be responsible for the design, construction, equipment, validation and maintenance of the ACTII Facilities, including the Janssen Equipment. Final decisions on management and utilization of the ACTII Facilities, including the Janssen Equipment, with regard to the Product shall be controlled by the provisions set forth in the Addendum. Final decisions on management and utilization of the ACTII Facilities with regard to any other product (provided that ACTII comply with the provisions of Section 2.1.5 of the Addendum) and the general operation of the ACTII Facilities as a whole shall reside with ACTII.
(f) Option to Purchase.
(i) Janssen's Option to Sell or Extend Lease. At the conclusion of the *, Janssen (or its Afiliate designee) shall either (A) require ACTII to purchase all of the Janssen Equipment at a purchase price equal to Janssen's (or its Affiliate designee's) then current net book value or (B) extend the term of the lease at a monthly lease payment of one U.S. dollar ($1). Janssen (or its Affiliate designee) shall exercise this option by notifying ACTII in writing within * of expiration of the *, which notice shall indicate whether ACTII will be required to purchase the Janssen Equipment or extend the lease term and, if ACTII will be required to purchase the Janssen Equipment, the purchase price and a closing date that is no less than * and no more than * after the date of the notice.
(ii) ACTII's Option. If the Supply Agreement is terminated by any party for any reason, other than termination by Janssen pursuant to Section 10.2.3 of the Supply Agreement, then ACTII shall have the option to purchase from Janssen (or its Affiliate designee) any or all of the Janssen Equipment at a purchase price equal to Janssen's (or its Affiliate designee's) then current net book value. ACTII may exercise this option by notifying Janssen (or its Affiliate designee) in writing within * of such termination, which notice shall include a list of all equipment that ACTII will purchase, the purchase price and a closing date that is no less than * and no more than * after the date of the notice.
(iii) Closing of the Equipment Purchase. On the closing date set forth in the notice given by Janssen (or its Affiliate designee) or ACTII under this Section 5, ACTII shall pay to Janssen (or its Affiliate designee) the purchase price and Janssen (or its Affiliate designee) shall execute all deeds, assignments, bills of sale and other documents reasonably requested by ACTII to evidence and perfect ACTII's ownership of the purchased equipment, including the preparation and filing of a Form UCC-3 termination statement.
6. Headcount Funding.
(a) Funding Time Period, Headcount Plan. Attached hereto as
Exhibit C is the initial Headcount Plan for calendar years 2003 and 2004, which
includes both the Existing Headcount and the Incremental Headcount, each as
defined in the Headcount Plan. During calendar year 2003, Janssen shall finance
* of the Actual Cost (defined below) of the Incremental Headcount. Upon the
approval of the Global Supply Team, Janssen shall finance * of the Actual Cost
of the Incremental Headcount during calendar year 2004. The Global Supply Team
shall periodically review and make any appropriate adjustments to the Headcount
Plan, including both the Existing Headcount and the Incremental Headcount. No
material changes may be made to the Headcount Plan without the prior approval of
the Global Supply Team.
(b) Payments; Actual Cost. Each quarter ACTII shall provide a report to Janssen reflecting the actual Incremental Headcount worked on the Project or manufacture of the Product as provided in the Headcount Plan and the Actual Cost for such Incremental Headcount. Janssen shall pay to ACTII * of the amount in the report within thirty (30) days of receipt of the report, provided that the headcount and the amount reported is consistent with the Headcount Plan. "Actual Cost" shall mean the gross salary for the persons included in the invoice, plus * for fringe benefits, plus * for applicable administrative expenses.
(c) Repayment of Headcount Funding. Beginning in *, ACTII shall pay to Janssen up to * per month until the cumulative amount of such payments equals the aggregate amount of headcount funding Janssen has paid to ACTII under this Section 5.
7. Global Supply Team. ACTII and Janssen hereby affirm their commitment to the implementation of the provisions set forth in Article 5 of the Addendum and agree to the Global Supply Team process set forth in Exhibit D. In addition, the Global Supply Team's responsibilities shall be expanded to include formal involvement in headcount planning and staffing with regard to the Product at the ACTII Facilities in calendar years 2003 and 2004, which shall be substantially in accordance with the Headcount Plan.
8. Capacity Allocation. Further to the provisions of Article 5 of the Addendum and in addition to any other provision of the Supply Agreement and the Addendum in this respect, ACTII and Janssen will continue their collaborative efforts to ensure timely expansion of the capacity for the bulk manufacturing of Product and it is acknowledged that both parties believe that the Headcount Plan described in Article 6 hereof provides for resourcing necessary to allow for commercial approval of the second and third wet process lines by year-end 2004. In furtherance of the general principles set forth in Sections 2.1.5 and 5.1 of the Addendum, the parties furthermore agree that (i) the first wet process line shall be used exclusively for the manufacture of Product until such time supply chain conditions, as approved by the Global Supply Team, such approval not be unreasonably withheld, shall allow for alternative or shared use and (ii) that the utilization of the third wet process line at the ACTII Facilities shall be under the reasonable oversight of the Global Supply Team, until such time as the second wet process line is approved by regulatory agencies for the dedicated commercial manufacture of Product.
9. Long Term Capacity and Backup Plan. Further to Sections 2.8 and 2.9 of the Supply Agreement, beginning in early 2003, the parties will discuss in good faith the timing and specific conditions for potentially establishing an additional manufacturing facility for the manufacture of Product with Janssen or any of its Affiliates. Both parties will do so in a collaborative effort with a view to maximize the chances for an expedient and successful validation of such facility. Amongst others, ACTII will provide at the expense of Janssen and if necessary, commercially reasonable training and support-- under conditions still to be agreed -- including the transfer of all necessary data and instructions to achieve the said objectives. The parties acknowledge that the primary purpose of establishing this additional facility is to ensure uninterrupted world-wide supply of Product and, therefore, Janssen agrees that establishing and running such facility shall not affect the financial revenue stream to ACTII under the current agreements between the parties; and, furthermore, it is the parties' intent that these discussions would result in a mutually beneficial arrangement with no detriment to the net economic benefit to ACTII. The start up of commercial manufacturing of Product at such facility will be driven by operational needs and considerations determined by the parties. However, from the moment the volumes of Product ordered by Janssen over a period of time to be determined by the parties (such orders to be in form of firm orders pursuant to the forecast) exceed * of the capacity of the first and second wet process lines and the existing filling line at the ACTII Facilities over such period of time, Janssen will have the option to start up the facility for commercial manufacturing. Notwithstanding the foregoing, the start up of commercial manufacturing at such facility will be subject to and conditional upon the agreement of ACTII and Janssen to the appropriate economic mechanisms to preserve the net economic benefit to ACTII as aforementioned.
