Exhibit 10.2

 

Portions of this Exhibit have been redacted pursuant to a request for
confidential treatment under Rule 24b-2 of the General Rules and Regulations
under the Securities Exchange Act. Omitted information, marked "[***]" in this
exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

Supplemental Agreement

 

A.1Parties and Other Agreements

A.1.1Eli Lilly and Company, an Indiana Corporation, and its Affiliates,
operating through its Elanco Animal Health division ("Elanco or "Lilly").

A.1.2Diamond Animal Health, Inc., an Iowa Corporation, and its Affiliates
("Diamond").

A.1.3This Supplemental Agreement is subject to the Master Supply Agreement
("MSA") between the Parties effective October 1, 2014.

A.1.4Capitalized words that appear in this Supplemental Agreement are defined in
the Asset Purchase and License Agreement between the Parties, Effective June 17,
2013 (the "APA"), or in the MSA.

A.2Term

A.2.1The term of this Supplemental Agreement is from October 1, 2014 through
June 16, 2023, unless cancelled or terminated earlier by either Party subject to
the terms of this Supplemental Agreement and the MSA.

A.2.2Elanco shall be able to terminate this Agreement without cause on or after
June 17, 2018 provided that 1) Elanco provides no less than three (3) years
prior written notice to Diamond of its intent to terminate this Agreement, and
2) pays to Diamond on or before the effective date of termination, an early
termination fee equal to [***].

A.3Project /Product Information

A.3.1The scope of this Supplemental Agreement is for the supply of the vaccines
listed in Exhibit A.

A.3.2Diamond will manufacture Product for Elanco at its facility in Des Moines,
IA.

A.3.3Diamond will manufacture and supply Product to Elanco as described in this
Supplemental Agreement and the MSA.

A.3.4Upon [***]

 

 

Portions of this Exhibit have been redacted pursuant to a request for
confidential treatment under Rule 24b-2 of the General Rules and Regulations
under the Securities Exchange Act. Omitted information, marked "[***]" in this
exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

[***].

A.3.5The Parties acknowledge that during the term of this Agreement, Diamond
will have the obligation to make Product for Elanco and/or Defined Third
Parties, and that such obligation will entail consumption of a portion of
certain Purchased Assets. To the extent that such obligation to make Defined
Product(s) pertain to supply by Diamond to Defined Third Parties, such supply
should be sourced from the assets contained in the Diamond Subset. Conversely,
to the extent that such obligation to make Products pertains to the supply by
Diamond to Elanco, such supply should be sourced from the assets contained in
the Elanco Subset.

A.4Minimum Purchases

A.4.1Elanco will purchase during each calendar year of the term of this
Supplemental Agreement, as a minimum, Product with an aggregate price purchased
from Diamond during such calendar year (based upon delivered Product and open
purchase orders meeting agreed Product lead times to delivery) (the "Actual
Annual Purchases") equal to the minimum annual purchase set forth on Exhibit A.

A.4.2For a given calendar year, and unless otherwise agreed by the Parties in
writing, for any shortfall of Actual Annual Purchases relative to the Minimum
Annual Purchases for such calendar year, Elanco shall purchase additional
Products to cover the shortfall (provided Elanco takes delivery on or before
December 31 of that year) or shall pay Diamond for any shortfall from such
Minimum Annual Purchases requirement within sixty (60) days following the end of
such calendar year.

A.5Investment Needs

A.5.1The Parties acknowledge that investments in capital improvement,
maintenance and repair in Diamond's manufacturing facility (the "Manufacturing
Facility") will be required during the term of this Agreement to: 1) provide for
compliance with regulatory requirements from Regulatory Agencies in the
Territory are met and maintained throughout the term of this Agreement and 2)
provide that facilities and equipment are maintained in good working order to
assure reliability of supply. Diamond shall be responsible for any and all
investments required to meet or maintain compliance with such regulatory
requirements in the United States or any other country for which Diamond
manufactures as of the Effective Date of the APA and to maintain, refurbish
and/or replace equipment and facilities, as Diamond reasonably determines are
necessary, to provide for reliability of supply after the Effective Date of the
APA; provided, however, Elanco shall be responsible for: i) any and all
investments required to meet or maintain compliance with such regulatory
requirements for any country other than those countries for which Diamond
manufactures as of the Effective Date of the APA, ii) any product-specific
investment required to commercialize a new product and iii) all investments
specifically requested by Elanco that are not otherwise required by an
applicable Regulatory Agency or reasonably determined by Diamond to be needed to
provide for on-going, reliable supply of Product.

