Exhibit 10.2
SUPPLY AGREEMENT
This Supply Agreement (this “Agreement”) made as of June 7, 2011 (the “Effective
Date”), by and between Somaxon Pharmaceuticals, Inc. (“Somaxon”), and Paladin
Labs Inc. (“Paladin”). Somaxon and Paladin may hereinafter be referred to
individually as a “Party” or collectively as the “Parties.”
Whereas, Somaxon and Paladin have entered into a License Agreement (Canada)
effective as of the Effective Date (as amended from time to time) (the “License
Agreement”), under which Somaxon grants Paladin an exclusive right to
Commercialize the Licensed Product in the Field in the Territory (all terms as
defined in the License Agreement).
Whereas, in connection with the License Agreement, Somaxon and Paladin desire to
enter into this Agreement in order to set forth the terms and conditions under
which Somaxon shall manufacture (or cause to be manufactured), supply and sell
and Paladin will purchase Bulk Product (as hereinafter defined).
Now, Therefore, in consideration of the promises and mutual covenants contained
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Unless otherwise specifically provided herein, the following terms shall have
the following meanings. Any capitalized terms used in this Agreement which are
not defined in this Article I shall have the meanings ascribed to them pursuant
to the License Agreement.
“Agreement” has the meaning set forth in the Preamble of this Agreement.
“Bulk Product” means the Licensed Products listed on Schedule A, released as a
finished good, unlabeled and packaged as set forth on Schedule A.
“cGMP” means the rules concerning current good manufacturing practices specified
by the EU/PIC guidelines (and the corresponding national laws and regulations),
the FDA regulations codified in the U.S. Code of Federal Regulations, or any
other comparable regulatory criteria or guidelines as applicable, all as amended
from time to time.
“Discretionary Change” has the meaning set forth in Section 4.3(b).
“Deficiency Notice” has the meaning set forth in Section 4.2(c).
“Effective Date” has the meaning set forth in the Preamble of this Agreement.
“Encumbrances” means any lien, pledge, security interest, right of first
refusal, option, title defect, license, restriction, or other adverse claim or
interest or encumbrance of any kind or nature whatsoever, whether or not
perfected, including any restriction on use, transfer, receipt of income or
exercise of any other attribute of ownership.

 

 

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“Forms” has the meaning set forth in Section 3.7.
“Global Supply Chain” has the meaning set forth in Section 4.3(a).
“Inability to Supply” shall mean, over a 4-month period, the inability of
Somaxon to supply to Paladin at least 70% of the volumes of Bulk Product
indicated in the then applicable binding Purchase Orders for Bulk Product to be
delivered within such period.
“Licensed Product” means Silenor® (doxepin), and all other formulations or
dosage strengths of doxepin or other Improvements Controlled by Somaxon during
the Term, but specifically excluding any doxepin isomers or OTC Products.
“Minimum Run Quantities” means the minimum number of batches, bottles or
blisters of a Licensed Product to be produced during the same cycle of
manufacturing as set forth in Schedule 3.1.
“Non-Conformity” or “Non-Conforming” means the failure of Bulk Product to
conform to the Specifications, the Product Labels and Inserts, cGMP, the Quality
Agreement and/or applicable Law.
“Paladin” has the meaning set forth in the Preamble of this Agreement.
“Patheon Agreement” means that certain Manufacturing Services Agreement between
Somaxon and Patheon Pharmaceuticals Inc. dated February 1, 2006, as amended by
that certain Amendment to Manufacturing Services Agreement dated June 19, 2008
and that certain Amendment No. 2 to Manufacturing Services Agreement dated
October 1, 2008, as the same may be further amended from time to time.
“Permits” has the meaning set forth in Section 2.2(a)(iv).
“Purchase Order” has the meaning set forth in Section 3.3(a).
“Purchase Order Default Supplies” has the meaning set forth in Section 3.5(b).
“Purchase Order Failure” has the meaning set forth in Section 3.5(b).
“Purchase Order Failure Notice” has the meaning set forth in Section 3.5(b).
“Recall” has the meaning set forth in Section 4.5(a).
“Rejected Bulk Product” has the meaning set forth in Section 4.2(a).
“Required Changes” has the meaning set forth in Section 4.3(a).

 

