Exhibit 10.1

 

Confidential Materials omitted and filed separately with the

Securities and Exchange Commission. Asterisks denote omissions.

 

DISTRIBUTION SERVICES AGREEMENT

 

This Distribution services Agreement (“Agreement”) is entered into as April 1,
2005 (Execution Date) by and between Collagenex Pharmaceuticals Corporation, a
Delaware corporation with its principal place of business located at 41
University Drive, Newtown, Pa 18940 (“Customer”), and Cardinal Health* with its
principal place of business located at 7000 Cardinal Place, Dublin, Ohio 43017
(“Service Supplier”).

 

RECITALS

 

WHEREAS, Service Supplier provides services including but not limited to
logistics and inventory management services, administrative services, and
financial services; and, Customer wishes to purchase such services from Service
Supplier; and

 

WHEREAS, Service Supplier is willing to provide and Customer desires certain
additional services to Customer as needed and agreed upon by both parties.

 

WHEREAS, Customer and Service Supplier desire to assure adequate availability of
supply and inventory management of Products.

 

NOW THEREFORE, in consideration of the foregoing, the mutual representations,
warranties and covenants contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

 

ARTICLE 1

Definitions

 

1.1. “Products” means all current and future ethical pharmaceutical products,
bearing Customer’s label and packaging, which Customer sells to wholesale
customers in the United States. (see current price list).

 

1.2. “Aggregate Inventory” means, at any given time, the total of Products in
units that Service Supplier as on hand at all of its storage and/or distribution
facilities and that Service Supplier has on order from Customer

 

1.3. “Confidential Information” means the confidential information described in
Section 4.2.

 

1.4. “Providers” means the purchaser(s) of Products from Service Supplier in the
United States.

 

1.5. “Average Weekly Movement” means, at any given time, the total quantity of
Products in units (by NDC number) sold by Service Supplier to Providers over the
immediately preceding eight (8) weeks divided by eight (8).

 

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1.6. “Execution Date” means the date of full execution of this Agreement.

 

1.7. ‘Effective Date” means April 1, 2005.

 

1.8. Inventory and Sales Reports” means the reports described in Sections 2.3

 

1.9. “New Price” means the wholesale acquisition cost (“WAC”) charged by
Customer after the effective date and time of a price change instituted by
Customer at any time following the Effective Date of this Agreement.

 

1.10. “Old Price” means the WAC charged by Customer immediately preceding the
institution of a New Price.

 

ARTICLE 2

Services

 

General – Customer agrees to compensate Service Supplier for each of the
services described below in accordance with the fee structure contained on
Schedule A.

 

2.1. Base Distribution Services.

 

  1. Sophisticated ordering technology

 

  2. Daily consolidated deliveries to providers

 

  3. Emergency shipments to providers 24/7/365

 

  4. Consolidated accounts receivable management

 

  5. Contract and Chargeback administration

 

  6. Returns processing

 

  7. Customer Service support

 

  8. Adequate working inventories to meet customer needs and service levels

 

  9. Licensed, environmentally controlled, PDMA compliant, secure facilities

 

2.2 Inventory Management Services.

 

  1. Inventory Levels. During the term of this Agreement, Service Supplier will
use best efforts to maintain Aggregate Inventory levels of no less than [**]
weeks and no more than [**] weeks on all Products.

 

  2. Purchase Limits. Customer agrees to ship all Service Supplier purchase
orders in full. Customer has the right to question any orders that exceed [**]%
of Service Supplier’s Average Weekly Movement and has the right to cancel any
quantities that Service Supplier is not able to provide reasonable
justifications and/or explanations.

 

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  3. Product Availability. Service Supplier and Customer will jointly use best
efforts to minimize product shortages and maximize product availability by
agreeing to the following:

 

  Ÿ Service Supplier will institute an automated balancing system on Customer
Products in order to optimize the use of existing inventories across the entire
Service Supplier network, including brokerage.

 

  Ÿ During backorder situations and limited product availability and upon
Customer’s request, Service Supplier will implement more frequent order and
receiving cycles to help reduce inventory requirements.

