**Exhibit 10.3**

 

**CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELYWITH THE SECURITIES AND EXCHANGE COMMISSION.ASTERISKS (*) DENOTE SUCH OMISSIONS.**

 

**AMENDMENT NO. 2 TO SUPPLY AGREEMENT**

 

This AmendmentNo. 2 to the Supply Agreement (this “Amendment”) is entered into as of July 1,2004 by and between PRAECIS PHARMACEUTICALS INCORPORATED (“PRAECIS”) andCambrex Charles City, Inc. (formerly known as Salsbury Chemicals, Inc.)(“CAMBREX”).  This Amendment amends theSupply Agreement, dated as of July 23, 1998, and supercedes as of July 1, 2004the amendment made on November 1, 2000, by and between PRAECIS and SalsburyChemicals, Inc. (the “Supply Agreement”). Capitalized terms used but not defined herein shall have the meaningsgiven to them in the Supply Agreement. All references herein to sections shall be understood to be referencesto sections of the Supply Agreement.

 

WHEREAS, theparties hereto desire to amend the Supply Agreement to make certainmodifications to the rights and obligations of the parties thereunder; and

 

WHEREAS, inaccordance with Section 23 of the Supply Agreement, the Supply Agreement may beamended by a writing signed by both parties;

 

NOW,THEREFORE, in consideration of the foregoing and the agreements containedherein, and intending to be legally bound, the parties hereto hereby agree asfollows:

 

1.             References to Party Names.  The parties hereto acknowledge and agree thatall references in the Supply Agreement to Salsbury Chemicals, Inc. shall bedeemed to refer to CAMBREX.

 

2.             Amendment of Section 2.  Section 2 of the Supply Agreement is herebyamended in its entirety to read as follows:

 

“2.           TERM

 

Subject to earlier termination as provided in Section 20 of the SupplyAgreement below or extension as provided in this Section 2, this Agreementshall continue until July 23, 2010 (the “Original Term”); provided that,PRAECIS shall have the right to extend the term of this Agreement for up to anadditional five years from the expiration of the Original Term by deliveringwritten notice to CAMBREX of its intent to so extend the term at least twelvemonths prior to the expiration of the Original Term (the term of thisAgreement, as so extended or earlier terminated, being referred to as the“Term”), provided that if PRAECIS extends the term of this Agreement beyond theOriginal Term, (i) the then current base price in effect at the scheduledexpiration date of the Original

 

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Term shall beincreased by [*] and (ii) the minimum revenue per calendar year as set forth inSection 6.B. below, shall increase to [*].”

 

3.             Amendment of Section 4.A.  Section 4.A. of the Supply Agreement ishereby amended in its entirety to read as follows:

 

“A.          The parties recognize that additionalequipment must be installed at the Facility to permit CAMBREX to produce CMC inthe required commercial quantities. CAMBREX shall be responsible for the design, engineering, installationand qualification of the additional equipment and facility for the CMCProduction Facility (the “Production Facility”), and PRAECIS shall beresponsible for the capital and other costs incurred by CAMBREX associated withconstructing and completing the Production Facility (the “Costs”).  The Costs shall be recovered by CAMBREX inmonthly payments by PRAECIS (on an invoice pass through basis) over the lengthof the engineering, construction and commission phase of the project.  CAMBREX shall provide the project managementteam and the Costs shall be capped at Five Million Nine Hundred and SixtyThousand Dollars ($5,960,000).  Althoughthe Costs shall be paid for by PRAECIS in the manner described above, CAMBREXshall own the Production Facility and all installed equipment and PRAECIS shallhave no claim thereon whatsoever.  Anyadditional equipment or process modifications required in connection with themanufacture of CMC hereunder as a result of changes in regulatory requirements,requests from Praecis and/or its partners for quality enhancements, changes inSodium carboxymethylcellulose or the Peptide quantity or material processingcharacteristics or for the benefit of process optimization shall be borne byPraecis, unless a separate contract amendment for a shared cost / benefitapproach is agreed to by both parties. However, CAMBREX is responsible for any costs to maintain the ProductionFacility to U.S. cGMP standards in effect as of the date hereof.