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“Shelf Life” means the length of time that a Licensed Product remains stable, as
required by applicable Law, without degrading to unacceptable levels (as such
unacceptable levels are set forth in the applicable Specifications).
“Somaxon” has the meaning set forth in the Preamble of this Agreement.
“Somaxon Manufacturing Responsibilities” has the meaning set forth in
Section 4.5(c).
“Specifications” means all applicable specifications for the Bulk Product in the
Marketing Approval in the United States.
“Subcontractor” means any Third Party contracted by Somaxon or its Affiliates to
perform any of Somaxon Manufacturing Responsibilities.
“Term” has the meaning set forth in Section 6.1.
“Trading Services Procedure” has the meaning set forth in Section 3.3(b).
“Unit” means a single dose of Bulk Product.
“United States” or “U.S.” means the United States of America, its territories
and possessions.
ARTICLE II
MANUFACTURE AND SUPPLY OF PRODUCT
2.1 Engagement.
(a) Subject to the terms and conditions set forth herein, Paladin hereby agrees
to exclusively purchase, and Somaxon hereby agrees to exclusively manufacture or
have manufactured, supply and sell to Paladin, during the Term, for the
Territory, Bulk Product ordered by Paladin pursuant to the terms of this
Agreement. Subject to the remaining terms of this Section, Somaxon may delegate
all or any portion of its obligations hereunder to a Subcontractor, provided
that Somaxon shall remain fully liable to Paladin pursuant to this Agreement
despite any such delegation to a Subcontractor.
(b) Paladin shall be obligated to purchase all requirements of it, its
Affiliates and sublicensees for Bulk Product in the Territory from Somaxon under
this Agreement.
(c) Paladin acknowledges that, as of the Effective Date, Bulk Product is being
manufactured by a Subcontractor at the assigned manufacturing facility on the
terms and subject to the conditions set forth in the Patheon Agreement, which
shall be fully applicable to the manufacturing services provided by Somaxon
pursuant to this Agreement.
(d) Somaxon shall have the right to extend the rights granted to Somaxon in this
Agreement or transfer its obligations under this Agreement to, or have its
obligations or responsibilities under this Agreement performed by, one or more
of its Affiliates. All applicable terms and conditions of this Agreement shall
apply to any such Affiliate to which this Agreement has been extended or
transferred to the same extent as such terms and conditions apply to Somaxon,
provided that Somaxon shall remain fully liable to Paladin pursuant to this
Agreement despite any such extension or transfer.

 

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(e) Notwithstanding anything herein to the contrary, the Parties agree that
Somaxon may manufacture or have manufactured Licensed Product (i) for sale and
distribution outside the Territory by Somaxon, its Affiliates and/or Third
Parties, (ii) for sale and distribution within the Territory by Somaxon or its
Affiliates solely in order to satisfy any Somaxon obligations pursuant to this
Agreement and the License Agreement, or (iii) for any non clinical or clinical
research purpose of Somaxon and its Affiliates or in support of any Regulatory
Filings or other activities outside the Territory.
2.2 Representations and Warranties.
(a) Representations and Warranties of Somaxon. Somaxon warrants that:
(i) All Bulk Product supplied by Somaxon to Paladin hereunder, and the
manufacturing, packaging, processing, storage, disposal and other handling of
such Bulk Product by Somaxon and/or its Subcontractors, as applicable, shall
(i) comply in all respects with all of the Specifications and the Quality
Agreement, (ii) be consistent, as applicable, with the Marketing Approval, and
(iii) be manufactured in a manner compliant in all respects with cGMP and all
applicable Law;
(ii) All Bulk Product supplied by Somaxon to Paladin hereunder shall, as of the
time that such Bulk Product is delivered to Paladin pursuant to Section 3.4,
have a minimum Shelf Life (at the time of delivery to the carrier’s vehicle by
Somaxon for shipment at the shipping point pursuant to Section 3.4) of the
greater of (A) 32 months, and (B) four months less than the Shelf Life set forth
in the Marketing Approval; provided that upon the previous written agreement of
the Parties (e.g.: e-mail and/or facsimile), Somaxon may supply Bulk Product to
Paladin with Shelf Life lower than that set forth above;
(iii) All Bulk Product supplied by Somaxon to Paladin hereunder shall not, as of
the time that such Bulk Product is delivered to Paladin pursuant to Section 3.4,
be adulterated or misbranded within the meaning set forth under the Act;
(iv) As of the Effective Date, Somaxon and/or its Subcontractors, as applicable,
have all material permits, licenses, approvals, consents and authorities from
any Governmental Bodies as necessary to lawfully and properly perform the
manufacturing services contemplated by this Agreement (the “Permits”);
(v) Throughout the Term, Somaxon and/or its Subcontractors, as applicable, will
maintain all material Permits; and
(vi) Upon transfer of the risk of loss related to Bulk Product, as provided in
Section 3.4, good and valid title to such Bulk Product sold hereunder will be
conveyed by Somaxon to Paladin free and clear of any Encumbrances created by
Somaxon or its predecessors.

 

