Amendment No. 2 to the Xyrem Supply Agreement




 EXHIBIT 10.39 
 AMENDMENT NO. 2 
 TO 
 XYREM SUPPLY AGREEMENT 
 THIS AMENDMENT NO. 2 dated this 19th day of August 2002 (this “Amendment”) to Xyrem Supply Agreement is made and entered into as of the 19th day of August, 2002, by and between Orphan Medical, Inc., a Delaware corporation (“Orphan”), and DSM Pharmaceuticals, Inc.
(formerly, Catalytica Pharmaceuticals, Inc.), a Delaware corporation (“DSM”): 
 W I T N E S S: 
 WHEREAS, Orphan and Catalytica Pharmaceuticals, Inc. have previously executed a Xyrem Supply Agreement, dated June 30, 2000, and amended by
Amendment No. 1 dated November 9, 2000 (collectively, the “Agreement”); and 
 WHEREAS, Catalytica’s interest in,
and obligations under, the Agreement have been acquired and assumed by DSM; and 
 WHEREAS, DSM and Orphan desire to amend the Agreement as
set forth in this Amendment; 
 NOW, THEREFORE, for and in consideration of the premises, the respective commitments and undertakings of
Orphan and DSM set forth in this Amendment, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Orphan and DSM hereby agree as follows: 
 1. Unless otherwise defined in this Amendment, capitalized terms used in this Amendment shall have the meanings ascribed to them in the Agreement.

 2. Effective as of the date of this Amendment, the Product Price shall be as set forth on Appendix D to this Amendment, which Appendix D
shall supersede Appendix D to the Agreement in all respects. 
 3. Section 7.3 of the Agreement shall be amended in its entirety and
shall hereafter read as follows: 
 “7.3 Product Price Adjustments. The Product Price, as specified on Appendix D,
shall be subject to adjustment from time to time as follows: 
 (a) The conversion component of the Product Price, as set
forth on Appendix D, shall be adjusted for each Contract Year, commencing with the Contract Year beginning in 2003, and shall be equal to the conversion component 

  

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of the Product Price for the prior Contract Year increased by a percentage amount equal to the percentage increase in the Producer Price Index for Finished
Goods, Pharmaceutical Preparations, Ethical (Prescription), series code PCU-2834 #1, issued by the Bureau of Labor Statistics, U.S. Department of Labor, or comparable successor index, during the twelve (12) month period ending with the most
recent month for which published monthly statistics are available as of the first day of such new price year (“PPI”). Increases in the conversion component Product Price pursuant to this Section 7.3(a) shall become effective as of the
start of the appropriate Contract Year. 
 (b) The materials component of the Product Price shall also be subject to
adjustment from time to time as follows: 
 (i) Effective as of the start of each Contract Year, commencing with the Contract
Year beginning in 2003, the materials component may be increased by DSM by the amount of (A) the increase in costs incurred by DSM to third party suppliers for materials incorporated into the Product over the cost of such materials to DSM in
the prior Contract Year, plus (B) a margin/overhead factor equal to twenty-five percent (25%) of such cost increase. DSM shall provide Orphan with written notification of any increase in the materials component of the Product Price at
least sixty (60) days prior to the start of the Contract Year to which such increase applies. Orphan shall have the option, upon reasonable notice to DSM, to appoint an independent financial auditor to verify the price increase; and DSM shall
make available to the auditor appropriate documentation substantiating DSM’s cost increase. The auditor shall be subject to the confidentiality requirements of Article 14 and shall only disclose to Orphan the auditor’s opinion as to
whether or not the price increase is consistent with the documentation of increased material costs. If there is any disagreement with respect to any price increase, the dispute shall be resolved in accordance with Article 18. 
 ii. Notwithstanding the provisions of subpart (i), if, during any Contract Year, DSM experiences an increase in the aggregate cost of the
Materials incorporated into the Product of more than ten percent (10%) from the start of such Contract Year, then DSM shall be entitled to increase the Materials component of the Purchase Price during such Contract Year upon sixty
(60) days prior written notification by utilizing the protocol set forth in subpart (i).” 
 4. Section 15.1 of the Agreement
shall be amended in its entirety and shall hereafter read as follows: 
 “15.1 Unless sooner terminated pursuant to
Article 16 below, the initial term of this Agreement shall commence on the Effective Date and end upon the 

  

 Amendment No. 2: Page 2 









 
expiration of the third (3rd) Contract Year. Unless otherwise terminated pursuant to Article 16 below, this Agreement shall be automatically renewed for
additional one (1) year terms after the end of the initial term, unless either party provides written notice to the other at least twelve (12) months prior to the expiration of the initial or any extended term, as the case may be, that
this Agreement shall expire at the end of the initial term or such renewal term, as the case may be. All references herein to “term of this Agreement” shall be deemed to include both the initial and any extended terms.” 
 5. Article 16 of the Agreement is amended by relabeling current Sections 16.2 and 16.3 as Sections 16.3 and 16.4, respectively, and by adding a new
subsection 16.2, which shall read as follows: 
 “16.2 Termination by Orphan. In addition to any other legal or
equitable remedies that it may have, Orphan may terminate this Agreement prior to the expiration of the term of this agreement upon written notice to DSM in the event that (a) DSM is cited for, or receives any warnings about, any material
compliance deficiencies by the FDA that could adversely affect the manufacturing or sales of the Product, and the deficiencies noted in such FDA citation or warning are not cured by DSM to Orphan’s reasonable satisfaction within 180 days after
receipt by DSM of such warning or citation; or (b) the FDA initiates any compliance action against DSM that directly affects the manufacturing or testing of Product by DSM under the Agreement.” During this period DSM agrees to manufacture
product and fill all Purchase Orders submitted as requested by ORPHAN. 
 6. Section 16.3(b) of the Agreement (formerly
Section 16.2(b)) shall be amended by restating the lead-in clause of section 16.3(b) to read as follows: 
 “Other
than termination by ORPHAN pursuant to Section 16.1(a) or Section 16.2 hereof . . .” 
 7. As amended pursuant to this
Amendment, the Agreement is hereby ratified and confirmed in all respects by each of DSM and Orphan as a legally enforceable agreement between them. 
 {Signatures on following page} 
  

