UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2011
or
¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number: 001-33500
JAZZ PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 05-0563787 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
3180 Porter Drive
Palo Alto, CA 94304
(650) 496-3777
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of April 29, 2011, 40,741,809 shares of the registrants Common Stock, $0.0001 par value, were outstanding.
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2011
INDEX
Page | ||||||
PART I FINANCIAL INFORMATION | 3 | |||||
Item 1. |
3 | |||||
Condensed Consolidated Balance Sheets March 31, 2011 and December 31, 2010 |
3 | |||||
Condensed Consolidated Statements of Operations Three Months Ended March 31, 2011 and 2010 |
4 | |||||
Condensed Consolidated Statements of Cash Flows Three Months Ended March 31, 2011 and 2010 |
5 | |||||
6 | ||||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||||
Item 3. |
19 | |||||
Item 4. |
19 | |||||
PART II OTHER INFORMATION | 20 | |||||
Item 1. |
20 | |||||
Item 1A. |
20 | |||||
Item 2. |
35 | |||||
Item 6. |
36 |
In this report, Jazz Pharmaceuticals, we, us, and our refer to Jazz Pharmaceuticals, Inc. and its consolidated subsidiaries.
We own or have rights to various copyrights, trademarks, and trade names used in our business, including the following: Xyrem® (sodium oxybate) oral solution; Luvox CR® (fluvoxamine maleate) Extended-Release Capsules; and Luvox® (fluvoxamine). This report also includes other trademarks, service marks, and trade names of other companies.
2
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, 2011 |
December 31, 2010 |
|||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 65,061 | $ | 44,794 | ||||
Restricted cash |
400 | 400 | ||||||
Accounts receivable, net of allowances of $486 and $482 at March 31, 2011 and December 31, 2010, respectively |
21,383 | 22,081 | ||||||
Inventories |
5,017 | 5,046 | ||||||
Prepaid expenses |
2,577 | 1,858 | ||||||
Other current assets |
402 | 279 | ||||||
Total current assets |
94,840 | 74,458 | ||||||
Property and equipment, net |
652 | 690 | ||||||
Intangible assets, net |
20,171 | 22,033 | ||||||
Goodwill |
38,213 | 38,213 | ||||||
Other long-term assets |
302 | 335 | ||||||
Total assets |
$ | 154,178 | $ | 135,729 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current liabilities: |
||||||||
Revolving credit facility |
$ | 4,000 | $ | 7,350 | ||||
Accounts payable |
3,648 | 3,049 | ||||||
Accrued liabilities |
23,274 | 23,572 | ||||||
Current portion of long-term debt |
16,131 | 16,064 | ||||||
Purchased product rights liability |
4,625 | 4,500 | ||||||
Liability under government settlement |
8,202 | 4,128 | ||||||
Deferred revenue |
1,561 | 1,273 | ||||||
Total current liabilities |
61,441 | 59,936 | ||||||
Deferred rent |
77 | 82 | ||||||
Deferred revenue, non-current |
8,768 | 9,053 | ||||||
Purchased product rights liability, non-current |
3,250 | 4,500 | ||||||
Liability under government settlement, non-current |
| 6,978 | ||||||
Long-term debt, less current portion |
20,569 | 24,629 | ||||||
Commitments and contingencies (Note 10) |
||||||||
Stockholders equity: |
||||||||
Common stock |
4 | 4 | ||||||
Additional paid-in capital |
513,108 | 505,413 | ||||||
Accumulated deficit |
(453,039 | ) | (474,866 | ) | ||||
Total stockholders equity |
60,073 | 30,551 | ||||||
Total liabilities and stockholders equity |
$ | 154,178 | $ | 135,729 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Revenues: |
||||||||
Product sales, net |
$ | 49,903 | $ | 34,283 | ||||
Royalties |
693 | 605 | ||||||
Contract revenues |
285 | 285 | ||||||
Total revenues |
50,881 | 35,173 | ||||||
Operating expenses: |
||||||||
Cost of product sales (excluding amortization of acquired developed technology) |
2,809 | 2,882 | ||||||
Selling, general and administrative |
19,911 | 16,790 | ||||||
Research and development |
3,695 | 6,215 | ||||||
Intangible asset amortization |
1,862 | 2,057 | ||||||
Total operating expenses |
28,277 | 27,944 | ||||||
Income from operations |
22,604 | 7,229 | ||||||
Interest income |
1 | 2 | ||||||
Interest expense (including $315 for the three months ended March 31, 2010 |
(777 | ) | (5,767 | ) | ||||
Other expense |
(1 | ) | | |||||
Net income |
$ | 21,827 | $ | 1,464 | ||||
Net income per share: |
||||||||
Basic |
$ | 0.54 | $ | 0.05 | ||||
Diluted |
$ | 0.48 | $ | 0.04 | ||||
Weighted-average common shares used in computing net income per share: |
||||||||
Basic |
40,362 | 31,412 | ||||||
Diluted |
45,697 | 34,926 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended March 31, |
||||||||
2011 | 2010 | |||||||
Operating activities |
||||||||
Net income |
$ | 21,827 | $ | 1,464 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
104 | 301 | ||||||
Amortization of intangible assets |
1,862 | 2,057 | ||||||
Stock-based compensation expense |
3,148 | 1,832 | ||||||
Long-term debt, non-cash interest expense |
206 | 1,050 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts receivable |
698 | 358 | ||||||
Inventories |
50 | (71 | ) | |||||
Prepaid expenses and other current assets |
(842 | ) | (685 | ) | ||||
Accounts payable |
599 | 1,727 | ||||||
Accrued liabilities |
(298 | ) | 1,072 | |||||
Deferred revenue |
3 | 249 | ||||||
Deferred rent |
(5 | ) | 22 | |||||
Liability under government settlement |
(2,904 | ) | (2,876 | ) | ||||
Net cash provided by operating activities |
24,448 | 6,500 | ||||||
Investing activities |
||||||||
Purchases of property and equipment |
(66 | ) | (86 | ) | ||||
Purchase of product rights |
(1,125 | ) | (1,000 | ) | ||||
Decrease in restricted cash and investments |
| 2,037 | ||||||
Net cash (used in) provided by investing activities |
(1,191 | ) | 951 | |||||
Financing activities |
||||||||
Repayment of senior secured notes (including $171 for the three months ended March 31, 2010 paid to a related party) |
| (3,000 | ) | |||||
Repayment of term loan |
(4,166 | ) | | |||||
Proceeds from exercise of stock options and warrants |
4,526 | 511 | ||||||
Net repayments under revolving credit facilities |
(3,350 | ) | (1,559 | ) | ||||
Net cash used in financing activities |
(2,990 | ) | (4,048 | ) | ||||
Net increase in cash and cash equivalents |
20,267 | 3,403 | ||||||
Cash and cash equivalents, at beginning of period |
44,794 | 15,595 | ||||||
Cash and cash equivalents, at end of period |
$ | 65,061 | $ | 18,998 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
These unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission, or SEC, for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by U.S. generally accepted accounting principles, or GAAP, can be condensed or omitted. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2010. In the opinion of management, these condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of our financial position and operating results. The results for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011 or for any other interim period or for any future period. The consolidated financial statements include the accounts of Jazz Pharmaceuticals, Inc. and our wholly-owned subsidiaries, Orphan Medical, LLC and JPI Commercial, LLC after elimination of intercompany transactions and balances.
Significant Risks and Uncertainties
Most of our revenues are derived from sales of one product, Xyrem. Xyrem and its active pharmaceutical ingredient, sodium oxybate, are highly regulated by the U.S. Food and Drug Administration, or FDA, and the U.S. Drug Enforcement Agency, or DEA, and actions by either or both of these agencies could adversely affect sales of Xyrem. Xyrem has a black box warning, which is the strongest safety warning required by the FDA, and in recent years there has been increasing focus on the safety of pharmaceutical products. During 2010, an abbreviated new drug application, or ANDA, was filed with the FDA by a third party seeking to market a generic form of Xyrem. We have sued that third party for infringement of our patents, and the litigation is ongoing. We cannot predict the timing or outcome of this litigation. If an ANDA for Xyrem is approved and a generic version of Xyrem is introduced, our sales of Xyrem would be adversely affected.