10. Miscellaneous.
(a) No Amendments to the Supply Agreement or Addendum. Nothing in this Agreement is intended to modify any provisions of the Supply Agreement or the Addendum; instead, the provisions of this Agreement are in addition to the provisions of such agreements.
(b) Prior Agreements. The parties hereto acknowledge that this Agreement, along with the Supply Agreement and the Addendum, contains the entire agreement between the parties pertaining to the subject matter contained herein 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.
(c) Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. This Agreement may only be assigned in connection with a permitted assignment of the Supply Agreement and Addendum.
(d) Governing Law; Dispute Resolution. This Agreement shall be governed by and construed under the laws of the State of New York. Resolution of any dispute among the parties arising out of or relating to this Agreement shall be according to the terms set forth in Section 12.9 of the Supply Agreement.
(e) Notices. Any notice required or permitted under this Agreement shall be sent in the manner and to the address or facsimile number provided in Section 12.10 of the Supply Agreement.
(f) Amendments and Waivers. This Agreement may not be amended, supplemented or otherwise modified except by an instrument in writing signed by both parties that specifically refers to this Agreement. Either party hereto may, only by an instrument in writing, waive compliance by the other party hereto with any term or provision of this Agreement on the part of such other party to be performed or complied with. The waiver by a party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach. Any amendment or waiver effected in accordance with this Section 8(f) shall be binding upon each party and its permitted assigns.
IN WITNESS WHEREOF, JPI, Janssen US and ACTII have caused this Agreement to be executed by their respective duly authorized officers on the date first set forth above.
JPI PHARMACEUTICA
INTERNATIONAL represented by CILAG
AG INTERNATIONAL ZUG
By: /s/ E. Rombouts /s/ H. Schmid ------------------------------------- Name: E. Rombouts H. Schmid Title: Vice President General Alliance Management Manager |
JANSSEN PHARMACEUTICA INC.
By: /s/ Alex Gordz ------------------------------------- Name: Alex Gordz Title: |
ALKERMES CONTROLLED
THERAPEUTICS INC. II
By: /s/ Michael J. Landine ------------------------------------- Name: Michael J. Landine Title: Vice President |
EXHIBIT A
[***]
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT B
[***]
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT C
[***]
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT D
[***]
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.7
WHEREVER CONFIDENTIAL INFORMATION IS OMITTED HEREIN (SUCH OMISSIONS ARE DENOTED BY AN ASTERISK), SUCH CONFIDENTIAL INFORMATION HAS BEEN SUBMITTED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
AMENDMENT TO AGREEMENT
THIS AMENDMENT (the "Amendment"), made and entered into as of December 16, 2003 to the Agreement (the "Agreement") made as of December 21, 2002 by and between JPI Pharmaceutica International, a division of Cilag AG International Zug ("JPI") and Janssen Pharmaceutica Inc. ("Janssen US" and together with JPI, "Janssen"), on the one hand, and Alkermes Controlled Therapeutics Inc. II ("ACT II"), on the other hand (any terms used but not defined herein shall have the meaning set forth in the Agreement);
WITNESSETH THAT:
WHEREAS, Janssen and ACT II have entered into the Agreement; and
WHEREAS, Janssen and ACT II now wish to enter into this Amendment to modify the terms and conditions for headcount funding set forth in the Agreement;
NOW, THEREFORE, in consideration of the premises, the mutual agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Exhibit C1 attached hereto which sets forth the Additional Incremental Headcount shall be added to the Agreement and shall be deemed to be part of the Headcount Plan for calendar year 2004 and for the fourth quarter of calendar year 2003.
2. The second and third sentences of Section 6(a) of the Agreement shall be deleted in their entirety and replaced with the following new sentences: "During calendar year 2003, Janssen shall finance * of the Actual Cost (defined below) of the Incremental Headcount and any Additional Incremental Headcount, as defined in Exhibit C1. During calendar year 2004, Janssen shall finance * of the Actual Cost of the Incremental Headcount and the Additional Incremental Headcount."
3. The first sentence of Section 6(b) of the Agreement shall be deleted in
its entirety and replaced with the following new sentence:
"Each quarter ACT II shall provide a report to Janssen reflecting the actual
Incremental Headcount and any Additional Incremental Headcount worked on the
Project or manufacture of the Product as provided in the Headcount Plan and the
Actual Cost for such Incremental Headcount and any Additional Incremental
Headcount."
4. Section 6(c) shall be deleted in its entirety and replaced with the
following new sentence:
"Beginning in *, ACTII shall pay to Janssen up to * per month until the
cumulative amount of such payments equals the aggregate amount of headcount
funding Janssen has paid to ACTII under Section 6."
5. Except as expressly provided in this Amendment, all other terms, conditions and provisions of the Agreement shall continue in full force and effect as provided therein. This Amendment and the Agreement constitute the entire agreement between the parties hereto relating to the subject matter hereof and thereof and supersede all prior and contemporaneous negotiations, agreements, representations, understandings and commitments with respect thereto.
6. This Amendment may be executed in counterparts, each of which shall be deemed an original for all purposes, and all of such counterparts taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Janssen and ACT II have executed and delivered this Amendment effective as of the date first set forth above.