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(b) No Implied Representations or Warranties. OTHER THAN AS EXPRESSLY SET FORTH
IN THIS SECTION 2.2, NEITHER PARTY MAKES OR GIVES ANY OTHER REPRESENTATIONS OR
WARRANTIES UNDER OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY WHATSOEVER, AND EXPRESSLY DISCLAIMS ALL OTHER REPRESENTATIONS AND
WARRANTIES, WHETHER EXPRESS, IMPLIED, OR STATUTORY, INCLUDING WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WARRANTIES ARISING FROM
COURSE OF DEALING OR USAGE OF TRADE.
2.3 Production and Final Packaging. Somaxon shall be responsible for producing
Bulk Product in accordance with the Specifications, applicable Law and the
Quality Agreement. Paladin shall be responsible for final packaging of the
Licensed Product for sale in the Territory in accordance with applicable Law,
the Quality Agreement and the Product Labels and Inserts.
2.4 Product Labels and Inserts. Paladin shall be responsible for the content,
design and delivery of all Product Labels and Inserts and shall ensure that the
Product Labels and Inserts are consistent with applicable Law and the Marketing
Approval. All Product Labels and Inserts which contain the name of Somaxon or
its Affiliates (other than solely identifying Somaxon or its Affiliates or their
Subcontractors as the licensor, manufacturer or supplier of the Licensed
Product) or any Product Mark shall be subject to the prior written approval of
Somaxon, not to be unreasonably withheld.
2.5 Subcontractors. Following the Effective Date, Somaxon shall not implement
any Subcontractor arrangements (other than those that are in effect as of the
Effective Date) so as to subcontract or outsource, in whole or in part, any of
its obligations under this Agreement without providing at least 30 days’ prior
written notification to Paladin, unless such event requires approval of Health
Canada or any other Governmental Body the approval of which is required to
Commercialize Licensed Product in the Territory, in which case Paladin will be
notified by Somaxon with sufficient time to receive such approval without a
material and adverse impact on timely supply under this Agreement.
2.6 Limitations. Notwithstanding any other provision of this Agreement, all Bulk
Product is supplied by Somaxon to Paladin hereunder solely and exclusively for
sale in accordance with applicable Law in the Territory.
ARTICLE III
FORECASTING AND ORDERING
3.1 Order Quantities. Paladin shall place Purchase Orders which are multiples of
the Minimum Run Quantities set forth in Schedule 3.1.

 

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3.2 Forecasts.
(a) Rolling Forecasts. Six months prior to the launch date reasonably expected
by Paladin in the Territory and prior to the first day of each Calendar Month
thereafter, Paladin shall provide to Somaxon a good faith rolling forecast
setting forth amounts of Bulk Product that Paladin expects in good faith to
order for the first 12 Calendar Months following the expected launch date with
respect to the first such forecast and for the 12-Calendar Month period
following the delivery of the forecast thereafter. The Parties agree that the
first four Calendar Months of such initial forecast and the fourth month of each
such subsequent forecast shall be considered binding on Paladin; provided that
Paladin shall have no obligation to make any purchases of, and Somaxon shall
have no obligation to supply, Bulk Product hereunder until Marketing Approval
has been obtained. Bulk Product amounts specified for the fifth through twelfth
Calendar Month of each forecast shall be non-binding estimates of future Bulk
Product requirements. Bulk Products specified in any such forecast shall be
understood by the Parties to be non-film-coated Products.
(b) Three-Year Forecast. On or before the 1st day of October of each Calendar
Year commencing not later than six months prior to the launch date reasonably
expected by Paladin in the Territory, Paladin shall provide Somaxon with a
written non-binding three-Calendar Year forecast (broken down by Calendar Month
in the first Calendar Year and by Calendar Quarters for the second and third
Calendar Years of the forecast) of the volume of each Bulk Product Paladin then
anticipates will be required to be produced and delivered to Paladin during the
three-Calendar Year period. Such three-Calendar Year forecast shall be updated
on or before the 1st day of April in each Calendar Year. Bulk Products specified
in any such forecast shall be understood by the Parties to be non-film-coated
Products.
(c) Additional Obligation. When preparing any forecast, Paladin shall use
Commercially Reasonable Efforts to apportion its requirements of Bulk Product in
a reasonable manner in order to minimize untoward fluctuation in Somaxon’s or
its Subcontractors’ production.
3.3 Orders.
(a) During the Term, Paladin shall place written purchase orders (each a
“Purchase Order”) for Bulk Product on behalf of itself or any of its Affiliates
in the Territory, not less than 120 days prior to the Paladin specified delivery
date, in accordance with the applicable binding forecast mentioned in
Section 3.2 above. Each Purchase Order shall specify quantities by Licensed
Product type, monthly delivery schedule, any jurisdiction-specific
Specifications and any other elements necessary to ensure the timely production
and shipment of the Licensed Products. The quantities of Licensed Products
ordered in such Purchase Orders shall be firm and binding on Paladin and shall
not be subject to reduction by Paladin.
(b) Within 60 days from the Effective Date, the Parties shall mutually agree
upon any additional logistics of the forecasting, ordering and delivery process
(including the form of a certificate of analysis to be delivered with each Bulk
Product shipment) (“Trading Services Procedure”), including names of contact
persons for each Party and addresses. A sample form of Purchase Order is
attached hereto as Exhibit 1. The Trading Services Procedure cannot be amended
without the written agreement of the Parties.

 