 

2.3 Data / Reporting Services. Service Supplier shall prepare inventory reports
detailing the status of its Aggregate Inventory of Products (“Inventory
Reports”) and movement of Products (“Sales Reports”) by NDC number for the
duration of this Agreement. Service Supplier shall provide Customer with such
Inventory Reports weekly, or daily upon request, and Sales Reports monthly. All
such Inventory and Sales Reports shall be transmitted in EDI 852 and EDI 867
formats, respectively and shall include such information as reasonably requested
by Customer, including but not limited to the following:

 

  (a) On hand inventory level by distribution center; and

 

  (b) On order inventory level by distribution center; and

 

  (c) Sales out by distribution center

 

     Service Supplier may, due to contractual requirements, be required to block
certain data in the 867’s that discloses Provider identity. This may include
Provider name and DEA number, and any other data that would identify a Provider.

 

     Within thirty (30) days after entering into this Agreement, the parties
shall examine and test the capability of their respective EDI systems and
complete implementation of a mutually agreeable system whereby transfers of
information can be made effectively on a consistent basis. In the event that
critical internal support systems and electronic communication links including
EDI, are not available for 5 business days, the parties will cooperate to
promptly implement substitute procedures to document the information customarily
sent by EDI and prevent interruptions to each other’s business.

 

2.4 Service Level. Service Supplier agrees to use its best commercial efforts to
service provider orders for Products at a [**]% service level. Service Level
will be calculated according to Service Supplier’s then current, standard
adjusted service level report. In addition, Service Supplier will allow Customer
the opportunity, with advanced written notice, to add up to [**] additional
weeks of inventory beyond the inventory levels defined in Section 2.2.1 in order
to ensure maximum service levels. Customer will be entitled to this opportunity
one time per quarter.

 

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2.5 Provider Order Monitoring. During the term of this agreement Service
Supplier will implement processes and procedures to monitor Provider order
patterns. Service Supplier and Customer will agree upon parameters which may
represent speculative buy activity. Any orders that meet the agreed upon
parameters will be investigated by Service Supplier and the outcome reported to
Customer. If it is determined that a Provider is speculating, additional steps
will be implemented to limit Provider purchases to reasonable levels.

 

2.6 New Product Launch Support. Service Supplier will provide guaranteed support
for future Customer new product launches. Support will consist of the following:

 

  a. Stocking each distribution center with quantities as reasonably determined
by Customer, in no case to exceed [**] days of anticipated demand.

 

  b. Providing daily sales out reports for the first [**] days of product launch

 

  c. Providing automatic distribution to participating or targeted pharmacies on
qualified products through Service Supplier’s First Script Program.

 

2.7 Purchase Requirement. Service Supplier agrees to purchase [**]% of its
requirements of Customer Products directly from Customer.

 

2.8 Payment Terms. [**] percent ([**]%), [**] days from the date of the invoice.

 

ARTICLE 3

Term and Termination; Remedies

 

3.1. Term and Termination. This Agreement shall remain in full force and effect
from the Effective Date, April 1, 2005, through March 31, 2008 unless terminated
by either Customer and/or Service Supplier, as the case may be, upon the earlier
of (a) the mutual written agreement of Customer and Service Supplier; or (b) a
breach by Customer or Service Supplier of any of the terms of this Agreement
that is not cured within [**] days of written notification thereof by the
non-breaching party; or (d) the institution (whether voluntarily or
involuntarily) of bankruptcy, insolvency, liquidation or similar proceedings by
or against Customer or Service Supplier, or the assignment of Customer’s or
Service Supplier’s assets for the benefit of creditors.

 

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ARTICLE 4

Miscellaneous

 

4.1. Nature of Relationship. The relationship between Customer and Service
Supplier is that of service buyer-seller, and no agency, franchise, partnership,
joint venture or other relationship shall be construed to exist between the
parties. Nothing contained in this Agreement shall be construed as giving
Service Supplier any exclusive rights as a wholesaler of Products, whether in
any territory or with respect to any class of customers for Products. Customer
reserves the right to appoint additional distribution service suppliers and to
sell directly to customers, including without limitation, the U.S. Government
(including any agencies, departments or services thereof), qualifying
tax-supported and non-profit institutions, mail service and other retail
providers, and such other accounts as Customer deems appropriate.