ALKERMES CONTROLLED JPI PHARMACEUTICA THERAPEUTICS INC. II INTERNATIONAL represented by CILAG AG INTERNATIONAL ZUG By: /s/ JAMES FRATES By: /s/ ERIK ROMBOUTS /s/ HEINZ SCHMID ------------------------------ ----------------------------------- Name: JAMES FRATES Name: ERIK ROMBOUTS HEINZ SCHMID Title: VP Title: VP ALLIANCE MGMT GENERAL MANAGER JANSSEN PHARMACEUTICA INC. By: /s/ PETER MILLER ----------------------------------- Name: PETER MILLER Title: PRESIDENT |
EXHIBIT C1
[ * * * ]
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.8
WHEREVER CONFIDENTIAL INFORMATION IS OMITTED HEREIN (SUCH OMISSIONS ARE DENOTED BY AN ASTERISK), SUCH CONFIDENTIAL INFORMATION HAS BEEN SUBMITTED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
AMENDMENT TO MANUFACTURING AND SUPPLY AGREEMENT
THIS AMENDMENT (the "Amendment") is made and entered into as of December
22, 2003 to the Manufacturing and Supply Agreement entered into as of August 6,
1997 by and between JPI PHARMACEUTICA INTERNATIONAL, a division of Cilag AG
International Zug ("JPI"), JANSSEN PHARMACEUTICA INC. ("JANSSEN US") and
ALKERMES CONTROLLED THERAPEUTICS INC. II ("ACT II"), as amended (the
"Agreement") (any terms used but not defined herein shall have the meaning set
forth in the Agreement).
RECITALS:
WHEREAS, JPI, JANSSEN US and ACT II have entered into the Agreement; and
WHEREAS, the parties now wish to enter into this Amendment to clarify the terms for payment of the Manufacturing Fee as set forth in the Agreement by amending the terms and conditions of the Agreement as set forth below;
NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Article 1.3 of the Agreement shall be deleted in its entirety and replaced with a new Article 1.3 which shall read as follows:
1.3 "Final Product" shall mean a Presentation Form approved and marketed by JANSSEN, their Affiliates and licensees, ready for sale to the final customer.
2. Article 1.5 of the Agreement shall be deleted in its entirety and replaced with Article 1.5(a) and Article 1.5(b) which shall read as follows:
1.5(a) "U.S. Licensed Net Selling Price" shall mean the * offered by JANSSEN, its Affiliates or licensees in a given calendar year (or such shorter period as may be applicable) to independent third parties for each Presentation Form of the Final Product for sale in the United States, its territories and possession, less deductions for (i) trade, cash and ordinary business discounts allowed; (ii) allowances or credits to customers on account of rejection or return of Final Product; and (iii) managed care rebates or allowances and mandatory price allowances imposed by governments.
If JANSSEN, its Affiliates or licensees sell any Presentation Form of the Final Product in the United States in such a manner that the * of the same is not readily identifiable then the * shall be whichever is the higher of (i) the fair market value of such Final Product or (ii) the proportion of the bundled price attributed to such Final Product by JANSSEN, its Affiliates or licensees whenever the Final Product is sold as o part of a package of products or services. For the purpose hereof "fair market
value" shall mean, without limitation, the value of such Final Product sold to similar third parties in similar quantities in the United States. If the fair market value cannot be determined in the United States, the fair market value will be negotiated by the parties in good faith.
1.5(b) "ROW Licensed Net Selling Price" shall mean the * offered by JANSSEN, its Affiliates or licensees in a given calendar year (or such shorter period as may be applicable) to independent third parties for each Presentation Form of the Final Product for sale in the Territory (other than the United States, its territories and possessions), less deductions for (i) trade, cash and ordinary business discounts allowed; (ii) allowances or credits to customers on account of rejection or return of Final Product; and (iii) managed care rebates or allowances and mandatory price allowances imposed by governments.
If JANSSEN, its Affiliates or licensees sell any Presentation Form of the Final Product in a country in the Territory (other than the United States, its territories and possessions) in such a manner that the * of the same is not readily identifiable then the * for that country shall be whichever is the higher of (i) the fair market value of such Final Product or (ii) the proportion of the bundled price attributed to such Final Product by JANSSEN, its Affiliates or licensees whenever the Final Product is sold as part of a package of products or services. For the purpose hereof "fair market value" shall mean, without limitation, the value of such Final Product sold to similar third parties in similar quantities. If the fair market value cannot be determined in any given country, the fair market value will be determined by the value of such Final Product sold to similar customers in countries with similar pricing and reimbursement structures and for similar quantities.
3. Article 1.7 of the Agreement shall be deleted in its entirety and replaced with a new Article 1.7 which shall read as follows:
1.7 "Manufacturing Fee" shall mean the fee to be paid by JPI and JANSSEN US to ACT II for each Presentation Form of the Product in consideration for the Manufacture of Products supplied to each of them in accordance with the terms hereof and which fee will be calculated as a percentage of the U.S. Licensed Net Selling Price and/or the ROW Licensed Net Selling Price, as applicable, for each Presentation Form of the Final Product in accordance with the mechanism set forth in Article 6.
4. A new Article 1.13 shall be added to the Agreement which shall read as follows:
1.13 "Presentation Form" shall mean a form of the Product or the Final Product determined by the amount of the single dose (either 25 mg., 37.5 mg. or 50 mg.) of the depot formulation of Risperidone contained therein. |
5. Article 6 of the Agreement shall be deleted in its entirety and replaced |
with a new Article 6 which shall read as follows:
6.1 In consideration of the manufacturing activities to be performed by ACT II hereunder, JPI and JANSSEN US will pay the Manufacturing Fee for the Products supplied to each of them.
The Manufacturing Fee will be calculated as a certain percentage of the U.S. Licensed Net Selling Price and/or ROW Licensed Net Selling Price, as applicable. Subject to the terms and conditions set forth in this Agreement, the actual percentage that shall apply with respect to a given calendar year will be determined in accordance with the mechanisms set forth in this Article 6 and Exhibit D attached hereto.
6.1.1 The Manufacturing Fee for calendar year 2002 has been established pursuant to Exhibit I hereto.
6.1.2 (a) Determination of Manufacturing Fee. Subject to the terms and conditions set forth in this Article 6.1.2, the Manufacturing Fees for calendar year 2003 and any subsequent calendar year will be calculated on the basis of the (i) U.S. Licensed Net Selling Prices and/or ROW Licensed Net Selling Prices for such calendar year (expressed in USD at the exchange rates then applied by JANSSEN in accordance with its normal accounting procedures), as applicable, for each Presentation Form of the Final Product and (ii) the total amount of Product expressed in units that has been Manufactured and shipped pursuant to Article 4 by ACT II for such calendar year.