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 IN WITNESS WHEREOF, each of DSM and Orphan has caused this Amendment No. 2 to be executed by a fully
authorized corporate officer as of the date first set forth above. 
  

			
	ORPHAN MEDICAL, INC.
		
	By:	 	 /s/ John H. Bullion

	Name/Title:
	
	DSM PHARMACEUTICALS, INC.
		
	By:	 	 /s/ Terence S. Novack

		 	Terence S. Novack
		 	Sr. Vice President of Commercial Operations

  

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 Appendix D 
 Product Commercial Pricing 
 Product Price is based on component costs represented in Letter dated March 11,
2002, attached. 
 Tiered pricing for Xyrem® Oral Solution 200ml 
  

							
	 Volume Breaks
 Five (5) Batches per Run
	  	 Conversion
	  	 Materials
	  	 Total Unit Price

	 <300,000 units/year
	  	$1.70	  	$4.77	  	$6.47
	 300,000 to 1,000,000 units/year
	  	$1.46	  	$4.56	  	$6.02
	 >1,000,000 units/year
	  	$1.29	  	$4.37	  	$5.66

  

							
	 Volume Breaks
 Three (3) Batches per Run
	  	 Conversion
	  	 Materials
	  	 Total Unit Price

	 <300,000 units/year
	  	$1.75	  	$4.77	  	$6.52
	 300,000 to 1,000,000 units/year
	  	$1.51	  	$4.56	  	$6.07
	 >1,000,000 units/year
	  	$1.34	  	$4.37	  	$5.71

  

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 March 11, 2002 
 Mr. Randy Tlachac 
 Orphan Medical 
 13911
Ridgedale Drive, Suite 250 
 Minnetonka, Minnesota 55305 
 Dear
Mr. Tlachac: 
 The purchasing department at DSM is working together with our vendors to obtain the best purchase price for components. The purchase
price of the components for Xyrem® is in most cases
higher than the pricing estimated by Orphan. We have listed below the actual purchase costs for the Xyrem® components paid (or to be paid) by DSM for component purchases to date as requested in your e-mail note dated 03/04/02. 
  

								
	 Component Description
	  	Purchase Costs
Unit of Measure = each	  	 Extended
 Purchase Costs
	 
	 Bottle Plastic 8 oz.
	  	$	0.2400	  	$	0.2400	 
	 Screwcap 24mm/400 CR
	  	$	0.0530	  	$	0.0530	 
	 Tubing PVC (measured in meters)
	  	$	0.2610	  	$	0.2610	 
	 Label Bottle
	  	$	0.0320	  	$	0.0320	 
	 Carton plus gluing Medguide
	  	$	0.2631	  	$	0.2631	 
	 Insert Prefold
	  	 	TBD	  	$	0.0607	*
	 Medication Guide
	  	$	0.1331	  	$	0.1331	 
	 PIBA
	  	$	1.4300	  	$	1.4300	 
	 Exacta-Med Dispenser
	  	$	0.2100	  	$	0.2100	 
	 Vial 20 Dram (Requires 2 Vials)
	  	$	0.2390	  	 	0.4780	 
	 Cap 20 Dram (Requires 2 Caps)
	  	$	0.0873	  	 	0.1746	 
	 Label Carton Security (Requires 2 Labels)
	  	$	0.1240	  	 	0.2480	 
	 Shipper x 15 Xyrem
	  	$	0.9480	  	$	0.9480	 
	 Tape Press Sensitive Case Seal ($22.4000 per full roll)
	  	$	0.0020	  	$	0.0020	 
	 Label Bar Code
	  	$	0.0370	  	$	0.0370	 
	 TOTAL
	  			  	$	4.5705	 



	*	estimate 

 In the event that Orphan Medical elects to have DSM purchase
from other vendors, not yet DSM qualified, Orphan Medical would accept all associated costs of changes that would be required to transition from the established vendors to new vendors for the Xyrem© components, including qualification audits, establishing new specifications and item
numbers, all costs associated with machinability and line testing, and any other changes that would be required. If Orphan Medical negotiates lower prices, DSM will take every effort to negotiate these same prices with DSM suppliers. 
 As noted in previous correspondence, any last minute changes to components may impact the timeline for the commercial introduction of Xyrem® after FDA approval (anticipated April 9, 2002). The commercial pricing
updates are due to Orphan Medical requirements as mandated by the FDA that a Medguide be included on the inside of the commercial carton and that the Medguide be referenced on the outside of the carton. 
 Call me if you have any questions (252-707-7322). 
  

	
	Sincerely,
	
	 /s/ Trudy Briley

	Trudy Briley
	Account Manager
	Pharmaceutical Sales & Marketing


  

			
	cc:	 	Michel Deinum (DSM)
		 	Terry Novak (DSM)
		 	Lori Thigpen (DSM)
		 	Bill Conway (DSM)
		 	Collins Hines (DSM)
		 	File (2)