 

4.2. Confidentiality. During the term of this Agreement, each party, its
respective agents, employees and representatives (collectively, the “receiving
party”) may receive or have access to confidential materials and information of
the other party (the “disclosing party”). All such materials and information
(including, but not limited to the terms of this Agreement, Products
information, operations, methods, strategies, formulas, price lists, discount
programs, incentives, rebates, records of unit movement for Products, shipping
and warehousing, and confidential proprietary information from third parties),
are collectively referred to herein as “Confidential Information” and constitute
the property of the disclosing party. During the term hereof and for a period of
one (1) year thereafter the receiving party shall not use or disclose to third
persons any such Confidential Information without the disclosing party’s prior
written consent, excepting those (a) disclosures made on a confidential basis to
and use by the directors, officers, employees, and agents of the receiving party
who have a reasonable need to know such information in connection with the
receiving party’s performance of this Agreement, (b) disclosures which are
required by law, as reasonably determined by the receiving party or its legal
counsel, or are made on a confidential basis to the receiving party’s attorneys,
accountants, and other professional advisors in connection with matters relating
to this Agreement, and (c) routine disclosures in the normal course of business,
including to IMS/DDD or similar organizations.

 

     Upon termination of this Agreement (for any reason) each party will
promptly: (i) return to the other party all documentation and other materials
(including copies of original documentation or other materials) containing any
confidential information of the other party; or (ii) certify to the other party,
pursuant to a certificate in form and substance reasonably satisfactory to the
other party, as to the destruction of all such documentation and other
materials.

 

4.3. Assignment and Delegation. Neither party may assign this Agreement without
the prior written consent of the other party; provided, however, that either
party may assign this Agreement without such consent to an Affiliate. For the
purpose of this Section 4.3, an Affiliate shall be defined to include any
company controlling, controlled by, or under common control with Service
Supplier or Customer as the case may be through stock ownership, direct or
indirect. This Agreement shall be binding upon and shall inure to the benefit of
the successors and assigns of the parties.

 

4.4. Governing Law. Agreement shall be interpreted in accordance with, and
governed by, the laws of the State of Delaware, without regard to any conflicts
of laws’ rules.

 

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4.5. Severability; Waiver. The invalidity of all or part of any provision of
this Agreement shall not affect the validity of any other provision of this
Agreement or the remaining portion of the applicable provision. Either party’s
failure to insist on compliance or enforcement of any provision of this
Agreement shall not affect its validity or enforceability or constitute a waiver
of future enforcement of that provision or of any other provision of this
Agreement.

 

4.6. Statute of Frauds. All EDI transmissions made pursuant to this Agreement
shall be deemed by the parties to be the same as written communication for all
purposes, and for all applications of law and statutes, including but not
limited to, the Statue of Frauds under the State of the Ohio Uniform Commercial
Code.

 

4.7. Force Majeure. Neither party shall be liable for delay in delivery or
nonperformance in whole or in part nor shall the other party have the right to
terminate this Agreement where delivery or performance has been affected by a
condition of force majeure. For purposes of this Agreement, force majeure means
a condition which results from causes beyond a party’s reasonable control,
including, but not limited to, acts of God, acts of the other party, shortages,
fires, labor disputes, strikes, floods, epidemics, quarantines, war, riot, delay
in transportation, compliance with any applicable governmental regulation or
order, whether or not it later proves to be invalid, or inability to obtain
labor, materials or manufacturing facilities. If either party is affected by a
force majeure event, such party shall, within 10 days of its occurrence, give
notice to the other party stating the nature of the event, its anticipated
duration and any action being taken to avoid or minimize its effect. The
suspension of performance shall be of no greater scope and no longer duration
than is reasonably required and the non-performing party shall use its best
efforts to remedy its inability to perform.