(b) Determination of a Provisional Manufacturing Fee. For the sake of administrative ease, by *, JANSSEN and ACT II will agree in good faith on the "U.S. Provisional Manufacturing Fee" and the "ROW Provisional Manufacturing Fee" for each Presentation Form of the Product for the upcoming calendar year. The "U.S. Provisional Manufacturing Fee" for each such Presentation Form of the Product shall be calculated by taking the forecast submitted by JANSSEN in * for the upcoming calendar year in accordance with Exhibit E (the "* Forecast"), to determine an estimated total amount of Product to be ordered, then determining the applicable percentage from Exhibit D to the Agreement (based on the such estimated total amount of Product) (the "Applicable Percentage") and adding * to facilitate cash flow (the "Additional Percentage") to such Applicable Percentage to determine the "Provisional Manufacturing Fee Percentage." The Provisional Manufacturing Fee Percentage shall then be applied to JANSSEN's estimated U.S. Licensed Net Selling Price for the upcoming calendar year (which shall be determined by JANSSEN in good faith and submitted to ACT II by * of the prior calendar year) to determine the U.S. Provisional Manufacturing Fee. "ROW Provisional Manufacturing Fee " for each such Presentation Form of
the Product shall be calculated by taking (i) the * Forecast; and
(ii) JANSSEN's estimated ROW Licensed Net Selling Price for the upcoming
calendar year (which shall be determined by JANSSEN in good faith and
submitted to ACT II by * of the prior calendar year) and
applying the Provisional Manufacturing Fee Percentage to the estimated ROW
Licensed Selling Price to determine the ROW Provisional Manufacturing
Fee. Subject to the other provisions of this Article 6.1.2, ACT II shall
invoice JANSSEN US for all Product to be shipped to JANSSEN US in the
subsequent calendar year at the U.S. Provisional Manufacturing Fee and
shall invoice JPI for all Product to be shipped to JPI in the subsequent
calendar year at the ROW Provisional Manufacturing Fee. Either the "U.S.
Provisional Manufacturing Fee" and/or the "ROW Provisional Manufacturing
Fee" may also be referred to as the "Provisional Manufacturing Fee."
(c) Recalculation of the Provisional Manufacturing Fee. Within * business days after the end of each calendar quarter JANSSEN shall send to ACT II a report setting forth for each Presentation Form of the Final Product (i) its actual U.S. Licensed Net Selling Price for the calendar year to date; (ii) its actual ROW Licensed Net Selling Price for the calendar year to date; and (iii) the actual number of units of Product ordered by JANSSEN pursuant to Exhibit E for the calendar year to date plus the number of units of Product forecast to be ordered by JANSSEN during the balance of the calendar year as set forth in the most recent forecast submitted in accordance with Exhibit E (specifying such units by Presentation Form and by geographical area (US - ROW)) ("Revised Annual Total Products"). The parties shall use such Revised Annual Total Products to recalculate the Applicable Percentage from Exhibit D by substituting such number for the comparable estimated number used to determine the then current Provisional Manufacturing Fee Percentage. The parties shall add an Additional Percentage to this Applicable Percentage to create a new Provisional Manufacturing Fee Percentage. The parties shall also apply the Applicable Percentage to the actual year-to-date US Licensed Net Selling Price and ROW Licensed Net Selling Price to determine an interim US Provisional Manufacturing Fee and an interim ROW Provisional Manufacturing Fee to be used for calculation purposes. The parties shall next use such newly calculated interim Provisional Manufacturing Fees to recalculate the total amount payable for Product shipped to JANSSEN during the current calendar year to date to determine if such recalculation would result in an underpayment or overpayment for such Product (a "Payment Differential") of more than *. The parties shall also calculate the total amount payable for Revised Annual Total Products using the newly calculated interim Provisional Manufacturing Fees as well as the prior Provisional Manufacturing Fees to determine if these amounts represent more than a * potential overpayment or underpayment for such Product. In the event that there is either a underpayment or overpayment of more than * or * as described above, then the party who has overpaid or who has been underpaid may request the other party to pay the Payment Differential within * of the end of such calendar quarter (such payment a "True Up"). In addition, in the event that there is a
True Up, the parties shall apply the newly calculated Provisional Manufacturing Fee Percentage to the actual year-to-date US Licensed Net Selling Price and ROW Licensed Net Selling Price to determine a revised US Provisional Manufacturing Fee and ROW Provisional Manufacturing Fee which shall become the Provisional Manufacturing Fees to be used during the balance of the calendar year, unless replaced by subsequently recalculated Provisional Manufacturing Fees in accordance with this paragraph.
(d) Annual Reconciliation. Within * days after the end of each calendar
year, JANSSEN shall send to ACT II a report stating for each Presentation
Form of the Final Product (i) its U.S. Licensed Net Selling Price for such
calendar year; (ii) its ROW Licensed Net Selling Price for such calendar
year; and (iii) the total number of units of Product shipped to JANSSEN
during such calendar year (on a country-by-country basis). Any payment
required by JANSSEN to ACT II or vice versa to compensate for any
difference between the U.S. Provisional Manufacturing Fee and/or the ROW
Provisional Manufacturing Fee (calculated in accordance with paragraphs
(b) and (c) above) and the applicable Manufacturing Fees as determined by
such actual prices and total number of units of Product shipped shall be
made to the appropriate Party no later than * of the year in which the
report is delivered and in accordance with the provisions of Article 6.4.
(e) Calculation of Units During Calendar Years *. In calculating the total number of units of Product shipped to JANSSEN for each of calendar years *, whether or not such units of Product are actually shipped, the parties will deem as shipped (i) all Product ordered by JANSSEN prior to the end of * of each such calendar year and (ii) all Product ordered by JANSSEN in the * forecast for each such calendar year (the "* Forecast") submitted in accordance with the ordering procedures set forth in Exhibit E. Any Product ordered by JANSSEN other than as set forth above, even if such Product is shipped, will not, however, be deemed to be shipped when making such calculation, and will also not be deemed to be shipped when calculating the total number of units of Product shipped during any subsequent calendar year. Any units of Product ordered by JANSSEN as set forth above, but not shipped, shall be invoiced to JANSSEN when shipped at the Manufacturing Fee for the applicable calendar year, rather than at the then current Provisional Manufacturing Fee. From the calendar year * onwards, the Manufacturing Fee will be calculated based on the total number of units of Product actually shipped to JANSSEN for such calendar year.