We are subject to risks common to companies in the pharmaceutical industry with development and commercial operations including, but not limited to, risks and uncertainties related to commercial success and acceptance of our products by patients, physicians and payors, competition from branded and generic products, regulatory approvals, regulatory requirements, dependence on key customers and sole source suppliers and protection of intellectual property rights.
Concentrations of Risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash equivalents and restricted cash, and accounts receivable. Our investment policy limits investments to certain types of debt securities issued by the U.S. government, its agencies and institutions with investment-grade credit ratings and places restrictions on maturities and concentration by type and issuer. We are exposed to credit risk in the event of a default by the financial institutions holding our cash and cash equivalents and issuers of investments to the extent recorded on the balance sheet.
We monitor our exposure within accounts receivable and record a reserve against uncollectible accounts receivable as necessary. We extend credit to pharmaceutical wholesale distributors and a specialty pharmaceutical distribution company, primarily in the United States, and to international distributors. Customer creditworthiness is monitored and collateral is not usually required. Historically, we have not experienced significant credit losses on our accounts receivable. One customer, Express Scripts Specialty Distribution Services, Inc. and its affiliate Curascript, Inc., or Express Scripts, accounted for 80% and 79% of gross accounts receivable as of March 31, 2011 and December 31, 2010, respectively.
We rely on certain sole suppliers for drug substance and certain sole manufacturing partners for each of our marketed products and product candidates.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the condensed consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, intangible assets, inventory reserves, accrued expenses, stock-based compensation and income taxes. Management bases its estimates on historical experience and on assumptions believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.
6
Net Income Per Common Share
Basic net income per common share is based upon the weighted-average number of shares of common stock outstanding. Diluted net income per common share is based on the weighted-average number of shares of common stock outstanding and potentially dilutive common shares outstanding. Basic and diluted net income per common share is computed as follows (in thousands, except per share amounts):
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Numerator: |
||||||||
Net income |
$ | 21,827 | $ | 1,464 | ||||
Denominator: |
||||||||
Weighted-average common shares outstanding - basic |
40,362 | 31,412 | ||||||
Dilutive effect of employee equity incentive and purchase plans |
2,867 | 2,290 | ||||||
Dilutive effect of warrants |
2,468 | 1,224 | ||||||
Weighted-average common shares outstanding - diluted |
45,697 | 34,926 | ||||||
Net income per share: |
||||||||
Basic |
$ | 0.54 | $ | 0.05 | ||||
Diluted |
$ | 0.48 | $ | 0.04 | ||||
Potentially dilutive common shares from employee stock plans and warrants are determined by applying the treasury stock method to the assumed exercise of warrants and stock options, the assumed vesting of outstanding restricted stock units, and the assumed issuance of common stock under our employee stock purchase plan. The following table represents the weighted-average shares of our common stock that were excluded from the computation of diluted net income per share for the periods presented because including them would have an anti-dilutive effect (in thousands):
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Options to purchase common stock |
660 | 2,590 |
2. Inventories
The components of inventories were as follows (in thousands):
March 31, 2011 |
December 31, 2010 |
|||||||
Raw materials |
$ | 2,669 | $ | 2,986 | ||||
Work in process |
991 | 705 | ||||||
Finished goods |
1,357 | 1,355 | ||||||
Total inventories |
$ | 5,017 | $ | 5,046 | ||||
7
3. Fair Value Measurement
Available-for-sale investments consisted of the following (in thousands):
March 31, 2011 | December 31, 2010 | |||||||||||||||
Amortized Cost | Estimated
Fair Value |
Amortized Cost | Estimated
Fair Value |
|||||||||||||
Money market funds |
$ | 37,047 | $ | 37,047 | $ | 25,046 | $ | 25,046 | ||||||||
March 31, 2011 | December 31, 2010 |
|||||||||||||||
Available-for-sale investments |
$ | 37,047 | $ | 25,046 | ||||||||||||
Cash |
28,014 | 19,748 | ||||||||||||||
Restricted cash |
400 | 400 | ||||||||||||||
Total |
$ | 65,461 | $ | 45,194 | ||||||||||||
Reported as |
March 31, 2011 | December 31, 2010 |
||||||||||||||
Amounts classified as cash and cash equivalents |
$ | 65,061 | $ | 44,794 | ||||||||||||
Amounts classified as restricted cash |
400 | 400 | ||||||||||||||
Total |
$ | 65,461 | $ | 45,194 | ||||||||||||
The following table summarizes, by major security type, our available-for-sale investments that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):
March 31, 2011 | December 31, 2010 | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Total Estimated Fair Value |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Total Estimated Fair Value |
|||||||||||||
Money market funds |
$ | 37,047 | $ | 37,047 | $ | 25,046 | $ | 25,046 | ||||||||
The carrying amount and the estimated fair value of our long-term debt were as follows (in thousands):
March 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying Amount |
Estimated Fair Value |
Carrying Amount |
Estimated Fair Value |
|||||||||||||
Long-term debt |
$ | 36,700 | $ | 36,974 | $ | 40,693 | $ | 40,864 | ||||||||
The fair value of our long-term debt was estimated using a discounted cash flow analysis based on our estimated incremental borrowing rates for similar types of borrowing arrangements.
4. Goodwill and Intangible Assets
The gross carrying amount of goodwill was as follows (in thousands):
March 31, 2011 |
December 31, 2010 |
|||||||
Goodwill |
$ | 38,213 | $ | 38,213 | ||||
8
The gross carrying amounts and net book values of our intangible assets were as follows (in thousands):
March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
|||||||||||||||||||
Developed technology - Xyrem |
$ | 39,700 | $ | 24,056 | $ | 15,644 | $ | 39,700 | $ | 23,014 | $ | 16,686 | ||||||||||||
Developed technology - Luvox CR |
9,700 | 6,197 | 3,503 | 9,700 | 5,446 | 4,254 | ||||||||||||||||||
Trademarks |
2,600 | 1,576 | 1,024 | 2,600 | 1,507 | 1,093 | ||||||||||||||||||
Total |
$ | 52,000 | $ | 31,829 | $ | 20,171 | $ | 52,000 | $ | 29,967 | $ | 22,033 | ||||||||||||
Based on intangible assets recorded as of March 31, 2011, and assuming the underlying assets will not be impaired in the future and that we will not change the expected lives of the assets, future amortization costs were estimated as follows (in thousands):
Year Ending December 31, |
Estimated Amortization Expense |
|||
2011 (remaining portion) |
$ | 5,586 | ||
2012 |
5,696 | |||
2013 |
4,445 | |||
2014 |
4,444 | |||
Total |
$ | 20,171 | ||
5. Stock-Based Compensation
Stock-based compensation expense related to stock options, restricted stock units, shares of common stock credited to the directors phantom stock accounts and grants under our employee stock purchase plan was as follows (in thousands):
Three Months Ended March 31, |
||||||||
2011 | 2010 | |||||||
Selling, general and administrative |
$ | 2,412 | $ | 1,321 | ||||
Research and development |
656 | 465 | ||||||
Cost of product sales |
80 | 46 | ||||||
Total stock-based compensation expense |
$ | 3,148 | $ | 1,832 | ||||
Selling, general and administrative expenses for the three months ended March 31, 2011 included $0.6 million of stock-based compensation related to an executive severance agreement.
Employee stock-based compensation costs of $43,000 and $22,000 as of March 31, 2011 and December 31, 2010, respectively, were capitalized as a component of inventory and included in the condensed consolidated balance sheets.