 

From the commencement of the Original Term through the date ofAmendment No. 2 to this Supply Agreement (the Amendment No. 2 Date”), theProduction Facility has been dedicated solely to the manufacture of CMC.  From and after the Amendment No. 2 Date,Cambrex shall be permitted to use the Production Facility for manufacturingother products (each an “Other Product”), but only if and so long as the followingterms and conditions have been and continue to be complied with and satisfiedwith respect to such use of the Production Facility for such manufacture ofeach Other Product, and such compliance and satisfaction shall be obligationsof CAMBREX hereunder:  (i) CAMBREX shall(A) have demonstrated, prior to the use of the Production Facility tomanufacture the Other Product, cleaning validation methods and processesreasonably acceptable to PRAECIS with respect to the manufacture of such OtherProduct at the Production Facility that, in the parties’ reasonable judgment,could affect the safety, purity or quality of CMC manufactured or to bemanufactured at the Production Facility, and prior to and on an ongoing basisin connection with such manufacture of such Other Product, CAMBREX shall timelyimplement and validate such methods and processes, and (B) be solelyresponsible for paying and shall pay all costs and expenses associated withdeveloping and implementing such methods and processes; (ii) such use of theProduction Facility to manufacture such Other Product shall not interfere withor jeopardize the timely manufacture and delivery of CMC as ordered by PRAECISpursuant to Section 5.B., and in the event of conflicting manufacture ordelivery schedules, use of the Production Facility for the manufacture of CMChereunder shall have priority over use of the Production Facility for themanufacture of any Other Product; (iii) manufacture of the Other Product at theProduction Facility will not commence unless and until all necessary regulatoryapprovals have been obtained and shall continue only so long as such approvalsremain in full force and effect, it being understood and agreed that (a)subject to the other terms and conditions of this Section 2, to the extentCAMBREX wishes and is permitted hereunder to manufacture the Other Product atthe Production Facility, PRAECIS will, at its expense, make appropriateamendments to regulatory filings with respect to

 

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themanufacture of CMC at the Production Facility solely to reflect that theProduction Facility is or may be used to manufacture the Other Product and (b)except to the extent provided in clause (a) immediately above, in no eventshall PRAECIS be required to make or bear the cost of any regulatory filings orto seek any regulatory approvals in connection with the manufacture of anyOther Product at the Production Facility; (iv) CAMBREX shall have demonstratedto the reasonable satisfaction of PRAECIS that use of the Production Facilityfor the manufacture of such Other Product will not, and such use does not,jeopardize any regulatory approval(s) or the regulatory status of theProduction Facility with respect to the manufacture and delivery of CMChereunder; and (v) such use of the Production Facility is not to manufactureany, or any component or part of, (A) a Competing Product or (B) any steroid,antibiotic or other β-Lactams product. For purposes of this Section 4.A, “Competing Product” shall mean anycompound, product or preparation that includes an LHRH or GnRH agonist or LHRHor GnRH antagonist (other than the Peptide) as an active pharmaceutical ingredient.”

 

4.             Amendment of Section 5.B.  Section 5.B. of the Supply Agreement ishereby amended in its entirety to read as follows:

 

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“On or beforeDecember 15th of each year, PRAECIS shall deliver to CAMBREX a firmPurchase Order for PRAECIS’ requirements of CMC for the following calendaryear.

 

5.             Amendment of Section 6.A.  Section 6.A. of the Supply Agreement ishereby amended in its entirety to read as follows:

 

“With respect to CMC manufactured during the calendar year 2004 andduring each calendar year thereafter, the base price (i) for quantities of CMCranging from[*] manufactured during such calendar year (for avoidance of doubt,the first lot manufactured in 2004 is [*]) shall be [*], (ii) for incrementalquantities of CMC in excess of [*] manufactured during such calendar year shallbe [*] and (iii) for incremental quantities of CMC in excess of [*]manufactured during such calendar year shall be [*].  The base price shall at all times include thecost of the specific grade sodium carboxymethylcellulose and the componentsnecessary to manufacture and ship CMC. PRAECIS shall bear all costs to qualify any raw material suppliers.  For purposes of this Supply Agreement, CMCshall be deemed to have been manufactured during the calendar year in whichsuch manufacture was commenced.  The baseprice provided for in this Section 6.A. shall also apply retroactively toquantities of CMC manufactured in 2004 prior to the Amendment No. 2 Date.

 

For certain lots of CMC supplied for use by PRAECIS in the EuropeanUnion, an additional [*] will be assessed for specific European pharmacopoeiatesting performed on such lots.  Theestimated size of each of the lots is [*]. CAMBREX will perform such European pharmacopoeia testing as set forth inExhibit C.

 

All prices are Ex-works Charles City, Iowa.  PRAECIS shall be responsible for all freightcosts.  CMC will be billed at the timethe CMC successfully passes Quality Control and Quality Assurance.  Payment is required thirty (30) days frominvoice date.  Risk of loss passes toPRAECIS at the time of invoicing by CAMBREX.”