(f) *
(g) *
(h) Illustrative Examples. Exhibit J hereto provides examples for illustrative purposes only of calculations made pursuant to paragraphs (b), (c), (d) and (e) hereof. In the event of any conflict between Exhibit J and this Agreement, the provisions of this Agreement shall control.
6.2 JANSSEN shall keep or cause to be kept accurate records in sufficient detail to enable the Manufacturing Fees for Products sold hereunder to be determined. JANSSEN, upon the written request (including reasonable notice) and at the expense of ACT II, and in any event not more frequently than once in any calendar year, shall permit an independent public accountant of national prominence selected by ACT II, and approved by JANSSEN (with approval not unreasonably to be withheld), to have access during normal business hours to those records as may be reasonably necessary to verify the accuracy of the Manufacturing Fees for Products sold for any calendar year ending not more man three (3) years prior to the date of the aforementioned written request. If such accountant determines that the Manufacturing Fees have been overstated or understated, then one party shall make a payment to the other party as necessary to correct the amount of the Manufacturing Fees paid for Product supplied hereunder, which payment shall be based on the difference between the actual and the misstated Manufacturing Fees. In addition, if such accountant reasonably determines that the Manufacturing Fees have been understated for the audited period by more than *, then JANSSEN shall pay the reasonable costs of such audit. ACT II agrees that all information subject to review under this Article 6.2 shall be deemed JANSSEN's Confidential Information subject to the terms and conditions of Article 7. ACT II shall retain and cause its independent accountant to retain all such information in confidence in accordance with Article 7 and such information may only be used for purposes germane to this Article 6.2.
6.3 ACT II shall invoice JPI or JANSSEN US for the Provisional Manufacturing Fee due with respect to each batch of Product supplied to each of them or their
respective designee when shipped pursuant to Article 4. JPI and JANSSEN US shall pay such, invoice within * after the date of the invoice.
6.4 All payments required to be paid hereunder shall be made in United States Dollars by wire transfer of immediately available funds to the financial institution, account number, account party's name and wire transfer information designated in writing by ACT II to JPI and JANSSEN US as the place of payment.
6.5 No party shall have the right to reduce, by set off, counterclaim, adjustment or otherwise, any amount owed by it to the other party pursuant to this Agreement, unless explicitly provided for otherwise.
6.6 JANSSEN shall bear all applicable national, federal, provincial, municipal and other governmental taxes (such as sale, use or similar taxes), duties, or import charges, except for any tax on profits or income of ACT II, that ACT II may be required to pay or collect as a result of the payments of the Manufacturing Fee or the Provisional Manufacturing Fee.
6.7 Within * after the end of each month, JANSSEN shall deliver to ACT II a report setting forth the dollar amount and the units of each Presentation Form of the Final Product sold during the prior month on a country-by-country basis. In addition, each month JANSSEN shall provide to ACT II the foreign currency exchange rates used to calculate the Final Product sales for each country.
6. Exhibit D shall be amended by deleting the words "Licensed Net Selling Price" and substituting the words "U.S. Licensed Net Selling Price and/or ROW Licensed Net Selling Price."
7. This Amendment and the Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to its conflict of law provisions.
8. Except as expressly provided in this Amendment, all other terms, conditions and provisions of the Agreement shall continue in full force and effect as provided therein. This Amendment and the Agreement constitute the entire agreement between the parties hereto relating to the subject matter hereof and thereof and supersede all prior and contemporaneous negotiations, agreements, representations, understandings and commitments with respect thereto.
[signature page follows]
IN WITNESS WHEREOF, JPI, JANSSEN US and ACT II have executed and delivered this Amendment effective as of the date first set forth above.
ALKERMES CONTROLLED JPI PHARMACEUTICA THERAPEUTICS INC. II INTERNATIONAL represented by CILAG AG INTERNATIONAL ZUG By: /s/ Michael Landine By: /s/ Erik Rombouts --------------------- ---------------------------------- Name: Michael Landine Name: ERIK ROMBOUTS Title: Vice President Title: VP ALLIANCE MGMT By: /s/ Heinz Schmid ---------------------------------- Name: HEINZ SCHMID Title: GENERAL MANAGER JANSSEN PHARMACEUTICA INC. By: /s/ Peter Miller ------------------------------------ Name: Peter Miller Title: President |
EXHIBIT I
[***]
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT J
[***]
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.9
WHEREVER CONFIDENTIAL INFORMATION IS OMITTED HEREIN (SUCH OMISSIONS ARE DENOTED BY AN ASTERISK), SUCH CONFIDENTIAL INFORMATION HAS BEEN SUBMITTED SEPARATELY TO THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
FOURTH AMENDMENT TO MANUFACTURING AND SUPPLY AGREEMENT
THIS FOURTH AMENDMENT (the "Amendment") is made and entered into as of January 10, 2005 (the "Amendment Effective Date") to the Manufacturing and Supply Agreement entered into as of August 6, 1997, as amended, by and between JPI PHARMACEUTICA INTERNATIONAL, a division of Cilag AG International Zug ("JPI"), JANSSEN PHARMACEUTICA INC. ("JANSSEN US" and, together with JPI, "JANSSEN"), on the one hand, and ALKERMES CONTROLLED THERAPEUTICS INC. II ("ACT II"), on the other hand (the "Agreement").
RECITALS:
WHEREAS, JANSSEN and ACT II have entered into the Agreement; and
WHEREAS, JANSSEN and ACT II have also entered into an Addendum to the Agreement, dated as of August 1, 2001 (the "Addendum"), regarding the expansion of ACT II's manufacturing facilities; and
WHEREAS, the parties now wish to enter into this Amendment regarding the further expansion of ACT II's manufacturing facilities, and the financial responsibility of each of the parties in connection with such expansion;
NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Unless provided otherwise, any capitalized terms used in this Amendment that are not defined herein will have the meaning set forth in the Agreement or the Addendum. The following terms will have the following meanings:
"Depreciation Credit" means an amount calculated by dividing the Total Third Line Cost by the divisor of *, representing * for depreciation multiplied by * of Product per year.
"FTE" means a full-time technical person dedicated by ACT II to perform technical work on or directly related to the Third Line Plan, or in the case of less than a full-time dedicated technical person, a full-time equivalent technical person year, based upon a total of * (i.e., * of technical work on or directly related to the Third Line Plan.