 

 

     

Portions of this Exhibit have been redacted pursuant to a request for
confidential treatment under Rule 24b-2 of the General Rules and Regulations
under the Securities Exchange Act. Omitted information, marked "[***]" in this
exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

A.6Compensation

A.6.1Diamond may change purchase prices for each Product to be delivered in each
subsequent calendar year by written notice to Elanco if the notice is delivered
to Elanco at least ninety (90) days before the end of the preceding calendar
year, taking into account factors including, but not limited to, cost changes,
volume changes and plant utilization; provided that, such increase for any
calendar year, plus any increase in the preceding calendar year resulting from
the immediately following sentence shall not exceed [***] of the purchase price
in effect at the beginning of the preceding calendar year. In addition, Diamond
shall have the right, but not the obligation, to increase or decrease purchase
prices by notice to Elanco in writing during any calendar year by an amount
equal to (i) any cost increases or decreases for raw materials and packaging
components for each Product to the extent such cost increase or decreases,
individually or in the aggregate, would cause total finished cost of goods of
such Product to increase or decrease by more than [***]; and (ii) any cost
increases or decreases charged by [***] for [***].

A.6.2Notwithstanding Section A.6.1, the purchase prices charged to Elanco by
Diamond for the Products to be distributed in the United States will not be
higher than the prices charged to any Defined Third Party in the United States
purchasing identical Products with identical quality controls and safety
requirements.

A.6.3Elanco shall purchase Product from Diamond at the prices set forth on
Exhibit A.

A.7Registration

A.7.1The Parties agree that Elanco shall have the responsibility for, and shall
pay all Product Registration Costs associated with securing all appropriate
regulatory licenses and approvals required for marketing the Products. Elanco
may, with Diamond's consent, engage Diamond to perform any activities connected
with obtaining such licenses and approvals and shall pay all Product
Registration Costs associated with Diamond's services, excluding costs related
to the facility licenses owned by Diamond, facility inspection relating to
facility licenses owned by Diamond including but not limited to USDA/APHIS/CVB,
international licenses and inspections and their maintenance, all to the extent
such licenses are owned by Diamond. Diamond shall be responsible, at Elanco's
cost, for all dossier submissions to all regulatory authorities necessary to
obtain registration of the Products in such jurisdictions. License submissions
outside of the USA and Canada will be made by Elanco in these countries. The
Parties shall agree upon a written work plan prior to commencement of any such
services. Such work plan shall specify how Product Registration Costs will be
calculated (e.g., hourly) and when they will be paid. Any estimate of Product
Registration Costs shall be a non-binding estimate only. For the purposes of
this Agreement, "Product Registration Costs" shall mean all direct costs and
expenses associated with achieving regulatory licensure of a Product, including
clinical trial costs, assay development and validation, development of seed
stocks, production processes scale-up, formulation development, production of
pre-licensing serials, conduct of field safety trials, preparation of reports,
preparation of regulatory submissions, application fees and other costs and
expenses reasonably incidental thereto. As between the parties, additional costs
and expenses shall include labor and service charges at Diamond's standard
hourly rates, direct cost of required materials provided by Diamond, and
out-of-pocket and third-party expenditures.