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(c) Somaxon will accept all Purchase Orders that comply with this Section 3.3 if
they are not more than 115% of the amount most recently forecasted for the
delivery period specified in the Purchase Order. Purchase Orders will be
accepted or rejected via written notice of acceptance or rejection by Somaxon to
Paladin. Somaxon shall use Commercially Reasonable Efforts to send notice of
rejection or acceptance to Paladin as soon as reasonably practicable, provided
that such notice must be given no later than 10 days after receipt of the
Purchase Order. In the event Paladin does not receive a notice of rejection
within such period, the applicable Purchase Order shall be deemed to have been
accepted by Somaxon.
(d) Somaxon shall use Commercially Reasonable Efforts to supply Bulk Product
pursuant to each accepted Purchase Order in a timely manner; provided, that each
order will be deemed to have been fully satisfied, as to quantity, if the
quantity of Bulk Product actually delivered to Paladin is at least 90% of the
quantity of Bulk Product set forth in the relevant Purchase Order, and in such
event, Paladin shall be required to pay for the amount of conforming Bulk
Product actually received in accordance with Article 5; provided, further, that
Somaxon will use Commercially Reasonable Efforts to supply 100% of the quantity
of Bulk Product ordered. In addition, Somaxon will use Commercially Reasonably
Efforts to supply Bulk Product in excess of 100% of the amount most recently
forecast for the delivery period specified in the Purchase Order.
(e) From time to time, due to significant unforeseen circumstances, and upon
previous written agreement of the Parties (e.g.: e-mail and/or facsimile),
Paladin may request, and Somaxon may deliver Bulk Product volumes in excess of
those specified in any binding forecast or with delivery dates shorter than the
periods specified in subsection (a) above. Prior to such written agreement,
Somaxon shall notify Paladin whether, using Commercially Reasonable Efforts, it
can provide Paladin with such excess Bulk Product volumes or by such expedited
delivery date, provided that if compliance with such request would result in
Somaxon incurring additional incremental costs, Somaxon shall so notify Paladin
of such estimated costs, whereupon Paladin shall, at its option either:
(i) agree to reimburse Somaxon for such additional incremental costs (including
for any expedited means of shipping), or (ii) promptly amend its Purchase Order
to reduce its order quantity to the forecast amount or adjust its delivery dates
to comply with subsection (a), as applicable.
(f) Without limitation of any other remedy available to Paladin, in the event
that Somaxon has insufficient inventory of a Bulk Product to satisfy trade
demand in the Territory and trade demand outside of the Territory during any
applicable period: (i) Somaxon shall notify Paladin of the shortage as soon as
possible; and (ii) Somaxon shall allocate for sale in the Territory, an amount
of Bulk Product no less than (A) the aggregate amount of such Bulk Product
available for distribution worldwide during such period, multiplied by (B) the
quotient of (x) the aggregate trade demand for the Territory during the
12 months (or, if there is less than 12 months of historical data, such shorter
period) immediately preceding such period, divided by (y) the aggregate amount
of Bulk Product purchased by all customers worldwide during the 12 months (or
such shorter period) immediately preceding such period.

 

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3.4 Shipment. Bulk Product to be delivered pursuant to the accepted Purchase
Orders shall be delivered CPT (Incoterms 2000) port of entry into Canada. All
Bulk Product shall be shipped in accordance with the Specifications and
applicable Law. Risk of loss or of damage to Bulk Products shall remain with
Somaxon until Bulk Products are loaded on the carrier’s vehicle by Somaxon for
shipment at the shipping point at which time risk of loss or damage shall
transfer to the Client. Paladin shall be responsible for all import/export,
transportation and distribution charges from this delivery site. Paladin shall
arrange for insurance and shall select the freight carrier used by Somaxon to
ship Bulk Products. Somaxon shall notify Paladin in writing at the time of
shipment as to the quantity of Bulk Product shipped, the anticipated delivery
date and confirmation of the carrier.
3.5 Late Delivery.
(a) Somaxon shall use Commercially Reasonable Efforts to meet the delivery dates
and order quantities indicated in the Purchase Orders accepted pursuant to
Section 3.3. If any circumstances occur that could reasonably be expected to
result in any delivery delay or variation in quantity exceeding that set forth
in Section 3.3(c), Somaxon shall, as soon as reasonably practicable, inform
Paladin thereof in sufficient detail for Paladin to assess the likelihood that
such delivery delay or variation in quantity will adversely affect its inventory
situation. Any shipment delivered that is within 10% of the quantity ordered
and/or 20 Business Days of the delivery date specified on the relevant accepted
Purchase Order will be considered as delivered on time.
(b) In the event that Somaxon is unable or otherwise fails to deliver Bulk
Product pursuant to the applicable Purchase Order on time (as provided in the
last sentence of subsection (a) of this Section 3.5), Somaxon shall be deemed to
have committed a “Purchase Order Failure”. In the event of a Purchase Order
Failure, Somaxon shall, as soon as reasonably possible (and in any event not
later than 25 Business Days from the stated delivery date in the confirmed
Purchase Order), notify Paladin in writing of such Purchase Order Failure, which
notice (a “Purchase Order Failure Notice”) shall inform Paladin of the date on
which Somaxon reasonably expects to be able to deliver Bulk Product subject to
the Purchase Order Failure Notice (the “Purchase Order Default Supplies”) to
Paladin. Somaxon shall use Commercially Reasonable Efforts to deliver the
delayed Purchase Order Default Supplies promptly after the date of the Purchase
Order Failure. Where and to the extent that any Purchase Order Failure is due to
any Non-Conformity, and regardless of whether such Non-Conformity is detected by
Somaxon prior to release or shipment of the applicable Bulk Product or by
Paladin following delivery in accordance with the rejection procedure set forth
in Section 4.2, following a determination of such Non-Conformity Somaxon shall
be required to manufacture and deliver new Bulk Product to Paladin in accordance
with Paladin’s ordered requirements as soon as reasonably practicable (and in
any event shall commence manufacture not later than 40 days after such final
determination). Paladin shall have a duty to use Commercially Reasonable Efforts
to mitigate any damages which it may suffer as a result of any Purchase Order
Failure.