9
Stock Options
The table below shows the number of shares underlying options to purchase shares of our common stock granted to employees, the weighted-average grant date fair value per share of those stock options and certain information about the assumptions used in the Black-Scholes option pricing model which was used to estimate the grant date fair value per share:
Three Months Ended March 31, |
||||||||
2011 | 2010 | |||||||
Shares |
1,170,350 | 1,258,000 | ||||||
Weighted-average grant date fair value |
$ | 17.58 | $ | 8.29 | ||||
Black-Scholes option pricing model assumption information: |
||||||||
Weighted-average volatility |
74 | % | 84 | % | ||||
Weighted-average expected term (years) |
5.6 | 6.1 | ||||||
Range of risk-free rates |
2.4-2.7 | % | 2.8 | % | ||||
Expected dividend yield |
0.0 | % | 0.0 | % |
6. Common Stock
The following table presents a summary of shares of our common stock issued and proceeds received (dollars in thousands):
Three Months Ended March 31, 2011 |
||||||||
Shares issued |
Proceeds | |||||||
Option exercises |
257,033 | $ | 1,908 | |||||
Warrant exercises |
337,776 | 2,618 | ||||||
Cashless warrant exercises |
118,662 | | ||||||
Totals |
713,471 | $ | 4,526 | |||||
7. Comprehensive Income
Comprehensive income includes net income and all changes in stockholders equity during a period, except for those changes resulting from investments by stockholders or distributions to stockholders. For the three months ended March 31, 2011 and 2010, comprehensive income was equal to net income.
8. Segment Information
We have determined that we operate in one business segment, which is the development and commercialization of specialty pharmaceutical products.
The following table presents a summary of total revenues (in thousands):
Three Months Ended March 31, |
||||||||
2011 | 2010 | |||||||
Xyrem |
$ | 42,778 | $ | 28,745 | ||||
Luvox CR |
7,125 | 5,538 | ||||||
Product sales, net |
49,903 | 34,283 | ||||||
Royalties |
693 | 605 | ||||||
Contract revenues |
285 | 285 | ||||||
Total revenues |
$ | 50,881 | $ | 35,173 | ||||
10
The following table presents a summary of total revenues attributed to domestic and foreign sources (in thousands):
Three Months Ended March 31, |
||||||||
2011 | 2010 | |||||||
United States |
$ | 49,899 | $ | 34,062 | ||||
Europe |
977 | 1,106 | ||||||
All other |
5 | 5 | ||||||
Total |
$ | 50,881 | $ | 35,173 | ||||
The following table presents a summary of total revenues from customers that represent more than 10% of our total revenues: | ||||||||
Three Months Ended March 31, |
||||||||
2011 | 2010 | |||||||
Express Scripts |
84 | % | 81 | % |
9. Income Tax Expense
During the three months ended March 31, 2011, our effective income tax rate was 0%. This rate was lower than the federal statutory rate of 35% due to our application of federal net operating loss carryforwards to offset both regular taxable income and alternative minimum taxable income and reflects our utilization of deferred state tax benefits.
10. Commitments and Contingencies
Indemnification
In the normal course of business, we enter into agreements that contain a variety of representations and warranties and provide for general indemnification, including indemnification associated with product liability or infringement of intellectual property rights. Our exposure under these agreements is unknown because it involves future claims that may be made but have not yet been made against us. To date, we have not paid any claims or been required to defend any action related to these indemnification obligations.
We have agreed to indemnify our officers, directors and certain other employees for losses and costs incurred in connection with certain events or occurrences, including advancing money to cover certain costs, subject to certain limitations. The maximum potential amount of future payments we could be required to make under the indemnification obligations is unlimited; however, we maintain insurance policies that may limit our exposure and may enable us to recover a portion of any future amounts paid. Assuming the applicability of coverage, the willingness of the insurer to assume coverage, and subject to certain retention, loss limits and other policy provisions, we believe the fair value of these indemnification obligations is not significant. Accordingly, we have not recognized any liabilities relating to these obligations as of March 31, 2011 and December 31, 2010. No assurances can be given that the covering insurers will not attempt to dispute the validity, applicability, or amount of coverage without expensive litigation against these insurers, in which case we may incur substantial liabilities as a result of these indemnification obligations.
Legal Proceedings
On October 18, 2010, we received a Paragraph IV Patent Certification notice, or Paragraph IV Certification, from Roxane Laboratories, Inc., or Roxane, that it filed an ANDA with the FDA requesting approval to market a generic version of Xyrem. Roxanes Paragraph IV Certification alleges that all five patents listed for Xyrem in the FDAs approved drug products with therapeutic equivalence evaluation documents, or Orange Book, on the date of the Paragraph IV Certification are invalid, unenforceable or not infringed by Roxanes proposed generic product. On November 22, 2010, we filed a lawsuit against Roxane in response to Roxanes Paragraph IV Certification in the United States District Court for the District of New Jersey. We are seeking a permanent injunction to prevent Roxane from introducing a generic version of Xyrem. In accordance with the Hatch-Waxman Act, as a result of having filed a timely lawsuit against Roxane, FDA approval of Roxanes ANDA will be stayed until the earlier of (i) 30 months from our October 18, 2010 receipt of Roxanes Paragraph IV certification notice or (ii) a District Court decision finding that the identified patents are invalid, unenforceable or not infringed. An additional method of use patent covering the distribution system for Xyrem issued in December 2010 and is listed in the Orange Book, and we amended our lawsuit against Roxane on February 4, 2011 to include the additional patent in the litigation in response to Roxanes Paragraph IV Certification against this patent. An additional method of use patent covering the distribution system for Xyrem issued in February 2011 and is listed in the Orange Book, and we amended our lawsuit on May 2, 2011 to include this additional patent in response to Roxanes Paragraph IV Certification against it. We cannot predict the outcome of this litigation.
11
From time to time we are involved in legal proceedings arising in the ordinary course of business. We believe there is no other litigation pending that could have, individually or in the aggregate, a material adverse effect on our results of operations or financial condition.
12
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes to condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the risks and uncertainties described in Part II Item 1A Risk Factors included elsewhere in this report. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operationssee Cautionary Note Regarding Forward-Looking Statements that appears at the end of this discussion. These statements, like all statements in this report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments.
Overview
We are a specialty pharmaceutical company focused on the identification, development and commercialization of pharmaceutical products to meet important unmet medical needs. Since we were founded in 2003, we have built a commercial and development organization. We currently market two products, which generated net product sales of $49.9 million in the first quarter of 2011: Xyrem (sodium oxybate) is the only product approved by the U.S. Food and Drug Administration, or FDA, for the treatment of both cataplexy and excessive daytime sleepiness in patients with narcolepsy; and Luvox CR (fluvoxamine maleate) is marketed for the treatment of obsessive compulsive disorder. We promote these products in the United States through our experienced specialty sales force targeting sleep specialists, neurologists, pulmonologists and psychiatrists.
In the three months ended March 31, 2011, net income was $21.8 million which resulted in operating cash flows of $24.4 million. We continue to be dependent on sales of Xyrem, which accounted for 86% of our net product sales in the first quarter of 2011. During 2010, an abbreviated new drug application, or ANDA, was filed with the FDA by a third party seeking to market a generic form of Xyrem. We have sued that third party for infringement of our patents, and the litigation is ongoing. We cannot predict the timing or outcome of this litigation. If an ANDA for Xyrem is approved and a generic version of Xyrem is introduced, our sales of Xyrem would be adversely affected.
As of March 31, 2011, we had $65.1 million of cash and cash equivalents and $37.5 million principal amount of long-term debt outstanding. Because of our history of losses prior to 2010, we have significant net operating losses with which to offset current and potential future taxable income.
In October 2010, we received a Complete Response Letter, or CRL, from the FDA relating to our JZP-6 product candidate, sodium oxybate for the treatment of fibromyalgia, in which the FDA stated, among other things, that additional clinical trials of JZP-6 would be required. Since we received the CRL, we have had discussions with the FDA, and with our consultants and advisors, about the best way to proceed in response to the CRL. While we continue to believe that sodium oxybate could be an important treatment option for fibromyalgia patients, we believe that the additional clinical trials requested by the FDA in the CRL could take several years to complete and would require a significant investment. We also believe that there could still be significant regulatory uncertainty as to whether JZP-6 would be approved by the FDA. Therefore, unless or until we are able to significantly reduce or eliminate the requirement for pre-approval clinical trials and/or otherwise gain additional certainty as to FDA approval, we do not intend to move forward with additional JZP-6 clinical studies.