A.7.2Diamond shall be responsible for securing all appropriate regulatory
licenses and approvals required for manufacturing the Products for sale in the
United States and Canada. Except as provided in Section A.7.1 above, Elanco
shall pay all Manufacturer

 

 

Registration Costs set forth in this Supplemental Agreement, as may be amended
by the Parties. The Parties shall agree upon a written work plan prior to
commencement of any registration activities. Such work plan shall specify how
Manufacturer Registration Costs will be calculated (e.g., hourly) and when they
will be paid. Any estimate of Manufacturer Registration Costs shall be
non-binding estimate only. For the purposes of this Agreement, "Manufacturer
Registration Costs" shall mean all direct costs and expenses associated with
achieving regulatory licensure of Diamond to manufacture any Product, including
costs of animal studies, production process, validation costs, stability
studies, production of pre-licensing serials, application fees and other costs
and expenses reasonably incidental thereto. As between the parties, additional
costs and expenses shall include labor and service charges at Diamond's standard
hourly rates, direct cost of required materials provided by Diamond, and
out-of-pocket and third-party expenditures.

A.7.3Each party grants to the other party the right to participate in
discussions with the USDA/APHIS/CVB, USDA/APHIS/NIES, CFIA/CFBD and all other
applicable Regulatory Agencies relating to any United States and Canada
registration filings made pursuant to this Section A.7. Should a party receive a
written communication from a Regulatory Agency relating to any such registration
filing it will, within two (2) business days, and in writing within five (5)
business days, provide a copy of such communication to the other party and,
subject to any mandatory response time designated by the Regulatory Agency,
allow the other party to provide its suggested response to that communication
and in good faith consider inclusion of such suggested response it its reply to
the Regulatory Agency. In relation to non-United States (excluding Canada)
registration filings made by Elanco, Elanco will provide Diamond with copies of
any communication from a Regulatory Agency relating to the Diamond manufacturing
facility where Elanco products will be manufactured and the foregoing provisions
of this Subsection A.7.3 shall apply to the response to such Regulatory Agency
communication.

A.8Forecasts, Order Procedures and Shipment

A.8.1Except to the extent that the Parties otherwise agree in writing with
regard to a particular shipment, Elanco shall submit to Diamond a firm written
purchase order or orders specifying the types, quantities and delivery dates of
Products that it desires to purchase within at least the lead time and in the
Standard Lot Sizes specified on Exhibit A prior to the requested delivery
date(s). Diamond will review each purchase order within five (5) business days
of receipt and either issue its confirmation or its proposed modified delivery
date(s) to accommodate Diamond's scheduling requirements. Diamond will use
reasonable commercial efforts to accommodate and to minimize modifications to
the delivery dates requested by Elanco. Each purchase order shall be binding on
Elanco upon written confirmation by Diamond or, if Diamond has made a proposal
for modifications to delivery dates, upon Elanco's written acceptance of such
modifications; provided that no material modification will become effective
after confirmation without the written approval of both parties. Revisions to
labeling or packaging configurations may be made by Elanco not less than ninety
(90) days prior to the specified delivery date (subject to approval by
Regulatory Agencies) unless otherwise agreed by Diamond, provided that the
Purchase Price(s) shall be adjusted for any such changes and Diamond will
promptly notify Elanco thereof. In the event Elanco does not agree to the
adjustment in Purchase Price for changed configurations, then the original
configuration may be used. Diamond agrees that with respect to Products covered
by a purchase order confirmed by it in writing, the Products shall be available
for shipment on the specified delivery dates, except to the extent it is
prevented from doing so due to conditions beyond its control. The applicable
delivery schedules shall be suspended during any period that

 

 

Products have been selected for testing by a Governmental Authority which
testing would affect or prevent manufacture or delivery.

A.8.2Elanco will order Products in standard batch sizes as shown on Exhibit A.
If specified order amounts for Elanco would result in a batch which is ten
percent (10%) or more below the applicable standard batch size, Diamond will so
notify Elanco and at Elanco's option (i) the Parties will mutually agree to an
increased Purchase Price for such Products; or (ii) Elanco may submit a revised
purchase order for a quantity of Products within the permitted parameters. The
Purchase Price shall remain applicable for amounts resulting in a batch up to
ten percent (10%) more or less than the applicable standard batch size, and
Elanco shall be required to accept any such entire batch.