"FTE Hourly Rate" means the amount of *.
"Total Third Line Cost" means the total amount of the costs incurred by ACT II, calculated as of the date of Validation Completion, for activities performed pursuant to the Third Line Plan, including without limitation the purchase of equipment and the design, engineering, construction and validation activities so performed. In no event, shall the Total Third Line Cost exceed the overall budget set forth in the Third Line Plan, unless such excess costs have been approved by JANSSEN.
2. THIRD LINE. ACT II will design, engineer, construct and validate a third wet process line at its manufacturing facility located in Wilmington, Ohio (the "Third Line"). A description of the design, engineering, construction and validation activities for the Third
Line, including the equipment to be installed therein and the timeline and budget for such design, engineering, construction and validation activities (the "Third Line Plan") will be established by the parties. A draft Third Line Plan including a project budget and project timeline is set forth in Exhibit A to this Amendment.
3. APPROVAL OF THIRD LINE PLAN. Within * of the Amendment Effective Date, the parties will meet to review and finalize the draft Third Line Plan. Any modifications to the draft Third Line Plan affecting the anticipated timelines, scope or budget thereof shall only become effective with the consent of both ACT II and JANSSEN, which consent shall not be unreasonably withheld or delayed. The final Third Line Plan will be attached to this Amendment as Exhibit A 1.
4. PERFORMANCE OF ACTIVITIES. Upon finalization of the Third Line Plan, ACT II will begin to perform, and to have performed, the activities set forth therein. ACT II will be responsible for the management of the design, engineering, construction and validation of the Third Line. The Global Supply Team, or a designated Sub-Team thereof, may, however, recommend actions to ACT II following periodic reviews of the design, engineering, construction and validation of the Third Line. Periodically ACT II may also notify the Global Supply Team of proposed amendments to the Third Line Plan. Within * of receipt of any proposed amendment to the Third Line Plan, the Global Supply Team, or the designated Sub-Team, will meet to evaluate the amendment to the Third Line Plan and to recommend actions; provided, however, that the scope, timelines or budget set forth in the Third Line Plan may only be amended with the consent of both ACT II and JANSSEN, which consent shall not be unreasonably withheld or delayed. ACT II will keep the Global Supply Team, or any designated Sub-Team, regularly informed, and at least on a quarterly basis, of issues and decisions affecting the design, engineering, construction and validation of the Third Line and will consult with the Global Supply Team, or any designated Sub-Team, before making any decisions with respect thereto whenever possible.
5. PAYMENT. JANSSEN US will reimburse ACT II at the * for design, engineering, construction and validation activities performed by * pursuant to the Third Line Plan and will also reimburse ACT II for any for any out-of-pocket costs incurred by ACT II in connection with such activities, including without limitation costs incurred for equipment, and third-party design, engineering, construction and validation services. Any costs for design, engineering, construction and validation activities that exceed the overall budget set forth in the Third Line Plan will be borne by and will be the responsibility of ACT II unless such excess costs have been approved by JANSSEN. The parties will regularly review the status of the budget in the Third Line Plan, in accordance with the anticipated spending schedule provided for in the Third Line Plan.
Notwithstanding the foregoing, the costs of manufacturing any necessary development and validation batches of the Product in connection with the validation of the Third Line will be borne by ACT II, it being understood that if any such Product is supplied to JANSSEN in accordance with the terms of the Agreement, ACT II will be paid the Manufacturing Fee for such Product. JANSSEN will provide Compound for the manufacture of such development and validation batches of the Product free of charge, and no Compound so supplied will be a factor in any yield variance calculation, including without limitation any calculation made pursuant to Section 2.7 of the Agreement.
6. PAYMENT PROCESS. ACT II will invoice JANSSEN US, or such other entity as JANSSEN US shall direct, on a * for design, engineering and construction activities based on the payment schedule set forth in Exhibit A.1, and JANSSEN US, or such
other designated entity, will pay ACT II within *. Upon approval of the process validation reports for the Third Line ("Validation Completion"), ACT II will invoice JANSSEN US, or such other entity as JANSSEN US shall direct, for the costs of all validation activities set forth in the Third Line Plan, and JANSSEN US, or such other designated entity, will pay ACT II within *. All payments required to be made hereunder will be made in United States dollars by wire transfer of immediately available funds to the financial institution, account number, and account party's name designated in writing from time to time by ACT II to JANSSEN US as the place of payment.
7. OWNERSHIP OF EQUIPMENT. JANSSEN US will own the pieces of equipment
described in the Third Line Plan (the "Equipment"). To the extent that the
provisions of this Amendment are in conflict with Section 2.2 of the Agreement,
Section 2.2 will be deemed to be amended with respect to the Equipment. To
perfect JANSSEN US's ownership interest in the Equipment, ACT II, at JANSSEN's
request, will file appropriate Uniform Commercial Code financing statements with
respect to the Equipment. ACT II will keep the Equipment free and clear of all
liens and encumbrances, other than those which may result from acts of JANSSEN.
JANSSEN US will be responsible for paying any taxes, including without
limitation personal property and sales taxes, that may accrue with respect to
the Equipment.
8. USE OF EQUIPMENT. ACT II will have the right to use the Equipment during the term of the Agreement in accordance with the provisions of the Agreement and this Amendment, without obligation to make any payments to JANSSEN US with respect to such right of use other than as provided for in Section 11 hereof. ACT II will maintain each piece of Equipment in good operating order and repair, normal wear and tear excepted. ACT II agrees, at its own expense, to keep all Equipment insured in appropriate amounts for damage or loss.
9. DELIVERY OF EQUIPMENT UPON TERMINATION. Subject to ACT II's purchase rights as set forth in Section 11, upon termination or expiration of the Agreement, JANSSEN US may request that ACT II deliver to any destination in the United States any Equipment that is not permanently fixed to ACT II's facilities in Wilmington, Ohio and that can be removed from such facilities without destroying any portion thereof or significantly disrupting the operation thereof, as reasonably determined by ACT II. ACT II will promptly crate and ship such Equipment to such destination at JANSSEN US's cost and expense.