Recently, we have had important input from outside advisors with respect to our JZP-8 intranasal clonazepam product candidate. We and our advisors believe that JZP-8 could meet an important unmet medical need; however, some recent input has led us to conclude that the cost of the program and the time to FDA approval may be significantly greater than we previously anticipated. Given this input, along with the competitive landscape, we will determine in the next several months whether or how the program should be continued.
We are actively looking for appropriate opportunities to in-license or acquire additional products and product candidates to leverage our existing commercial and development capabilities.
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Results of Operations
Comparison of Three Months Ended March 31, 2011 and 2010
Three Months Ended March 31, |
Increase/ (Decrease) |
Increase/ (Decrease) |
||||||||||||||
2011 | 2010 | |||||||||||||||
(In thousands) | ||||||||||||||||
Product sales, net |
$ | 49,903 | $ | 34,283 | $ | 15,620 | 46 | % | ||||||||
Xyrem |
42,778 | 28,745 | 14,033 | 49 | % | |||||||||||
Luvox CR |
7,125 | 5,538 | 1,587 | 29 | % | |||||||||||
Royalties |
693 | 605 | 88 | 15 | % | |||||||||||
Contract revenues |
285 | 285 | | 0 | % | |||||||||||
Cost of product sales (excluding amortization of acquired developed technology) |
2,809 | 2,882 | (73 | ) | (3 | %) | ||||||||||
Selling, general and administrative |
19,911 | 16,790 | 3,121 | 19 | % | |||||||||||
Research and development |
3,695 | 6,215 | (2,520 | ) | (41 | %) | ||||||||||
Intangible asset amortization |
1,862 | 2,057 | (195 | ) | (9 | %) | ||||||||||
Interest income |
1 | 2 | (1 | ) | (50 | %) | ||||||||||
Interest expense |
777 | 5,767 | (4,990 | ) | (87 | %) | ||||||||||
Other expense |
1 | | 1 | N/A | (1) |
(1) | Comparison to prior period is not meaningful. |
Product Sales, Net
Xyrem product sales increased in the three months ended March 31, 2011 compared to the same period in 2010, primarily due to price increases and to a lesser extent a 12% increase in sales volume. Luvox CR product sales increased in the three months ended March 31, 2011 compared to the same period in 2010, primarily due to sales volume increases and to a lesser extent price increases. While we expect total product sales to increase in 2011 over 2010, the rate of growth of product sales or sales volumes, or both could be less than that experienced in 2010.
Royalties
Royalties increased in the three months ended March 31, 2011 compared to the same period in 2010 due to an increase in sales of Xyrem in Europe by UCB Pharma Limited, or UCB, under a license agreement. We expect modest growth in royalty income in 2011 as compared with 2010.
Contract Revenues
Contract revenues in the three months ended March 31, 2011 and 2010 include the recognition of previously deferred upfront payments under our agreement with UCB. These payments are being recognized as contract revenues ratably through 2019, the expected performance period under our agreement with UCB.
Cost of Product Sales
Cost of product sales in the three months ended March 31, 2011 as compared the same period in 2010 was approximately the same. As a percentage of product sales, costs were 6% and 8% in the three months ended March 31, 2011 and 2010, respectively. This decrease in cost of product sales as a percentage of product sales was primarily due to increases in average selling prices. We expect cost of product sales as a percentage of sales in 2011 to be consistent with the first quarter of 2011.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were higher in the three months ended March 31, 2011 compared to the same period in 2010, due to $1.1 million recorded as a result of an executive severance agreement, of which $0.6 million was related to stock-based compensation, and increases in headcount-related, legal and information technology expenses. We expect that selling, general and administrative expenses will be higher in 2011 than in 2010 due to increases in headcount related expenses, legal expenses associated with protecting our sodium oxybate business, Xyrem marketing and promotional investments and stock-based compensation expense.
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Research and Development Expenses
Research and development costs were lower in the three months ended March 31, 2011 compared to the same period in 2010, primarily due to lower spending on JZP-6. We expect research and development spending in 2011 to be significantly lower than spending in 2010 and to consist primarily of expenses associated with research and development headcount.
Intangible Asset Amortization
Our intangible assets consist primarily of acquired developed technology related to Xyrem and Luvox CR. These assets are amortized on a straight-line basis over their estimated useful lives. We expect that intangible asset amortization expense will be slightly less in 2011 than in 2010.
Interest Income
Interest income was insignificant in both the three months ended March 31, 2011 and 2010 due to low interest rates.
Interest Expense
Interest expense relates primarily to interest on our long-term debt and, to a small extent, interest on our liability under a 2007 government litigation settlement. As of March 31, 2011 we had long-term debt of $37.5 million which bore interest at a variable rate of 3.75% compared to long-term debt of $116.5 million on March 31, 2010 which bore interest at a fixed rate of 15%. As a result, interest expense for 2011 is expected to be significantly lower than in 2010.
Non-GAAP Financial Measures
To supplement our financial results presented on a U.S. generally accepted accounting principles, or GAAP, basis, we use the non-GAAP measures adjusted net income and adjusted net income per diluted share as shown in the table below. These measures exclude the following: revenue related to upfront and milestone payments, amortization of intangible assets, stock-based compensation and non-cash interest expense associated with a debt discount and debt issuance costs. We believe these non-GAAP financial measures are helpful in understanding our past financial performance and our potential future results. They are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read in conjunction with our consolidated financial statements prepared in accordance with GAAP. Our management regularly uses these supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. Compensation of our executives is based in part on the performance of our business based on these non-GAAP measures. In addition, we believe that the use of these non-GAAP measures enhances the ability of investors to compare our results both from period to period. Adjusted net income and adjusted net income per diluted share, as used by us, may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by our competitors and other companies.
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A reconciliation of GAAP net income to adjusted net income, a non-GAAP financial measure, and related per share amounts is as follows:
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands, except per share amounts) | ||||||||
GAAP net income |
$ | 21,827 | $ | 1,464 | ||||
Add: |
||||||||
Intangible asset amortization |
1,862 | 2,057 | ||||||
Stock-based compensation expense |
3,148 | 1,832 | ||||||
Non-cash interest expense |
206 | 1,050 | ||||||
Deduct: |
||||||||
Contract revenues |
(285 | ) | (285 | ) | ||||
Adjusted net income |
$ | 26,758 | $ | 6,118 | ||||
GAAP net income per diluted share |
$ | 0.48 | $ | 0.04 | ||||
Adjusted net income per diluted share |
$ | 0.59 | $ | 0.18 | ||||
Shares used in computing GAAP and adjusted net income per diluted share amounts |
45,697 | 34,926 |
Liquidity and Capital Resources
In the first quarter of 2011, we generated cash flows from operations of $24.4 million, and as of March 31, 2011, we had cash and cash equivalents of $65.1 million. We believe that our existing cash balances and cash we expect to generate from operations will be sufficient to fund our operations and to meet our existing obligations for the foreseeable future. The adequacy of our cash resources depends on many assumptions, including primarily our assumptions with respect to product sales and expenses as well as the other factors set forth in Part II Item 1A. of this Quarterly Report on Form 10-Q under the heading To grow our business, we will need to commit substantial resources, which could result in future losses or otherwise limit our opportunities or affect our ability to operate our business. Our assumptions may prove to be wrong or other factors may adversely affect our business, and as a result we could exhaust or significantly decrease our available cash resources which could, among other things, force us to raise additional funds and/or force us to reduce our expenses, either of which could have a material adverse effect on our business.
As of March 31, 2011, $37.5 million principal amount was outstanding on our term loan, which is repayable in quarterly installments of $4.2 million, and $4.0 million was outstanding under our revolving credit facility. The average daily amount outstanding under our revolving credit facility during the three months ended March 31, 2011 was $1.0 million. Interest on the term loan and the revolving credit facility is payable at a variable rate which was 3.75% for most of the three months ended March 31, 2011. Borrowing availability under the revolving credit facility is currently $14.4 million. The facility has a commitment fee payable on the undrawn amount which is currently 0.5% per annum.