A.8.3Within fifteen (15) days after the issuance of the Product License by the
CVB, Elanco will furnish Diamond a written forecast of the quantities and types
of Products that Elanco anticipates it will order from Diamond during the First
Contract Year. Thereafter, within fifteen (15) days after the first day of each
month during the term of this Agreement, Elanco will also furnish to Diamond
revised written estimates of the quantities it anticipates it will order during
each month of the succeeding Contract Year. Such forecasts are not binding
commitments, but are for the purpose of enabling Diamond to more effectively
schedule the use of its facilities. Diamond shall use commercially reasonable
efforts to have capacity and availability of the facilities for the manufacture
of the Product notwithstanding any forecasts.

A.8.4Diamond agrees to store the Products under conditions required to maintain
the quality and stability of the Product at no cost to Elanco as required by
Elanco for a period of not to exceed forty-five (45) days from the date Diamond
notifies Elanco the Products are ready for shipment. With respect to Products
that are not picked up by the common carrier designated by Elanco's shipping
instructions within forty-five (45) days from the date Diamond notifies Elanco
the Products are ready for shipment, Diamond shall charge a warehousing fee of
two percent (2%) of the invoice amount per month or portion thereof until such
Products are shipped.

A.9Labeling; Trademarks

A.9.1Diamond shall affix labeling to the Products as required, such labeling to
bear one or more Elanco trademarks, as specified by Elanco. Nothing contained
herein shall give Diamond any right to use any Elanco trademark except on
Products for Elanco and Diamond shall not obtain any right, title or interest in
any Elanco trademark by virtue of this Agreement. Elanco shall not use, nor
shall Elanco obtain any right, title or interest in any Diamond trademark.
Elanco shall cause all Product labeling to contain only such claims as are
permitted under applicable licenses for such Product and otherwise comply with
Applicable Law. Elanco shall be responsible for the costs of developing and
changing packaging for the Products, including costs of obsolete labeling and
packaging due to changes requested by Elanco or required by Governmental
Authorities. Elanco agrees to provide label specifications compatible with
Diamond's equipment, as specified by Diamond. Additional details to be set forth
on Exhibit A. In the event that Diamond purchases labeling or packaging
materials for use with the Products, Diamond shall purchase an amount reasonably
required for the amount of Products manufactured; provided the Parties agree
that a six (6) month supply of labeling and packaging materials is reasonable,
and Elanco shall be required to bear the full cost of such reasonable supply
even if this Agreement is terminated, unless otherwise agreed upon by the
Parties.

 

 

Portions of this Exhibit have been redacted pursuant to a request for
confidential treatment under Rule 24b-2 of the General Rules and Regulations
under the Securities Exchange Act. Omitted information, marked "[***]" in this
exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

A.10Signatures

A.10.1This Supplemental Agreement is legally binding when, and not until, each
Party has executed it in a manner allowed by the MSA.

 

ELI LILLY AND COMPANY DIAMOND ANIMAL HEALTH, INC.

 

By: [***]_________________________________

 

Printed Name: [***]________________________

 

Title: [***]_______________________________

 

Date: 2015.01.14 09:09:58 -05'00'_____________

 

By: /s/ Michael J. McGinley

 

Printed Name: Michael J. McGinley___________

 

Title: Vice President - Diamond______________

 

Date: 15 Jan 2015_________________________

   

 

 

 

Portions of this Exhibit have been redacted pursuant to a request for
confidential treatment under Rule 24b-2 of the General Rules and Regulations
under the Securities Exchange Act. Omitted information, marked "[***]" in this
exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

Exhibit A 

 Minimum Annual Purchases

For the purposes of Section A.5.1 of this Supplemental Agreement, the Minimum
Annual Purchases shall mean [***].

 

Lead Time for Product Orders

Unless otherwise agreed to in writing by Diamond and Elanco on a specific order,
the minimum lead time between confirmation of an order by Diamond and the
shipping date for such order is [***].