10. USE OF THIRD LINE. The parties agree that after the first and second wet process lines at ACT II's Wilmington, Ohio facility have been utilized to their appropriate capacity for the manufacture of the Product, as determined by the Global Supply Team taking into account the forecasts for the Product provided by JANSSEN in good faith pursuant to the Agreement, manufacture of the Product will be given priority on the Third Line. Subject to the foregoing limitation, ACT II will have the right at any time to manufacture products other than the Product using the Third Line, provided that (i) ACT II has provided * prior notice of such intended manufacturing activities to JANSSEN (the "Manufacturing Notice") and discussed such intended manufacturing activities with the Global Supply Team, and (ii) the Global Supply Team, using its reasonable judgment in good faith, has approved such use following review of a facility master plan to be provided by ACT II specifying the proposed production campaigns on the Third Line. Any such discussion with the Global Supply Team will be subject to ACT II's obligations of confidentiality (if any) to its collaborative partner for the products to be manufactured using the Third Line. Unless the Global Supply Team notifies ACT II within * of
receipt of the Manufacturing Notice that it does not approve the intended manufacturing activities, ACT II will have the right to manufacture products other than the Product using the Third Line, and ACT II will purchase the Equipment in accordance with the provisions of Section 11 hereof at the latest * prior to the date of manufacturing the first commercial batch of any such product on the Third Line.
11. PURCHASE OF EQUIPMENT. In addition to its purchase obligations under
Section 10 above, at any time, upon thirty (30) days prior written notice to
JANSSEN, ACT II will have the right to purchase the Equipment. Any purchase by
ACT II of the Equipment will be made at its then current book value, as set
forth in JANSSEN US's financial statements, which book value will be determined
by depreciating the Equipment and the related installation and validation costs
set forth in the Third Line Plan in accordance with United States generally
accepted accounting principles (US GAAP) consistently applied; provided,
however, that if ACT II exercises its purchase right following the receipt of
notice from JANSSEN of termination of the Agreement pursuant to Section 10.2.4
thereof, then ACT II will have the right to purchase the Equipment for
consideration of Ten U.S. Dollars (US $10.00). JANSSEN US will depreciate the
Equipment and the related costs on a straight- line basis over a period of *.
Within * of receipt of the Manufacturing Notice or a notice from ACT II of
intended purchase of the Equipment, JANSSEN will provide ACT II with notice of
the Equipment's then current book value. ACT II will have the right to request
an audit of JANSSEN US' determination of book value of the Equipment, which
shall be conducted by an independent public accountant of national prominence at
ACT II's expense. Such accountant will treat all information subject to audit
under this Section 11 as confidential and will provide a report to ACT II and
JANSSEN US regarding only the accuracy or inaccuracy of the book value
determination. Following receipt of JANSSEN's notice regarding the book value of
the Equipment (and any audit conducted by ACT II), JANSSEN US and ACT II will
promptly execute and deliver appropriate bills of sale and other documents for
the purchase of the Equipment. Upon the execution and delivery of such
documents, this Amendment will be automatically amended to delete Sections 7
through 10 hereof, and JANSSEN will promptly file amendments terminating any
Uniform Commercial Code financing statements that have been filed with respect
to the Equipment.
12. DEPRECIATION CREDIT. If ACT II manufactures more than * of the Product on
the Third Line during any calendar year, then ACT II will give JANSSEN a
Depreciation Credit in accordance with the terms of this Section 12 for each
batch of Product in excess of * that are so manufactured. For any calendar year
in which more than * of the Product were manufactured on the Third Line, ACT II
will grant to JANSSEN within * of the end of such calendar year a credit in the
amount of: (i) the Depreciation Credit per batch of the Product, multiplied by
(ii) the number of batches of the Product in excess of * manufactured on the
Third Line in such calendar year. JANSSEN shall have the right to apply this
credit until it is exhausted against Manufacturing Fees payable for the Product
supplied by ACT II during the subsequent calendar year.
13. LONG TERM CAPACITY. ACT II and JANSSEN agree that if, and only if, the Global Supply Team agrees in good faith, taking into account the forecasts for the Product provided by JANSSEN in good faith pursuant to the Agreement, that the volumes of the Product so ordered by JANSSEN will exceed the combined capacity of the first, second and third wet process lines and the existing filling lines at ACT II's Wilmington, Ohio facilities, then JANSSEN will have the option to establish its own manufacturing facility for the
manufacture of the Product by JANSSEN or any of its Affiliates. If the Global Supply Team so agrees, both parties will discuss in good faith the timing and specific conditions for the establishment of any such additional manufacturing facility with a view to maximizing the chances for an expedient and successful validation of such facility. Among other conditions to be negotiated by the parties in good faith and agreed upon in writing, ACT II will provide, if necessary and at the expense of JANSSEN, commercially reasonable training and support including the transfer of all necessary data and instructions to achieve such objectives. The parties agree that commercial manufacturing at such facility will not begin unless and until ACT II and JANSSEN have negotiated in good faith and agreed in writing upon appropriate economic mechanisms to preserve ACT II's net economic benefit under the current agreements between the parties with respect to the Product, including without limitation the Agreement, the Addendum, and the Agreement between the parties dated December 21, 2002, as amended. For the purpose of determining the net economic benefit referred to above, the parties will also consider a reasonable utilization percentage of the first, second and third wet process lines and the existing filling lines at ACT II's Wilmington, Ohio facilities. At the Effective Date of this Amendment, the parties contemplate such reasonable percentage to be * of the capacity thereof, unless the parties agree otherwise when negotiating such economic mechanisms referred to above. The parties furthermore agree that such percentage may vary as a result of *. The terms and conditions of this Section 13 will supersede the terms and conditions of Section 9 of the Agreement between the parties dated December 21, 2002, as amended.
14. OPERATING COSTS. Following the Validation Completion, ACT II will be responsible for the ongoing operating costs of the Third Line in accordance with the provisions of the Agreement.