Our credit agreement contains customary operating covenants, including covenants that restrict our ability to: incur indebtedness and liens; effect mergers, consolidations and other fundamental changes; dispose of significant assets or enter into sale-leaseback transactions; pay dividends or make other restricted payments; make loans, advances or certain investments, including acquisitions of companies and products; or enter into transactions with affiliates. The credit agreement also requires us to comply with financial covenants requiring us to maintain a minimum consolidated fixed charge coverage ratio, a maximum consolidated leverage ratio and minimum liquidity, each as defined in the credit agreement. Our failure to comply with any of the operating and financial covenants contained in the credit agreement would constitute an event of default under the credit agreement. The credit agreement contains other customary events of default. Upon the occurrence of one or more events of default all or part of the obligations under the credit agreement may be declared immediately due and payable and borrowings under the credit agreement may be stopped. We are currently in compliance with all material covenants under the credit agreement. We have sufficient cash to repay the borrowings under the credit agreement in full, if that were necessary.
To grow our business over the longer-term, we will need to commit substantial resources to product acquisition and in-licensing costs, to expensive and time-consuming product development and clinical trials of our product candidates that we choose to develop,
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and to expanding our commercial operations. We may need to raise additional funds to license or acquire additional products, product candidates or companies or seek to raise additional funds for general corporate purposes. Raising additional capital could be accomplished through one or more public or private debt or equity financings, collaborations, partnering arrangements or development financings or a draw down of funds under our committed equity financing facility, or CEFF, with Kingsbridge Capital Limited which expires in December 2012. Under the CEFF, we have the ability to draw down amounts up to $75.0 million, subject to certain conditions and limitations. Any equity financing would be dilutive to our stockholders, and the consent of the lender under our credit agreement could be required.
The following table shows a summary of our cash flows for the periods indicated:
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Net cash provided by operating activities |
$ | 24,448 | $ | 6,500 | ||||
Net cash (used in) provided by investing activities |
(1,191 | ) | 951 | |||||
Net cash used in financing activities |
(2,990 | ) | (4,048 | ) | ||||
Net increase in cash and cash equivalents |
$ | 20,267 | $ | 3,403 | ||||
Net cash provided by operating activities during the three months ended March 31, 2011 and 2010 primarily reflected net income, adjusted for non-cash items including depreciation, amortization, non-cash interest expense and stock-based compensation expense in addition to the change in working capital and a payment related to the settlement of government litigation.
Net cash used in investing activities during the three months ended March 31, 2011 primarily related to a scheduled payment under our agreement for the rights to market Luvox CR. Net cash provided by investing activities during the three months ended March 31, 2010 primarily related to the release of restricted cash partially offset by a scheduled payment under our agreement for the rights to market Luvox CR.
Net cash used in financing activities during the three months ended March 31, 2011 included a scheduled principal repayment of our term loan and a net repayment of our revolving credit facility, partially offset by proceeds from warrant exercises and employee stock option exercises. Net cash used in financing activities during the three months ended March 31, 2010 was attributable to a principal payment of $3.0 million of the then outstanding senior secured debt and a net repayment of a revolving credit facility, partially offset by proceeds from employee stock option exercises.
Critical Accounting Policies and Significant Estimates
To understand our financial statements, it is important to understand our critical accounting policies and estimates. The preparation of our financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in determining the amounts to be deducted from gross revenues, in particular estimates of government rebates, which include Medicaid and TRICARE rebates, and estimated returns of Luvox CR. Significant estimates and assumptions are also required to determine whether to capitalize intangible assets, the amortization periods for identifiable intangible assets, the potential impairment of goodwill and other intangible assets, the determination of excess and obsolete inventory reserves, stock-based compensation, accrued expenses and income taxes. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. For any given individual estimate or assumption we make, there may also be other estimates or assumptions that are reasonable. Although we believe our estimates and assumptions are reasonable, they are based upon information available at the time the estimates and assumptions were made.
Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the year ended December 31, 2010. Our critical accounting policies and significant estimates have not changed substantially from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (including documents incorporated by reference) and other written and oral statements we make from time to time contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use
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words such as should, expect, anticipate, estimate, target, may, project, guidance, intend, plan, believe and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements are likely to relate to, among other things, our goals, plans, expectations and projections regarding our financial position, results of operations, cash flows, market position, product candidate development, product approvals and other regulatory matters, sales efforts, expenses, performance or results of current products, the outcome of contingencies such as legal proceedings, and future financial results, all of which are based on current expectations that involve inherent risks and uncertainties, including internal or external factors that could delay, divert or change any of them from time to time. We have included important factors in the cautionary statements included in this report, particularly under Part II Item 1A. Risk Factors, that we believe could cause actual results to differ materially from any forward-looking statement.
Although we believe we have been prudent in our plans and assumptions, no assurance can be given that any goal, expectation or plan set forth in forward-looking statements can be achieved, and you are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events or otherwise.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
During the three months ended March 31, 2011, there were no material changes to our market risk disclosures as set forth in Part II Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the year ended December 31, 2010.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures. We have carried out an evaluation, under the supervision, and with the participation of, management including our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2011.
Limitations on the Effectiveness of Controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within an organization have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met and, as set forth above, our principal executive officer and principal financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.
Changes in Internal Control over Financial Reporting. No changes in our internal control over financial reporting occurred during the three months ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 1. | Legal Proceedings |
On October 18, 2010, we received a Paragraph IV Patent Certification notice, or Paragraph IV Certification, from Roxane Laboratories, Inc., or Roxane, that it filed an abbreviated new drug application, or ANDA, with the U.S. Food and Drug Administration, or FDA, requesting approval to market a generic version of Xyrem. Roxanes Paragraph IV Certification alleges that all five patents listed for Xyrem in the FDAs approved drug products with therapeutic equivalence evaluation documents, or Orange Book, on the date of the Paragraph IV Certification are invalid, unenforceable or not infringed by Roxanes proposed generic product. On November 22, 2010, we filed a lawsuit against Roxane in response to Roxanes Paragraph IV Certification in the United States District Court for the District of New Jersey. We are seeking a permanent injunction to prevent Roxane from introducing a generic version of Xyrem. In accordance with the Hatch-Waxman Act, as a result of having filed a timely lawsuit against Roxane, FDA approval of Roxanes ANDA will be stayed until the earlier of (i) 30 months from our October 18, 2010 receipt of Roxanes Paragraph IV certification notice or (ii) a District Court decision finding that the identified patents are invalid, unenforceable or not infringed. An additional method of use patent covering the distribution system for Xyrem issued in December 2010 and is listed in the Orange Book, and we amended our lawsuit against Roxane on February 4, 2011 to include the additional patent in the litigation in response to Roxanes Paragraph IV Certification against this patent. An additional method of use patent covering the distribution system for Xyrem issued in February 2011 and is listed in the Orange Book, and we amended our lawsuit on May 2, 2011 to include this additional patent in response to Roxanes Paragraph IV Certification against it. We cannot predict or determine the outcome of this matter.
From time to time we are involved in legal proceedings arising in the ordinary course of business. We believe there is no other litigation pending that could have, individually or in the aggregate, a material adverse effect on our results of operations or financial condition.
Item 1A. | Risk Factors |
We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and related notes.
We have marked with an asterisk (*) those risks described below that reflect substantive changes from, or additions to, the risks described in our Annual Report on Form 10-K for the year ended December 31, 2010.
Risks Relating to Our Business
We are dependent on sales of Xyrem to generate the cash necessary to operate our business and to meet our ongoing financial obligations, and, if we are not able to maintain or increase sales of Xyrem, it would have a material adverse effect on our business, financial condition, results of operations and growth prospects.*
We are dependent on sales of Xyrem to generate the cash necessary to operate our business and to meet our ongoing financial obligations, and our future plans assume that sales of Xyrem will increase. While Xyrem product sales increased in the year ended December 31, 2010 compared to the same period in 2009, and we expect Xyrem sales growth for 2011 compared to 2010, we cannot assure you that this will occur. We have periodically significantly increased the price of Xyrem, most recently in April 2011, and we cannot assure you that price increases we have taken or may take in the future have not, or will not in the future, negatively affect Xyrem sales volumes.