 

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3.6 Inability to Supply.
(a) In the event of any inability to supply the Bulk Product (including an
Inability to Supply), the Parties agree to act in good faith and make all
Commercially Reasonable Efforts to find a solution to the inability to supply.
Somaxon will use its Commercially Reasonable Efforts to facilitate direct
communication with its Third Party contract manufacturer, including facilitating
a direct contractual relationship between such Third Party contract manufacturer
and Paladin.
(b) Following an Inability to Supply, Paladin shall have the right (but not the
obligation) on ten Business Days notice to terminate this Agreement.
(c) Without limiting Section 3.6(a) above, at any time following a request made
by Paladin, Somaxon will use its Commercially Reasonable Efforts to facilitate
direct communication with its Third Party contract manufacturer, including
facilitating a direct contractual relationship between such Third Party contract
manufacturer and Paladin.
3.7 Forms. The Parties recognize that, during the Term, a Purchase Order,
acknowledgement form or similar routine document (collectively “Forms”) may be
used to implement or administer provisions of this Agreement. Therefore, the
Parties agree that the terms of this Agreement will prevail in the event of any
conflict between this Agreement and the printed provision of such Forms, or
typed provisions of Forms that add to, vary, modify or are at conflict with the
provisions of this Agreement with respect to Bulk Product sold hereunder during
the Term.
3.8 Relationship Manager. Each Party shall promptly following the execution of
this Agreement appoint one of its employees to be a relationship manager
responsible for liaison between the Parties with respect to Manufacture of Bulk
Product hereunder. The relationship managers shall meet by teleconference or
videoconference whenever necessary and appropriate to review the current status
of the Manufacture relationship and manage any issues that have arisen.
ARTICLE IV
QUALITY ASSURANCE AND CHANGE MANAGEMENT
4.1 Quality Agreement. Within 180 days after the Effective Date, the Parties
shall execute a Quality Agreement in connection with this Agreement (the
“Quality Agreement”) which addresses the management of the quality elements
related to Bulk Product. In the event of any conflict between the terms of this
Agreement and the Quality Agreement, this Agreement shall prevail.
4.2 Rejected Bulk Product. Paladin shall use Commercially Reasonable Efforts to
visually inspect each shipment of Bulk Product delivered to it hereunder for
visible damage. In the event Somaxon supplies any Bulk Product to Paladin and it
is established that such Bulk Product is Non-Conforming, the following shall
apply:
(a) Paladin shall promptly notify Somaxon in writing within 20 days after
receipt of such Non-Conforming Bulk Product, or in the case of any concealed or
latent Non-Conformity, promptly in writing within 20 days upon discovery of such
Non-Conformity but in no event after the expiration date of the Bulk Product
(the “Rejected Bulk Product”);

 

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(b) If no notification is made as stated in subsection (a) above, Paladin will
be deemed to have accepted any delivered Bulk Product;
(c) Upon receipt of a notification under subsection (i) above (“Deficiency
Notice”), Somaxon shall have 15 days to advise Paladin by notice in writing that
it disagrees with the contents of such Deficiency Notice. If Paladin and Somaxon
fail to agree within 15 days after Somaxon’s notice to Paladin as to whether any
Rejected Bulk Product deviates from the Specifications or cGMP, then the Parties
shall mutually select an independent laboratory within five days of the Parties’
failure to agree, which independent laboratory shall evaluate if the Rejected
Bulk Products deviate from the Specifications or cGMP. The Parties shall cause
the independent laboratory to conduct its evaluation as promptly as practicable,
and in any event within 20 days from the date of selection of the laboratory.
Such evaluation shall be binding on the Parties, and if such evaluation
certifies that any Rejected Bulk Product is Non-Conforming, Paladin may reject
those Non-Conforming Bulk Products in the manner contemplated in this
Section 4.2. If such evaluation does not so certify in respect of any such
Rejected Bulk Product, then Paladin shall be deemed to have accepted delivery of
such Rejected Bulk Product on the date the evaluation is delivered by the
independent laboratory to the Parties. The expenses of such testing shall be
borne by Somaxon if the Rejected Bulk Product is determined to be Non-Conforming
Bulk Product, and otherwise by Paladin
(d) Paladin shall return the Non-Conforming Bulk Product to Somaxon or destroy
it, as per Somaxon’ written request and instructions and at Somaxon’ sole cost
and expense;
(e) Subject to subsection (f) below, provided that Paladin returns or destroys
Rejected Bulk Product to Somaxon in accordance with subsection (d) and, upon
Somaxon’s written request, delivers to Somaxon a certified destruction report of
the Non-Conforming Bulk Product (if applicable), Somaxon shall promptly credit
Paladin an amount equal to the price paid by Paladin for such Non-Conforming
Bulk Product, including all freight, duties, taxes and insurance charges
incurred by Paladin in connection with the delivery of the Non-Conforming Bulk
Product; and
(f) In the event that any concealed or latent defect causing the Non-Conformity
is attributable to the actions, omissions or breach of this Agreement by
Paladin, Somaxon shall not have any responsibility for the purchase price credit
for such Non-Conforming Bulk Product nor bear any other costs, including
freight, duties, taxes and insurance charges in connection with the delivery of
new conforming Bulk Product, and Paladin shall, irrespective of such latent
defect or Non-Conformity, pay the price for such Bulk Product supplied by
Somaxon which is covered by this subsection (f).