 

Minimum Dating Requirements

Unless otherwise agreed to in writing by Diamond and Elanco on a specific order,
the minimum shelf life for Product purchased under this Supplemental Agreement
as of the shipping date for such Product shall be [***].

 

 

 

Portions of this Exhibit have been redacted pursuant to a request for
confidential treatment under Rule 24b-2 of the General Rules and Regulations
under the Securities Exchange Act. Omitted information, marked "[***]" in this
exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

Standard Serial Sizes

Unless otherwise agreed to in writing by Diamond and Elanco on a specific order,
the standard serial size for Product under this Supplemental Agreement is as
follows (the "Standard Serial Sizes"):

Product Type Dose Size Minimum Serial Size Bovine Modified Live Viruses
(Titanium) [***] [***] Bovine Modified Live Viruses (Titanium) [***] [***]
Bovine Modified Live Viruses + Leptospira Pomona [***] [***] Titanium 3 LP (DAH
Item No. [***]) [***] [***] Modified Live/Killed Virus/Lepto 5 Combination
(Masterguard 10) [***] [***] Modified Live/Killed Virus/Lepto 5 Combination
(Masterguard 10) [***] [***] Modified Live/Killed Virus Combination (Masterguard
5) [***] [***] Modified Live/Killed Virus/Lepto 5 Combination (Masterguard 5)
[***] [***] Masterguard Preg 5-South Africa (DAH Item No. [***] [***] [***]
Masterguard Preg 5-South Africa (DAH Item No. [***] [***] [***] Feline
Ultranasal FVRC and FVRCP [***] [***]

 

For orders below the Standard Serial Size requested by Elanco, the additional
cost per split serial is as follows:

[***]

 

To the extent the serial sizes received by Diamond from [***] do not align with
the Standard Serial Sizes set forth above, either (a) Elanco shall permit
Diamond's manufacture and delivery of Product in a serial size smaller than the
applicable Standard Serial Size, or (b) Elanco shall pay Diamond for (i)
Diamond's cost of any such [***] (set forth in footnote (4) to the Pricing
Schedule) that remains after manufacturing of a Product that includes such [***]
and that can't otherwise be used in the manufacture of other Product that
includes such [***], taking into account dating requirements (the "Unused [***],
and (ii) Diamond's cost of destruction of such Unused [***].

 

Additional Terms and Conditions

Elanco acknowledges and agrees that Diamond shall not be in breach of this
Supplemental Agreement, responsible, or otherwise liable for failure to supply
any Product to the extent such

 

 

Portions of this Exhibit have been redacted pursuant to a request for
confidential treatment under Rule 24b-2 of the General Rules and Regulations
under the Securities Exchange Act. Omitted information, marked "[***]" in this
exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

failure is the result of [***], whether as a result of failure to obtain
sufficient quantities thereof, failure of viricidal testing thereof, receipt of
[***] with insufficient minimum shelf life, or otherwise. Further, upon failure
of viricidal testing of any [***], Elanco shall reimburse Diamond for Diamond's
costs incurred for such testing.

Elanco acknowledges and agrees that any [***] that are not used pursuant to a
firm written purchase order for Product within six (6) month from the date
Diamond receives such [***], Diamond shall charge, and Elanco shall pay, a
warehousing fee equal to [***] of the invoice amount of such [***] per month
(for each full or partial month) that exceeds such six (6) month period. Diamond
shall invoice Elanco on the first day of the first month after expiration of
such six (6) month period and each monthly anniversary thereafter until used
pursuant to a firm written purchase order for Product or otherwise destroyed.

Elanco may request Diamond to destroy [***] which is deemed unacceptable for
rework, re-sort, or remanufacture. Diamond agrees to destroy such Product, and
provide Elanco with proof of destruction. Upon any destruction of [***] upon
Elanco's request or for any reason other than Diamond's Fault, Elanco shall
reimburse Diamond for the cost of such [***] upon invoice therefor.