In addition to other risks described herein, our ability to maintain or increase Xyrem product sales is subject to a number of risks and uncertainties, the most important of which are discussed below, including those related to:
| the potential introduction of a generic version of Xyrem; |
| our manufacturing partners ability to obtain sufficient quota from the U.S. Drug Enforcement Agency, or DEA, to satisfy our needs for Xyrem; |
| any supply or distribution problems arising with any of our manufacturing and distribution partners, all of whom are sole source providers for us; |
| changed or increased regulatory restrictions, including changes to our risk management program for Xyrem; |
| changes in healthcare laws and policy, including changes in requirements for rebates, reimbursement and coverage by federal healthcare programs; |
| changes to our label, including our black box warning, that further restrict how we market and sell Xyrem; and |
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| continued acceptance of Xyrem as safe and effective by physicians and patients. |
These and the other risks described in these risk factors related to Xyrems product sales could have a material adverse effect on our ability to maintain or increase sales of Xyrem.
If prescriptions and revenue from sales of Xyrem do not continue or increase as expected, we may be required to reduce our operating expenses, decrease our efforts in support of our products or seek to raise additional funds, all of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects, or we may not be able to acquire, in-license or develop new products to grow our business.
If generic products that compete with Xyrem are approved, sales of Xyrem would be adversely affected.*
Although Xyrem is covered by patents covering its formulation, distribution system and method of use, we cannot assure you that third parties will not attempt to invalidate or design around the patents, or assert that they are invalid or otherwise unenforceable, and introduce generic equivalents of Xyrem. Once orphan drug exclusivity for Xyrem in the United States for the treatment of excessive daytime sleepiness in patients with narcolepsy expires in November 2012, other companies could possibly introduce generic equivalents of Xyrem if they do not infringe our patents covering Xyrem or can demonstrate that our patents are invalid or unenforceable.
On October 18, 2010, we received notice from Roxane Laboratories, Inc, or Roxane, that it filed an abbreviated new drug application, or ANDA, with the U.S. Food and Drug Administration, or FDA, requesting approval to market a generic version of Xyrem. If the application is approved, and a generic version of Xyrem is introduced, our sales of Xyrem would be adversely affected. Additional ANDAs could also be filed requesting approval to market generic forms of Xyrem; if those applications for generics were approved and the generics were launched, sales of Xyrem would further decrease.
Roxane has sent us Paragraph IV certifications with respect to our patents listed in the FDAs approved drug products with therapeutic equivalence evaluation documents, or Orange Book, covering Xyrem for the treatment of cataplexy and excessive daytime sleepiness in patients with narcolepsy. A Paragraph IV certification is a certification by a generic applicant that patents covering the branded product are invalid, unenforceable, and/or will not be infringed by the manufacture, use or sale of the generic product. The FDA will not approve an ANDA for a generic form of a product unless the submitting manufacturer either files a Paragraph IV certification with respect to the patents listed in the FDAs Orange Book for that product or all of those patents expire. We have filed a lawsuit against Roxane, but we cannot assure you that the lawsuit will prevent the introduction of a generic version of Xyrem for any particular length of time, or at all.
After the introduction of a generic competitor, a significant percentage of the prescriptions written for a product generally may be filled with the generic version, resulting in a loss in sales of the branded product, including for indications for which the generic version has not been approved for marketing by the FDA. Generic competition often results in decreases in the prices at which branded products can be sold, particularly when there is more than one generic available in the marketplace. In addition, legislation enacted in the United States allows for, and in a few instances in the absence of specific instructions from the prescribing physician mandates, the dispensing of generic products rather than branded products where a generic equivalent is available. Generic competition for Xyrem could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
The manufacture, distribution and sale of Xyrem are subject to significant restrictions and the requirements of a risk management program, and these restrictions and requirements subject us to increased risks and uncertainties, any of which could negatively impact sales of Xyrem.*
The DEA limits the quantity of certain Schedule I controlled substances that may be produced in the United States in any given calendar year through a quota system. Because the active pharmaceutical ingredient of Xyrem, sodium oxybate, is a Schedule I controlled substance, our current and new suppliers of sodium oxybate and our product manufacturer must obtain DEA quotas in order to supply us with sodium oxybate and Xyrem. Since the DEA typically grants quotas on an annual basis and requires a detailed submission and justification for each request, obtaining a DEA quota is a difficult and time consuming process. If our commercial or clinical requirements for sodium oxybate or Xyrem exceed our suppliers and product manufacturers DEA quotas, our suppliers and product manufacturer would need quota increases from the DEA, which could be difficult and time consuming to obtain and might not ultimately be obtained on a timely basis, or at all. We cannot assure you that our suppliers will receive sufficient quota from the DEA to meet our needs, and if we and our suppliers cannot obtain as much quota as is needed, on a timely basis, or at all, our business, financial condition, results of operations and growth prospects could be materially and adversely affected.
As a condition of approval of Xyrem, the FDA mandated that we maintain a risk management program for Xyrem. The risk management plan includes unique features that provide information about adverse events, including deaths, that is generally not available for other products that are not subject to a similar risk management plan. Information concerning adverse events that may not be related to the use of Xyrem is likely to be collected under the risk management plan. This information, which we are required to report regularly to the FDA, could result in the FDA requiring changes to the Xyrem label or taking or requiring us to take other actions that could have an adverse affect on Xyrems commercial success.
Under the risk management plan, all of the Xyrem that we sell in the United States must be shipped directly to patients through a single central pharmacy. The process under which patients receive Xyrem under the Xyrem risk management program is cumbersome. While we have an agreement with the central pharmacy for Xyrem, Express Scripts Specialty Distribution Services, Inc. or Express Scripts, through June 2015, if the central pharmacy does not fulfill its contractual obligations to us, or refuses or fails to adequately serve patients, shipments of Xyrem and our sales would be adversely affected. If we change our central pharmacy, new contracts might be required with government and other insurers who pay for Xyrem, and the terms of any new contracts could be less favorable to us than current agreements. In addition, any new central pharmacy would need to be registered with the DEA and would also need to implement the particular processes, procedures and activities necessary to distribute Xyrem under the risk management plan approved by the FDA. Transitioning to a new central pharmacy could result in product shortages, which would adversely affect sales of Xyrem in the United States, and/or result in additional costs and expenses for us, and/or take a significant amount of time, any of which could materially and adversely affect our business, financial condition, results of operations and growth prospects.
We depend on Express Scripts to conduct many required activities under the Xyrem risk management plan, including making regular contacts, generally by telephone, with Xyrem patients and physicians offices. Among other requirements, Express Scripts is required to report to us, under a standard procedure, information related to any adverse events of which it becomes aware. We recently learned that Express Scripts had not reported to us in accordance with that procedure a total of 74 deaths from all causes, occurring between 2003 and 2010, of patients who had been prescribed Xyrem. As a result, these cases were not reported to the FDA as required. Most of the cases occurred between 2003 and 2007; in each of 2008, 2009 and 2010 there were four unreported cases. In May 2011, we reported all of these cases to the FDA, within 15 days after we learned of them. We cannot be certain that additional cases have not been reported. The information provided to us does not specify the cause of death in most cases, and as a result we cannot be certain whether any, or how many, of the cases are related to Xyrem, and we may not be able to obtain such information.
Following a recent inspection by the FDA of our adverse event reporting system, we received on May 6, 2011 a Form 483 which included the inspectors observations concerning our adverse event reporting system. That document discussed the failure to report the cases discussed above, and also noted deficiencies in certain of our drug safety procedures. We have taken specific steps to correct certain deficiencies noted in the Form 483, and we intend to take additional corrective actions to address all of the matters covered in the Form 483.
As a result of our review to date of the cases recently reported to us, we believe that the adjusted annual all-cause mortality rate does not constitute a new safety signal for Xyrem. However, we cannot assure you that additional information will not modify our current assessment, that the FDA will agree with this assessment or that the FDA will not issue a warning letter, open an evaluation based on the FDAs Adverse Event Reporting System database, require changes to Xyrems label or take or require us to take other actions that could be costly or time-consuming and/or negatively affect the commercial success of Xyrem. We cannot assure you that regulatory authorities in other countries where Xyrem is sold will not take similar actions.