 

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4.3 Change Management.
(a) For changes that are required by applicable Law including any requirement of
Health Canada or other Governmental Body, or for safety considerations
exclusively applicable to the Manufacture of the Bulk Product (“Required
Changes”), the Parties shall promptly meet to discuss such Required Changes and
the impact of any such Required Changes on the global supply chain for the
Licensed Product (the “Global Supply Chain”). In the event that the Required
Change would reasonably be expected to have a material adverse effect on the
Global Supply Chain, Somaxon shall have the right to terminate this Agreement
pursuant to Section 6.2. In all other circumstances, subject to the Patheon
Agreement, the Parties shall cooperate in making such Required Changes promptly.
If the Required Change is required only for the Bulk Product in the Territory,
the reasonable and documented out-of-pocket direct costs of implementing such
Required Change shall be borne by Paladin. If the Required Change is required
for the Bulk Product both in and outside the Territory, then the costs and
expenses are to be shared pro-rata between Somaxon and Paladin based on the
then-binding volume forecasts for Licensed Product outside the Territory as
compared to within the Territory. In all other cases, the costs and expenses of
Required Changes shall be borne by Somaxon.
(b) If Somaxon wishes to make a change that is not a Required Change (a
“Discretionary Change”), including a change related to any manufacturing
facility where the Bulk Product (or any of its components) is currently
manufactured, the Parties shall discuss such Discretionary Change and, unless
Paladin can demonstrate that the Discretionary Change will have a material
adverse impact on the Licensed Product in the Territory (including as to
Paladin’s financial returns in Commercializing same), Somaxon shall be entitled
to make such Discretionary Change and shall bear all the reasonable and
documented out-of-pocket direct costs of implementing such Discretionary Change.
Any Discretionary Changes desired by Paladin shall be discussed by the Parties
and subject to the prior written consent of Somaxon, which may be withheld in
its sole discretion.
(c) In the case of either a Required Change or a Discretionary Change, Somaxon
will continue to supply the Licensed Product to Paladin according to the
Specifications as are then in place until the variations contemplated by the
Required Change or the Discretionary Change are approved pursuant to an
applicable Marketing Approvals.
4.4 Inspections. Upon reasonable notice to Somaxon and subject at all times to
the Somaxon agreement with the applicable Subcontractor, including, without
limitation, the Patheon Agreement, Paladin shall have the right to make site
visits to all manufacturing facilities at which Bulk Product is or will be
Manufactured, provided that (a) any such site visits shall be conducted only
during reasonable times during normal business hours and shall be reasonable in
duration and shall not unreasonably interfere with the day-to-day operations of
such facility; and (b) all information obtained in connection with such visit
(regardless of the form or medium) shall be Somaxon’s Confidential Information
and subject to obligations of confidentiality set forth in Section 8.1. Paladin
shall bear all costs and expenses associated with such inspections.
4.5 Recalls.
(a) Paladin shall administer all recalls or market withdrawals of the Licensed
Product in the Territory (“Recall”) in accordance with applicable Laws and
Paladin’s standard operating procedures used in connection with any recalls or
withdrawals of Paladin products in the Territory. Paladin shall promptly consult
with Somaxon with respect to any Recall proposed to be taken by Paladin (and in
all events reasonably in advance of the taking of such Recall), including all
Recalls that are reasonably likely to result in a material adverse effect on the
marketability of the Licensed Product in or outside the Territory. At Paladin’s
request, Somaxon shall provide reasonable assistance to Paladin in conducting
such Recall.

 

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(b) Each Party shall promptly notify the other in writing of any order, request
or directive of a court or other Governmental Body to Recall the Licensed
Product of which such Party has notice of or is otherwise aware (but in any
case, not later than 24 hours following such event (or earlier if required under
applicable Law)).
(c) Somaxon shall bear the full and reasonable expenses of both Parties incurred
in any Recall to the extent resulting from a failure of Somaxon (or its
Subcontractors) to Manufacture Bulk Product in accordance with the warranties
set forth in Section 2.2(a) (the “Somaxon Manufacturing Responsibilities”), and
in all other circumstances Paladin shall bear the full and reasonable expenses
of both Parties incurred in any Recall. If any Recall results in part from the
failure of Somaxon (or its Subcontractor(s)) to Manufacture Bulk Product in
accordance with Somaxon Manufacturing Responsibilities, Somaxon shall bear a pro
rata portion of the full and reasonably expenses of both Parties incurred in any
Recall based on its contribution to the particular facts of the Recall. Such
expenses of Recall shall include the expenses of notification and destruction or
return of the recalled Licensed Product, distribution of replacement Licensed
Product and all sums paid by Third Parties for the recalled Licensed Product.
Without limiting the foregoing, to the extent any Recall is caused by the
failure of Somaxon (or Subcontractor) to Manufacture Bulk Product in accordance
with the Somaxon Manufacturing Responsibilities, Somaxon shall further reimburse
Paladin for any and all transportation and storage charges incurred by Paladin
in connection with such recalled Licensed Product.
ARTICLE V
PRICE AND PAYMENT
5.1 Purchase Price. The purchase price for Bulk Product supplied by Somaxon to
Paladin under this Agreement is set forth in Section 5.2 of the License
Agreement and shall be incorporated by reference herein.
5.2 Invoicing and Payment. Invoicing and payment for Bulk Product supplied by
Somaxon to Paladin under this Agreement is set forth in Section 5.2.2 of the
License Agreement and shall be incorporated by reference herein.
5.3 Audit rights. Somaxon shall have the right to audit the books and records of
Paladin to verify the accuracy of reports and payments made by Paladin hereunder
solely in conjunction with any audit conducted by Somaxon pursuant to the
License Agreement, and solely subject to and in accordance with the applicable
terms set forth in the License Agreement which shall be incorporated by
reference herein.
ARTICLE VI
TERM AND TERMINATION
6.1 Term. This Agreement shall become effective as of the Effective Date and
shall continue until the date of expiration or termination of the License
Agreement unless sooner terminated by pursuant to this Article VI.