For the avoidance of doubt, Diamond's failure to supply any Product resulting
from [***], whether as a result of failure to obtain sufficient quantities
thereof, failure of viricidal testing thereof, receipt of [***] with
insufficient minimum shelf life, or otherwise, shall in no way reduce, count
toward or otherwise minimize Elanco's minimum purchase requirements set forth in
Section A.4 of this Supplemental Agreement.

 

 

Portions of this Exhibit have been redacted pursuant to a request for
confidential treatment under Rule 24b-2 of the General Rules and Regulations
under the Securities Exchange Act. Omitted information, marked "[***]" in this
exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment. 

 

Pricing Schedule

      Pricing at Annual Additional doses (in millions)(3); DAH Item Number 
Elanco Material
Number Elanco Purchase Order Product Name   Country Base Price(1)  5.2(2)
 10.2(2) 15.0(2) 20.0(2)  [***]  [***]  [***]  [***]  [***]  [***]  [***] 
[***]  [***] 

 

 

 

 

Portions of this Exhibit have been redacted pursuant to a request for
confidential treatment under Rule 24b-2 of the General Rules and Regulations
under the Securities Exchange Act. Omitted information, marked "[***]" in this
exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

      Pricing at Annual Additional doses (in millions)(3); DAH Item Number 
Elanco Material
Number Elanco Purchase Order Product Name   Country Base Price(1)  5.2(2)
 10.2(2) 15.0(2) 20.0(2)   [***]  [***] [***]  [***]  [***]  [***]  [***] 
[***]  [***] 

 

 

 

 

Portions of this Exhibit have been redacted pursuant to a request for
confidential treatment under Rule 24b-2 of the General Rules and Regulations
under the Securities Exchange Act. Omitted information, marked "[***]" in this
exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

(1)Base Price based on [***] doses of Product purchased by Elanco under this
Supplemental Agreement per calendar, plus the [***].

(2)The price adjustment trigger for any given calendar year during the term of
this Supplemental Agreement is equal to the number set forth in the chart above
(in millions), plus [***].

(3)Once the number of doses of Product purchased by Elanco under this
Supplemental Agreement [***].

(4)The price associated with DAH Item Numbers [***] include the purchase of
[***]. The Parties acknowledge and agree that the amounts set forth below for
the [***] included in the Combination Products do not count toward the Actual
Annual Purchases required by this Supplemental Agreement. Further, the amounts
set forth below are subject to change by Diamond pursuant to Section A.6.1.

 

  PRICING FOR [***] DAH Number Diamond Purchase Order Product Name

Additional

Price

DAH Item

Number

  [***] [***] [***] [***]   [***] [***] [***] [***]              

 

 

 

Portions of this Exhibit have been redacted pursuant to a request for
confidential treatment under Rule 24b-2 of the General Rules and Regulations
under the Securities Exchange Act. Omitted information, marked "[***]" in this
exhibit, has been filed with the Securities and Exchange Commission together
with such request for confidential treatment.

 

(5)The following individual products must only be sold as a combination of the
two DAH Item Numbers listed. The prices provided above are only valid in the
listed combination and cannot be combined or used in any other way:

[***] [***]

 

(6)The bulk product pricing for DAH Item Numbers [***] are valid only if the
labeled Product is shipped in a [***] as defined for each Product. Elanco agrees
to obtain prior written approval from DAH for the intended use of each such
Product (including the number of doses) prior to the initial bid. Diamond agrees
to provide written approval or rejection thereof to Elanco with ten (10) days of
receipt of each request. Such Product can only be sold [***].

(7)The products with DAH Item Numbers [***] do not count toward the Minimum
Annual Purchases required hereunder.

 

By way of example, during a calendar year of this Supplemental Agreement, if the
pro-rated portion of the aggregate doses purchased by a Defined Third Party in
the twelve (12) month period immediately preceding the termination of a Segment
pursuant to Section 2.3 of the APA after the Effective Date of this Agreement
equals [***].