The Xyrem risk management plan adopted with the approval of the product in 2002 is not in the same form as required under the current Risk Evaluation and Mitigation Strategy, or REMS, as it is structured today by the FDA. The FDA has required that pre-existing risk management programs be converted to the newer REMS structure under the Food and Drug Administration Amendments Act of 2007. While we have been in discussions with the FDA about converting our current risk management plan for Xyrem to a REMS under the new structure, those discussions have not been completed. We cannot assure you that the FDA will not impose new and onerous requirements under the new REMS structure that could make it more difficult or expensive for us to distribute Xyrem or could adversely affect our sales or make competition easier.
The FDA has required that Xyrems label include a boxed warning regarding the risk of abuse. A boxed warning is the strongest type of warning that the FDA can require for a drug product and warns prescribers that the drug carries a significant risk of serious or even life-threatening adverse effects. A boxed warning also means, among other things, that the product cannot be advertised through reminder ads, ads which mention the pharmaceutical brand name but not the indication or medical condition it treats. In addition, Xyrems FDA approval under the FDAs Subpart H regulations requires that all of the promotional materials for Xyrem be provided to the FDA for review at least 30 days prior to the intended time of first use.
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If we are not able to maintain or increase sales of Luvox CR in the near term, it could have an adverse effect on our results of operations.
While Luvox CR product sales increased in 2010 compared to 2009, and we expect Luvox CR sales growth in 2011 as compared to 2010, we cannot assure you that Luvox CR sales will continue to grow.
We have been in discussions with the FDA concerning our remaining Phase IV clinical study commitment related to social anxiety disorder, or SAD, and as a result of these discussions, in April 2010 we submitted a labeling supplement to the new drug application, or NDA, for Luvox CR to remove the SAD indication from the label. We have not been promoting Luvox CR for social anxiety disorder since April 2010; however, we cannot assure you that the removal of the SAD indication from the Luvox CR label, if it occurs, will not have a negative impact on our Luvox CR product sales.
Although Luvox CR is covered by a product-specific patent issued to Elan Pharma International Limited, or Elan, expiring in 2020, other companies could manufacture and sell generic equivalents of Luvox CR in ways that are not covered by the claims of the patent after the expiration of three years of marketing exclusivity, which ended in February 2011. In August 2009, we received a Paragraph IV certification notice from Actavis Elizabeth, LLC, or Actavis, advising that Actavis has filed an ANDA with the FDA seeking approval to market a generic version of Luvox CR. In September 2009, we received a Paragraph IV certification notice from Anchen Pharmaceuticals, Inc., or Anchen, advising that Anchen has filed an ANDA with the FDA for a generic version of Luvox CR. We filed lawsuits against both companies after receipt of their certifications. We and Elan entered into settlement agreements with Anchen granting Anchen a sublicense of our rights to have manufactured, market and sell a generic version of Luvox CR commencing on February 15, 2013 or earlier upon the occurrence of certain events. The lawsuit against Actavis is pending in the United States District Court for the District of Delaware, but, we cannot assure you that this lawsuit will prevent the introduction of an additional generic form of Luvox CR for any particular length of time, or at all.
We depend on single source suppliers and manufacturers for each of our products and product candidates. The loss of any of these suppliers or manufacturers, or delays or problems in the supply or manufacture of our products for commercial sale or our product candidates for use in our clinical trials, could materially and adversely affect our business, financial condition, results of operations and growth prospects.
We do not have, and do not intend to establish in the near term, our own manufacturing or packaging capability for our products or product candidates, or their active pharmaceutical ingredients. In part due to the limited market size for our approved products, we have entered into manufacturing and supply agreements with single source suppliers and manufacturers for our commercialized products and product candidates. If our suppliers and contract manufacturers do not manufacture our products or product candidates
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without interruption or do not comply with their obligations to us under our supply and manufacturing arrangements, we may not have adequate remedies for any breach, and their failure to supply us could result in a shortage of our products or product candidates.
The availability of our products for commercial sale depends upon our ability to procure the ingredients, packaging materials and finished products we need. If one of our suppliers or product manufacturers fails or refuses to supply us for any reason, it would take a significant amount of time and expense to qualify a new supplier or manufacturer. The loss of one of our suppliers or product manufacturers could require us to obtain regulatory clearance in the form of a prior approval supplement and to incur validation and other costs associated with the transfer of the active pharmaceutical ingredient or product manufacturing process. We believe that it could take as long as two years to qualify a new supplier or manufacturer, and we may not be able to obtain active pharmaceutical ingredients, packaging materials or finished products from new suppliers or manufacturers on acceptable terms and at reasonable prices, or at all. Should we lose either an active pharmaceutical ingredient supplier or a product manufacturer, we could run out of salable product to meet market demands or investigational product for use in clinical trials while we wait for FDA approval of a new active pharmaceutical ingredient supplier or product manufacturer. For Xyrem or sodium oxybate, any new supplier or manufacturer would also need to be registered with the DEA and obtain a DEA quota. In addition, the FDA must approve suppliers of the active and inactive pharmaceutical ingredients and certain packaging materials used in our products, as well as suppliers of finished products. The qualification of new suppliers and manufacturers could potentially delay the manufacture of our products and product candidates and result in shortages in the marketplace or for our clinical trials, or both, particularly since we do not have secondary sources of supply of the active pharmaceutical ingredient or backup manufacturers for our products and product candidates. For example, in 2010 we entered into an agreement with a new supplier for sodium oxybate, Siegfried (USA) Inc., or Siegfried. While we expect Siegfried to be approved by the FDA as a supplier in the second half of 2011, we cannot be certain this will occur. If there are delays in qualifying the new manufacturer or the new manufacturer is unable to obtain a sufficient quota from the DEA, there could be a shortage of Xyrem and sodium oxybate for the marketplace or for use in clinical studies, or both.
Failure by our third party manufacturers to comply with regulatory requirements could adversely affect their ability to supply products to us. All facilities and manufacturing techniques used for the manufacture of pharmaceutical products must be operated in conformity with the FDAs current Good Manufacturing Practices, or cGMP, requirements. In complying with cGMP requirements, our suppliers must continually expend time, money and effort in production, record-keeping and quality assurance and control to ensure that our products and product candidates meet applicable specifications and other requirements for product safety, efficacy and quality. DEA regulations also govern facilities where controlled substances such as sodium oxybate are manufactured. Manufacturing facilities are subject to periodic unannounced inspection by the FDA, the DEA and other regulatory authorities, including state authorities. Failure to comply with applicable legal requirements subjects the suppliers to possible legal or regulatory action, including shutdown, which may adversely affect their ability to supply us with the ingredients or finished products we need.
Any delay in supplying, or failure to supply, products by any of our suppliers could result in our inability to meet the commercial demand for our products in the United States and our partners needs outside the United States, or our needs for use in clinical trials, and could adversely affect our business, financial condition, results of operations and growth prospects.
We may not be able to successfully identify and acquire, in-license or develop additional products or product candidates to grow our business, and, even if we are able to do so, we may not be able to successfully identify and manage the risks associated with integrating acquisitions, including acquisitions of a company or business unit, or other new products or product candidates.
We intend to grow our business over the long-term by acquiring or in-licensing and developing additional products and product candidates that we believe have significant commercial potential. Any growth through acquisition or in-licensing will depend upon the availability of suitable acquisition or in-license products and product candidates on acceptable prices, terms and conditions, and any growth through development will depend upon our identifying and obtaining product candidates, our ability to develop those product candidates and the availability of funding to complete the development of, obtain regulatory approval for and commercialize these product candidates. Even if appropriate opportunities are available, we may not be able to successfully identify them, or we may not have the financial resources necessary to pursue them. Other companies, many of which may have substantially greater financial, marketing and sales resources, compete with us for these opportunities.
In addition, integrating an acquisition, including the acquisition of a company or business unit, or an in-licensed product or product candidate, may create unforeseen operating difficulties and expenses for us, including:
| the diversion of management time and focus from operating our current business; |
| unanticipated liabilities for activities of or related to an acquired company or product before the acquisition; |
| failure to retain employees or to smoothly integrate related departments; and |
| failure to successfully develop and commercialize acquired products and product candidates. |
We cannot assure you that we will be able to successfully manage these risks or other anticipated and unanticipated problems in connection with integrating an acquisition, including the acquisition of a company or business unit, or in-licensed product or product
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candidate, and, if we are not successful in identifying and managing these risks and uncertainties effectively, it could have a material adverse effect on our business.