 

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6.2 Termination.
(a) Somaxon may terminate this Agreement in the event that a Required Change
would reasonably be expected to have a material adverse effect on the Global
Supply Chain, upon 180 days’ prior written notice to Paladin; provided that
following delivery of such written notice to Paladin, Paladin shall not submit
any Purchase Orders or otherwise require Somaxon to abide by any Required Change
with respect to Bulk Product delivered thereafter. Upon termination of this
Agreement pursuant to this Section 6.2(a), the License Agreement shall not
terminate.
(b) Somaxon may terminate this Agreement at any time after April 30, 2013, upon
not less than six months’ prior written notice to Paladin. For clarity, upon
termination of this Agreement pursuant to this Section 6.2(b), the License
Agreement shall not terminate.
(c) Paladin may terminate this Agreement (i) following an Inability to Supply or
(ii) in the event that it enters into a direct contract with Somaxon’s Third
Party contract manufacturer for supply of the Bulk Product. For clarity, upon
termination of this Agreement pursuant to this Section 6.2(c), the License
Agreement shall not terminate.
6.3 Effect of Expiration and Termination.
(a) Where this Agreement is terminated (i) due to the termination of the License
Agreement for any reason other than termination by Paladin pursuant to
Section 6.2(c)(i) or (ii) pursuant to Section 6.2(a), Somaxon will be entitled,
at its option, to fill or cancel any Purchase Orders that were submitted by
Paladin or its Affiliates prior to such termination. If Somaxon elects to fill
any such Purchase Orders, Somaxon shall use Commercially Reasonable Efforts to
fill any such Purchase Orders. If Somaxon elects not to fill any such Purchase
Orders, Paladin shall reimburse Somaxon for the costs (including raw material
costs) incurred in connection with Purchase Orders that Somaxon had started to
manufacture prior to the expiration or termination of this Agreement and that
are canceled by Somaxon pursuant to this Section 6.3(a).
(b) Where this Agreement is terminated due to the termination of the License
Agreement by Paladin pursuant to Section 6.2(c)(i), Somaxon will be entitled, at
its option, to fill or cancel any Purchase Orders that were submitted by Paladin
or its Affiliates prior to such termination; provided that if Somaxon elects not
to fill any such Purchase Orders, Somaxon shall be liable for the costs
(including raw material costs) incurred in connection with Purchase Orders that
Somaxon had started to manufacture prior to the expiration or termination of
this Agreement and that are canceled by Somaxon pursuant to this Section 6.3(b).
(c) Where this Agreement is terminated due to the termination of the License
Agreement by Somaxon pursuant to Section 6.2(a), Somaxon will fill any Purchase
Orders that were submitted by Paladin or its Affiliates prior to such
termination and have a delivery date that occurs prior to the effective date of
termination (and are otherwise in compliance with the requirements of this
Agreement).

 