 

6.             Amendment of Section 6.

 

(a)           Section 6.B. of the Supply Agreementis hereby amended in its entirety to read as follows:

 

“Commencing in 2004 and for each calendar year thereafter, the baseprice determined in accordance with Section 6.A. (including such base price asadjusted pursuant to this Section 6.B.) for CMC manufactured during suchcalendar year (the “Manufacture Year”) shall be adjusted by a factor not toexceed the quotient obtained by dividing (i) the Producer Price Index forChemicals and Allied Products (the “Producer

 

**CONFIDENTIAL INFORMATION OMITTED AND FILEDSEPARATELYWITH THE SECURITIES AND EXCHANGE COMMISSION.ASTERISKS (*) DENOTE SUCH OMISSIONS.**

 

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Price Index”)as published by the Bureau of Labor Statistics of the U.S. Department of Labor(the “BLS”) for the month of December of the calendar year preceding theManufacture Year, by (ii) the Producer Price Index as published by the BLS forthe month of July 1998 (144.9).  For theavoidance of doubt, an example of the operation of this Section 6.B. is setforth below.

 
| **Quantity** | ** ** | **2004  Base Price** | ** ** | **July 1998  Producer  Price  Index** | ** ** | **December  2003  Producer  Price  Index** | ** ** | **Adjustment Factor** | ** ** | **2004 Price** | ** ** |
|--------------|------------|----------------------|------------|---------------------------------------|------------|--------------------------------------------|------------|-----------------------|------------|----------------|------------|
|         |       |                 |       |                                  |       |                                       |       |                  |       |           |       |
| [*]          |       | [*]                  |       | 144.9                                 |       | 163.1                                      |       | 163.1/144.9 =1.125    |       | [*]            |       |
| [*]          |       | [*]                  |       | 144.9                                 |       | 163.1                                      |       | 163.1/144.9 =1.125    |       | [*]            |       |
| [*]          |       | [*]                  |       | 144.9                                 |       | 163.1                                      |       | 163.1/144.9 =1.125    |       | [*]            |       |

 

The adjustmentof the price applicable to a ManufactureYear as provided in this Section 6.B.shall be made promptly upon the publication by the BLS of the Producer PriceIndex for December of the Preceding Year and shall also apply retroactivelywith respect to any previously shipped lots of CMC the manufacture of whichcommenced in such Manufacture Year prior to such adjustment.  Any amount owed by a party to the other as aresult of such retroactive application of such adjustment shall be paidpromptly.  Once the base price applicableto a Manufacture Year has been determined pursuant to the adjustment provisionset forth in this Section 6.B., such base price shall apply to all CMCmanufactured during such Manufacture Year, subject to and without limitation ofthe provisions of Section 6.D.  Theparties shall negotiate in good faith adjustments to the base price of CMC inthe event either party experiences an extraordinary economic event(s) thatresult(s) from an external event outside such party’s control and such event continuesfor a period of six (6) consecutive months.

 

(b)           Section 6. of the Supply Agreement ishereby further amended by adding the following subsection F.:

 

“F.  During the Term, CAMBREX shall be entitled toreceive minimum revenue from PRAECIS of at least $900,000 per year, even if theaggregate price of PRAECIS’ actual orders of CMC shipped from CAMBREX duringsuch year is less than such amount. CAMBREX shall invoice PRAECIS for any such difference on or about December31st of each year, and PRAECIS shall pay such invoice within thirty(30) days after its receipt of such invoice.”

 

**CONFIDENTIAL INFORMATION OMITTED AND FILEDSEPARATELYWITH THE SECURITIES AND EXCHANGE COMMISSION.ASTERISKS (*) DENOTE SUCH OMISSIONS.**

 

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7.             Amendment of Section 6.D.

 

(a)           The definitions of “Yield #1” and“Yield #2” set forth in Section 6.D. of the Supply Agreement after thedefinition of “Adjusted Price” are hereby amended to read as follows:

 

“Yield #1 is [*]”

 

“Yield #2 is theactual Yield of a lot of CMC beginning with [*].”

 

(b)           Section 6.D. of the Supply Agreementis hereby further amended by adding the following as the last sentence thereof:

 

“For theavoidance of doubt, in no event shall any adjustment pursuant to this Section6.D. result in CAMBREX being required to pay or reimburse any amount toPRAECIS.”

 

8.             Amendment of Section 7.B.  Section 7.B. of the Supply Agreement ishereby amended by adding the following as the last sentence thereof:

 

“In no eventshall CAMBREX’s liability to PRAECIS for monetary damages under this Agreementexceed [*].”

 

9.             Amendment of Section 7.C.  Section 7.C. of the Supply Agreement ishereby amended by adding the following as the last sentence thereof:

 

“PRAECIS willuse commercially reasonable efforts so that any lot(s) of CMC which CAMBREX hasnotified PRAECIS in writing is (are) ready for shipment to PRAECIS’ designatedlocations, subject only to PRAECIS’ confirmation with respect to QualityControl and Quality Assurance based on the batch records for such lot(s), maybe shipped by CAMBREX by the end of the month in which such notification isreceived by PRAECIS, provided that in the event of any issue with respect tothe compliance of such lot(s) with applicable specifications or qualitystandards, CAMBREX will promptly cooperate in good faith with PRAECIS toresolve.