15. PRESS RELEASE. Neither party will originate any written publicity, news release or public announcement, written or oral, relating to this Amendment, other than such announcements or filings that are required to be made by applicable law, rules or regulations (or the applicable rules of any securities exchange or market on which a party's or its affiliates' securities are listed or traded) or that are otherwise agreed by the parties or expressly permitted under this Amendment. An approved press release announcing this Amendment is attached hereto as Exhibit B. If in the reasonable opinion of a party's legal counsel, a public announcement is required to be made by applicable laws, rules or regulations (or the applicable rules of any securities exchange or market on which a party's or its affiliates' securities are listed or traded), then the disclosing party will provide the other party notice reasonable under the circumstances of such intended announcement and, to the extent feasible under circumstances, will consult with the other party with respect to the nature and scope of such intended announcement. Routine references to this Amendment and the arrangements hereunder will be allowed in the usual course of a party's business. Once information has been approved for disclosure or publication under this Section 15, either party may use such approved information in written publicity, news releases, public announcements and other future communications with third parties.
16. GOVERNING LAW. This Amendment will be governed by and construed in accordance with the laws of the State of New York without regard to its conflict of law provisions.
17. INTEGRATION. Except as expressly provided in this Amendment, all other terms, conditions and provisions of the Agreement will continue in full force and effect as provided therein. This Amendment, the Agreement and the Addendum constitute the entire agreement between the parties hereto relating to the subject matter hereof and thereof and supersede all prior and contemporaneous negotiations, agreements, representations, understandings and commitments with respect thereto. In the event of a conflict between the terms and conditions of the Agreement or the Addendum and the terms and conditions of this Amendment, the terms and conditions of this Amendment shall control.
[signature page follows]
IN WITNESS WHEREOF, JPI, JANSSEN US and ACT II have executed and delivered this Amendment effective as of the date first set forth above.
ALKERMES CONTROLLED JPI PHARMACEUTICA THERAPEUTICS INC. II INTERNATIONAL represented by CILAG AG INTERNATIONAL ZUG By: /s/ Michael Landine By: /s/ Heinz Schmid ___________________________ _____________________________ Name: Michael Landine Name: Heinz Schmid _________________________ ___________________________ Title: Vice President Title: General Manager ________________________ __________________________ By: /s/ Gilber Eyer _____________________________ Name: Gilber Eyer ___________________________ Title: Finance Director __________________________ JANSSEN PHARMACEUTICA INC. By: /s/ Janet Vergis ____________________________ Name: Janet Vergis __________________________ Title: President _________________________ |
EXHIBIT A
[***]
THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST. REDACTED MATERIAL IS MARKED WITH "*" AND HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT B
PRESS RELEASE
[To be approved by the parties]
Contact:
Barbara Yates
Alkermes, Inc.
(617)583-6321
DRAFT - NOT FOR RELEASE
ALKERMES TO EXPAND PRODUCTION CAPACITY FOR
RISPERDAL(R) CONSTA(R)
CAMBRIDGE, MA, JANUARY 11, 2005 -- Alkermes, Inc. (Nasdaq: ALKS) today announced
that the Company will expand production capacity for Risperdal(R) Consta(R)
[(risperidone) long-acting injection], an atypical antipsychotic medication
approved for the treatment of schizophrenia. This expansion at Alkermes'
Wilmington, Ohio, facility is designed to meet anticipated future demand for
Risperdal Consta. Alkermes' partner, Janssen-Cilag, a wholly owned division of
Johnson & Johnson, will help fund the building of the new manufacturing line.
Under the terms of the agreement, Alkermes will be responsible for managing the
design, engineering, construction, validation and all other aspects of the
project based upon a mutually-developed project plan.
"The decision to expand our manufacturing capabilities highlights the success of Risperdal Consta," commented Richard Pops, Chief Executive Officer of Alkermes. "We are excited to build this third manufacturing line to support the plans to continue to meet the market needs for Risperdal Consta as an important product for patients."
About Alkermes, Inc.
Alkermes, Inc. is a pharmaceutical company that develops products based on
sophisticated drug delivery technologies to enhance therapeutic outcomes in
major diseases. The Company's lead commercial product, Risperdal Consta
[(risperidone) long-acting injection], is the first and only long-acting
atypical antipsychotic medication approved for use in schizophrenia, and is
marketed worldwide by Janssen-Cilag ("Janssen"), a wholly owned subsidiary of
Johnson & Johnson. The Company's lead proprietary product candidate, Vivitrex(R)
[(naltrexone) long-acting injection], is a once-a-month injection for the
treatment
of alcohol dependence. The Company has a pipeline of extended-release injectable products and pulmonary drug products based on its proprietary technology and expertise. Alkermes' product development strategy is twofold: the Company partners its proprietary technology systems and drug delivery expertise with several of the world's finest pharmaceutical companies and it also develops novel, proprietary drug candidates for its own account. The Company's headquarters are in Cambridge, Massachusetts, and it operates research and manufacturing facilities in Massachusetts and Ohio.
This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. There can be no assurance that actual results will not differ materially from the forward-looking statements discussed in this press release. These forward-looking statements include risks and uncertainties that the third manufacturing line will be built on budget or will be validated on time, risks and uncertainties inherent in the collaboration with and dependence upon Johnson & Johnson, and risks and uncertainties regarding the drug discovery and development process. These statements reflect Alkermes' current beliefs; however, as with any pharmaceutical product, there remain substantial risks and uncertainties related to market acceptance. There are no guarantees regarding what the actual demand for Risperdal Consta may be nor whether Alkermes can manufacture Risperdal Consta on a commercial scale or economically. These and additional risks and uncertainties are described more fully in Alkermes' filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, such as its Annual Report on Form 10-K for the fiscal year ended December 31, 2003 under the heading "Risk Factors Related to Our Business" and its subsequently filed Quarterly Reports on Form 10-Q. Alkermes undertakes no duty to update forward-looking statements.
EXHIBIT 31.1
CERTIFICATIONS
I, Richard F. Pops, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Alkermes, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release No. 34-47986];
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: February 8, 2005 /s/ Richard F. Pops -------------------------- Richard F. Pops Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATIONS
I, James M. Frates, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Alkermes, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release No. 34-47986];
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal controls over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
Date: February 8, 2005 /s/ James M. Frates ----------------------------- James M. Frates Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Alkermes, Inc. (the "Company") on Form 10-Q for the period ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Richard F. Pops, Chief Executive Officer of the Company, and James M. Frates, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: February 8, 2005 /s/ Richard F. Pops ------------------------ Richard F. Pops Chief Executive Officer /s/ James M. Frates ------------------------ James M. Frates Chief Financial Officer |