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(d) Where this Agreement is terminated pursuant to Section 6.2(b) or
Section 6.2(c)(ii), within 180 days of delivery of the termination notice,
Somaxon shall provide to Paladin, at Somaxon’s cost and expense, a copy of all
items of Somaxon Know-How reasonably necessary to permit Paladin to continue to
Manufacture Bulk Product so long as such items are reasonably accessible to
Somaxon.
(e) Termination of this Agreement shall not relieve the Parties of any liability
that accrued hereunder prior to the effective date of termination hereunder. In
addition, termination of this Agreement shall not preclude either Party from
pursuing all rights and remedies it may have hereunder or at Law or in equity
with respect to any breach of this Agreement nor prejudice either Party’s right
to obtain performance of any obligation.
(f) The following Articles and Sections of this Agreement shall survive the
expiration or termination of this Agreement for any reason: this Section 6.3,
Section 4.5, Articles VII, VIII and IX and ARTICLE I to the extent that any
defined terms in ARTICLE 1 are used in the foregoing Sections and Articles.
ARTICLE VII
INDEMNIFICATION; INSURANCE
7.1 Indemnification by Paladin. Paladin shall indemnify, defend and hold each
Somaxon Indemnitee harmless from and against any and all Losses arising out of
any Third Party claim, suit or proceeding arising out of or related to: (a) the
negligence, reckless or wilful misconduct of any Paladin Indemnitee in
performing Paladin’s obligations under this Agreement; (b) any breach or
violation by any Paladin Indemnitee of, or failure to perform by any Paladin
Indemnitee of, any representation, warranty, covenant, or other obligation in
this Agreement, unless waived in writing by Somaxon; (c) any violation of
applicable Law by any Paladin Indemnitee in connection with performing its
obligations under this Agreement; and (d) any claim or liability arising from
Paladin’s exploitation of the licenses granted under the License Agreement;
excluding, in each case, any Loss for which Somaxon has an obligation to
indemnify an Paladin Indemnitee pursuant to Section 7.2 or pursuant to the
License Agreement, as to which Loss each Party shall indemnify the other to the
extent of their respective liability for such Loss.
7.2 Indemnification by Somaxon. Somaxon shall indemnify, defend and hold each
Paladin Indemnitee harmless from and against any and all Losses arising out of
any Third Party claim, suit or proceeding arising out of or related to: (a) the
negligence, reckless or wilful misconduct of any Somaxon Indemnitee in
performing Somaxon’s obligations under this Agreement; (b) any breach or
violation by any Somaxon Indemnitee of, or failure to perform by any Somaxon
Indemnitee of, any representation, warranty, covenant, or other obligation in
this Agreement, unless waived in writing by Paladin; (c) any violation of
applicable Law by any Somaxon Indemnitee in connection with performing its
obligations under this Agreement; (d) Non-Conformity of Bulk Product supplied by
Somaxon under this Agreement; (e) any liability arising from Somaxon’ agreements
with its Subcontractor(s); and (f) any claim that any intellectual property
utilized in the Manufacturing (including any Manufacturing Know-How) by Somaxon,
its Affiliates and/or its Subcontractors (but excluding any Know-How or other
intellectual property rights owned or Controlled by Paladin or its Affiliates
which is utilized in connection with the Product Labels and Inserts or
Promotional Materials) infringes upon or misappropriates the intellectual
property or proprietary rights of any Third Party; excluding, in each case, any
Loss for which Paladin has an obligation to indemnify a Somaxon Indemnitee
pursuant to Section 7.1 or pursuant to the License Agreement, as to which Loss
each Party shall indemnify the other to the extent of their respective liability
for such Loss.

 

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7.3 Notification of Claims; Conditions to Indemnification Obligations. The
procedures that apply to a claim for indemnification pursuant to this Article 7
are set forth in Section 12.4 of the License Agreement (substituting references
to “Article 12” therein with “Article 7”) and shall be incorporated by reference
herein.
7.4 No Consequential Damages. IN NO EVENT SHALL EITHER PARTY OR ANY OF ITS
AFFILIATES, EMPLOYEES, OFFICERS, DIRECTORS OR AGENTS BE LIABLE TO THE OTHER
PARTY OR ANY OF ITS AFFILIATES, EMPLOYEES, OFFICERS, DIRECTORS OR AGENTS FOR
SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, WHETHER IN
CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE SUPPLY AGREEMENT, EVEN IF SUCH DAMAGES
MAY HAVE BEEN FORESEEABLE; PROVIDED THAT SUCH LIMITATION SHALL NOT APPLY (A) IN
THE CASE OF EITHER PARTY’S INDEMNIFICATION OBLIGATIONS UNDER ARTICLE VII OF THIS
AGREEMENT OR ARTICLE 12 OF THE LICENSE AGREEMENT OR (B) IF DAMAGES ARISE OUT OF
OR RELATE TO A BREACH BY EITHER PARTY OF ITS CONFIDENTIALITY OBLIGATIONS SET
FORTH IN ARTICLE VIII OF THIS AGREEMENT.
7.5 Insurance. The terms and provisions of Section 12.5 of the License Agreement
shall be incorporated by reference herein.
ARTICLE VIII
CONFIDENTIALITY; DISPUTE RESOLUTION
8.1 Confidentiality. Each Party hereto acknowledges that the information being
provided to it in connection with this Agreement and transactions contemplated
hereby is subject to Section 9 (Confidentiality) of the License Agreement, the
terms of which are incorporated herein by reference.
8.2 Dispute Resolution. The terms and provisions of Article 14 of the License
Agreement shall be incorporated by reference herein.
ARTICLE IX
MISCELLANEOUS
The terms and provisions of Article 15 of the License Agreement shall be
incorporated by reference herein.
[Remainder of this page intentionally left blank; signature page follows]

 

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[Signature Page to Supply Agreement]
IN WITNESS WHEREOF, the Parties have caused this Supply Agreement to be executed
and delivered by their respective duly authorized officers as of the day and
year first above written, each copy of which shall for all purposes be deemed to
be an original.

                              SOMAXON PHARMACEUTICALS, INC.       PALADIN LABS
INC.
 
                            By:   /s/ Richard W. Pascoe       By:   /s/ Mark
Nawacki                          
 
  Name:   Richard W. Pascoe           Name:   Mark Nawacki    
 
  Title:   President and Chief Executive Officer           Title:   VP of
Business & Corporate Development    

 

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