 

10.           Amendment of Section 19.  Section 19 of the Supply Agreement is herebyamended in its entirety to read as follows:

 

“19.         INSURANCE

 

CAMBREX shall maintain (and provide evidence to PRAECIS of) worker’scompensation, employer’s liability and comprehensive general liabilityinsurance coverage in commercially reasonably amounts, provided that suchcoverage through self-insurance shall be permitted.  In addition, CAMBREX shall maintain (andprovide evidence to PRAECIS of) an appropriate property and casualty insurancepolicy or policies

 

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providing for replacement cost coverage for any loss of or damage tothe Production Facility, any equipment used by CAMBREX in the manufacture andsupply of CMC, and any equipment used for in-process CMC or in-processPeptide.  CAMBREX shall promptly applyany insurance proceeds received by it under any such property and casualtyinsurance policy or policies in a manner intended to enable it to continue totimely perform its obligations under this Agreement.  Notwithstanding Section 21.A. or any otherprovision of the Agreement, in case any loss or damage referred to in thesecond sentence of this Section 19 is caused by one or more force majeureevents described in Section 21.A. and results in a failure of CAMBREX to supplyin accordance with this Agreement, CAMBREX’s obligations, and liability forsuch failure, to supply shall not be suspended or relieved if CAMBREX hasfailed to comply in all material respects with its obligations set forth in thesecond and third sentences of this Section 19.”

 

11.           Amendment of Section 26.A.  Section 26.A. of the Supply Agreement ishereby amended to change the address for delivery of notices to PRAECIS to beas follows:

 

“PRAECISPHARMACEUTICALS INCORPORATED

830 WinterStreet

Waltham, MA02451-1420

Attention:Chief Financial Officer

Facsimile No.: 781-890-7471”

 

12.           Parties in Interest; No OtherModification.  This Amendment shallbe binding upon and inure solely to the benefit of each party hereto and itsrespective successors and assigns. Nothing in this Amendment, express or implied, is intended to or shallconfer upon any other person any rights, benefits or remedies of any naturewhatsoever under or by reason of this Amendment.  This Amendment shall effect the modificationsto the Supply Agreement provided for herein. All other provisions of the SupplyAgreement not modified hereby shall remain in full force and effect.

 

13.           Counterparts.  This Amendment may be executed incounterparts, each of which, when so executed and delivered, will be deemed anoriginal and which shall together constitute one and the same instrument.

 

14.           Effect of this Amendment.  Except as set forth herein, all terms andconditions of the Supply Agreement as amended by Amendment #1 remain in fullforce and effect.

 

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IN WITNESSWHEREOF, the parties hereto have executed this Amendment as of the day and yearfirst above written.

 
|   | PRAECIS PHARMACEUTICALS  INCORPORATED    |
|--------|------------------------------------------|
|   |                                     |
|   | By                                       | /s/ Kevin F. McLaughlin |   |
|   | Name:                                    |   |
|   | Title:                                   | Exec. V.P.  and C.F.O. |
|   |                                     |
|   | CAMBREX  CHARLES CITY, INC.              |
|   |                                     |
|   | By                                       | /s/ Gary L. Mossman |   |
|   | Name:                                    | Gary L.  Mossman |
|   | Title:                                   | President  & CEO |
|   | Cambrex  Pharma & Biopharmaceuticals |
|        |                                          |  |  |  |

 

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**Exhibit C**

 

 

SodiumCarboxymethylcellulose (2002 EP)

 

•                  Identity

 

•                  pH (6.0 - 8.0)

 

•                  ApparentViscosity

 

•                  Appearance ofSolution

 

•                  SodiumGlycollate

 

•                  Chloride

 

•                  Heavy Metals

 

•                  Loss on Drying

 

•                  Sulfated Ash

 

Isopropylalcohol

 

•                  Characters

 

•                  Identification

 

•                  A RelativeDensity

 

•                  Identification BReflective Index

 

•                  Identification

 

•                  Appearance

 

•                  Acidity orAlkalinity

 

•                  Absorbance

 

•                  Benzene andRelated Substances

 

•                  Peroxide

 

•                  Water

 

•                  Non-volatile Substances

 

Water: 2000,EP “Water for Injections - Water for Injections in Bulk” and “Water - PurifiedWater in Containers”

 

•                  BacterialEndotoxins

 

•                  Acidity /Alkalinity

 

•                  OxidizableSubstances

 

•                  Chloride

 

C-1

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•                  Sulfates

 

•                  Ammonium

 

•                  Calcium andMagnesium

 

•                  Residual onEvaporation

 

•                  MicrobialContamination

 

•                  Nitrates

 

•                  Heavy Metals

 

C-2

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