 

4.8. Notices. All notices to either party (each a “Notice”) shall be in writing,
shall refer specifically to this Agreement and shall be hand delivered or sent
by express courier service, costs prepaid, or by facsimile to the respective
addresses specified below (or to such other address as may be specified by
Notice to the other party):

 

If to Service Supplier, to:    Cardinal Health      7000 Cardinal Place     
Dublin, OH 43017      Attention: General Counsel      Telecopier No.:
614-757-6948

 

If to Customer, to:    Collagenex Pharmaceuticals Corporation      Attention:
Frank Ruffo, Sr. Director Finance, Controller      Telecopier:215-579-8577

 

4.9. Entire Agreement. This Agreement constitutes the entire agreement between
the parties and supersedes the Inventory Management Agreement dated June 16,
2003 and all prior contracts, agreements and understandings between the parties
whether written or oral with regard to the subject matter hereof. This Agreement
may not be amended except in writing signed by authorized representatives of the
parties hereto.

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day first above written.

 

Collagenex Pharmaceuticals Corporation

  Cardinal Health By:  

/s/ David Pfeiffer

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  By:  

/s/ Jim Scott

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Name:   David Pfeiffer   Name:   Jim Scott Title:   Sr. V.P., Sale & Marketing  
Title:   S VP, Purchasing EDI Contact Person:   EDI Contact Person: Name:   F.
Ruffo   Name:   Debbie Lake E-mail:   fruffo@collagenex.com   E-Mail:  
Debbie.lake@cardinal.com Phone:   215-579-7388   Phone:   614-757-3532

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* The term “Cardinal Health” shall include the following affiliated operating
companies: Cardinal Health 110, Inc., formerly known as Whitmire Distribution
Corporation, a Delaware corporation (Folsom, California); Cardinal Health 106,
Inc., formerly known as James W. Daly, Inc., a Massachusetts corporation
(Peabody, Massachusetts); Cardinal Health 103, Inc., formerly known as Cardinal
Southeast, Inc., a Mississippi corporation (Richland, Mississippi); Cardinal
Health 100, Inc., formerly known as Bindley Western Industries, Inc., an Indiana
corporation (Indianapolis, Indiana); Cardinal Health 104, LP f/k/a Service
Supplier Distribution, L.P., an Ohio limited partnership (Dublin, Ohio) Cardinal
Health 107, Inc., formerly known as National Pharmpak Services, Inc., an Ohio
corporation, , and any other subsidiary of Cardinal Health, Inc., an Ohio
corporation (“CHI”), as may be designated by CHI.

 

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SCHEDULE A

 

Service Fee: A Service Fee of [**]% will be calculated and paid quarterly based
on the total volume of all Products purchased by Service Supplier, including
brokerage, from Customer during that quarter valued at the Customers invoiced
price at the time the Product was purchased. Customer shall pay such fees no
later than [**] days after the end of each calendar quarter. All such fees will
be paid to Service Supplier in the form of a credit memo or a check, at the
Customers discretion. For purposes of this Agreement a “calendar quarter” shall
mean the following consecutive three calendar month periods: January 1 – March
31, April 1 – June 30, July 1 – September 30 and October 1 – December 31

 

Service Fee Credits: Customer will receive credit towards the Service Fee for
the following items:

 

a. [**] (defined as [**] through the Effective Date.

 

b. [**] or any other method, excluding those that are intended for Service
Supplier’s Providers.

 

Returns Allowance: In consideration of Service Supplier agreeing not to send any
returned Product to Customer, Customer shall pay Service Supplier a Returns
Allowance of [**]% and will be calculated and paid quarterly based on the total
volume of all Products purchased by Service Supplier, including brokerage, from
Customer during that quarter valued at the Customers invoiced price at the time
the Product was purchased. Customer will provide Service Supplier with credit
detail of product returned to Customer in order to allow Service Supplier the
ability to issue its Providers appropriate credit. Customer shall pay such fees
no later than [**] days after the end of each calendar quarter. All such fees
will be paid to Service Supplier in the form of a credit memo or a check, at the
Customers discretion. For purposes of this Agreement a “calendar quarter” shall
mean the following consecutive three calendar month periods: January 1 – March
31, April 1 – June 30, July 1 – September 30 and October 1 – December 31. Actual
credit memos issued to Service Supplier for product returns to Customer, if any,
and the associated service charges incurred by the Customer to process Service
Supplier returns, if any, that are processed by the Customer on behalf of
Service Supplier shall be deducted on a quarterly basis from the returns
allowance earned by the Service Supplier.

 

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