The commercial success of our products depends upon their market acceptance by physicians, patients, third party payors and the medical community.*
Physicians may not prescribe our products, in which case we would not generate the revenues we anticipate. Market acceptance of any of our products by physicians, patients, third party payors and the medical community depends on:
| the clinical indications for which a product is approved, including any restrictions placed upon the product in connection with its approval, such as a REMS or labeling restrictions; |
| prevalence of the disease or condition for which the product is approved and the severity of side effects; |
| acceptance by physicians and patients of each product as a safe and effective treatment; |
| perceived advantages over alternative treatments; |
| relative convenience and ease of administration; |
| the cost of treatment in relation to alternative treatments, including generic products; |
| the extent to which the product is approved for inclusion on formularies of hospitals and managed care organizations; and |
| the availability of adequate reimbursement by third parties. |
From time to time, there is negative publicity about illicit gamma-hydroxybutyrate, or GHB, and its effects, including with respect to illegal use, overdoses, serious injury and death. Because sodium oxybate, the active pharmaceutical ingredient in Xyrem, is a derivative of GHB, Xyrem sometimes also receives negative mention in publicity relating to GHB. Patients, physicians and regulators may therefore view Xyrem as the same as or similar to illicit GHB. In addition, there are regulators and some law enforcement agencies that oppose the prescription and use of Xyrem generally because of its connection to GHB. Xyrems label includes information about adverse events from GHB. We could also be adversely affected if any of our products or any similar products distributed by other companies prove to be, or are asserted to be, harmful to patients.
Because of our dependence upon patient and physician perceptions, any adverse publicity associated with illness or other adverse effects resulting from the use or misuse of our products or any similar products distributed by other companies could materially and adversely affect our business, financial condition, results of operations and growth prospects. Negative publicity resulting from our recent receipt of a 483 observation from the FDA or other related regulatory actions could adversely affect sales of Xyrem.
We face substantial competition from other companies, including companies with greater resources than we have.
With respect to all of our existing and future products, we may compete with companies selling or working to develop products that may be more effective, safer or less costly than our products. The markets for which we are developing products are competitive and include generic and branded products, some of which are marketed by major pharmaceutical companies that have significantly greater financial resources and expertise in research and development, preclinical testing, conducting clinical trials, obtaining regulatory approvals, manufacturing and marketing and selling approved products than we do.
Smaller or earlier stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Our commercial opportunities may be reduced or eliminated if our competitors develop and commercialize generic or branded products that are safer or more effective, have fewer side effects or are less expensive than our products.
Many of our competitors have far greater financial resources and a larger number of personnel to market and sell their products than we do. Our competitors may obtain FDA or other regulatory approvals for their product candidates more rapidly than we may and may market their products more effectively than we do. If we are unable to demonstrate to physicians that, based on experience, clinical data, side-effect profiles and other factors, our products are preferable to other therapies, we may not generate meaningful revenues from the sales of our products.
We currently have a relatively small sales organization compared with most other pharmaceutical companies with marketed products. If our specialty sales force and sales organization is not appropriately sized to adequately promote any potential future products, the commercial opportunity for our potential future products may be diminished.
We have a relatively small number of sales representatives compared with the number of sales representatives of most other pharmaceutical companies with marketed products. Each of our sales representatives is responsible for a territory of significant size. Future commercial products may require expansion of our sales force and sales support organization, and we may need to commit significant additional funds, management and other resources to the growth of our sales organization before the commercial launch of those product candidates. We may not be able to achieve any necessary growth in a timely or cost-effective manner or realize a
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positive return on our investment, and we may not have the financial resources to achieve the necessary growth in a timely manner or at all. We also have to compete with other pharmaceutical and life sciences companies to recruit, hire, train and retain sales and marketing personnel, and turnover in our sales force and marketing personnel could negatively affect sales of our products.
We depend upon UCB to market and promote Xyrem in many countries outside the United States.*
We have exclusively licensed to UCB Pharma Limited, or UCB, the rights to market and promote Xyrem in 54 countries outside of the United States. In addition, under the terms of our collaboration with UCB, we granted UCB the exclusive right to commercialize JZP-6, which UCB would market under the Xyrem trade name if approved, for the treatment of fibromyalgia in the same territories in which UCB has the right to market and promote Xyrem for patients with narcolepsy. UCB has announced that the European Medicines Agency, or EMA, will not approve JZP-6 for fibromyalgia at this time. UCB is currently assessing how to proceed with respect to Xyrem for fibromyalgia.
UCB has the right to terminate our collaboration on 12-months notice (or less in certain circumstances), and UCB may terminate its rights to JZP-6 for the fibromyalgia indication on six-months notice at any time prior to the receipt of marketing approval of JZP-6 for fibromyalgia in the European Union. If UCB terminates our collaboration or terminates its rights to JZP-6 for the fibromyalgia indication, we would need to find another party or parties to commercialize Xyrem and/or JZP-6 in UCBs territories. We may be unable to do this on acceptable terms, or at all.
A failure to prove that our product candidates are safe and effective in clinical trials would require us to discontinue their development, which could materially and adversely affect our business, financial condition, results of operations and growth prospects.*
Significant additional research and development, financial resources and additional personnel will be required to obtain necessary regulatory approvals for our current and any future product candidates and to develop them into commercially viable products. As a condition to regulatory approval, each product candidate must undergo extensive and expensive clinical trials to demonstrate to a statistically significant degree that the product candidate is safe and effective. If a product candidate fails at any stage of development, we will not be able to commercialize it and we will not receive any return on our investment from that product candidate.
Clinical testing can take many years to complete, especially for product candidates that are in Phase II, or earlier, clinical trials, and failure can occur any time during the clinical trial process. In addition, the results from early clinical trials may not be predictive of results obtained in later and larger clinical trials, and product candidates in later clinical trials may fail to show the desired safety and efficacy despite having progressed successfully through initial clinical testing. A number of companies in the pharmaceutical industry, including us, have suffered significant setbacks in clinical trials, even in advanced clinical trials after showing positive results in earlier clinical trials. Our product candidates are subject to competition for clinical study sites and patients from other therapies under development that may delay the enrollment in or initiation of our clinical trials. Many of these companies have far greater financial and human resources than we do.
To grow our sodium oxybate business, we have and may in the future conduct additional studies in different diseases or conditions or with additional or different doses or dosage forms. We cannot assure you that adverse events or other information obtained during the course of any of these studies will not result in action by the FDA or otherwise that could have a material adverse effect on the Xyrem commercial product as well as the candidate we are studying.
We rely on third parties to conduct clinical trials for our product candidates, and if they do not properly and successfully perform their legal and regulatory obligations, as well as their contractual obligations to us, we may not be able to obtain regulatory approvals for our product candidates.
We design the clinical trials for our product candidates, but rely on contract research organizations and other third parties to assist us in managing, monitoring and otherwise carrying out these trials, including with respect to site selection, contract negotiation and data management. We do not control these third parties and, as a result, they may not treat our clinical studies as their highest priority, or in the manner in which we would prefer, which could result in delays. We are responsible for confirming that each of our clinical trials is conducted in accordance with its general investigational plan and protocol, as well as FDAs and foreign regulatory agencies requirements, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to ensure that the data and results are credible and accurate and that the trial participants are adequately protected. The FDA enforces good clinical practices through periodic inspections of trial sponsors, principal investigators and trial sites. If we, our contract research organizations or our study sites fail to comply with applicable good clinical practices, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with good clinical practices. In addition, our clinical trials must be conducted with product produced under the FDAs cGMP regulations. Our failure, or the failure of our contract manufacturers, to comply with these regulations may require us to repeat or redesign clinical trials, which would delay the regulatory approval process.
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If third parties do not successfully carry out their duties under their agreements with us, if the quality or accuracy of the data they obtain is compromised due to failure to adhere to our clinical protocols or regulatory requirements, or if they otherwise fail to comply with clinical trial protocols or meet expected deadlines, our clinical trials may not meet regulatory requirements. If our clinical trials do not meet regulatory requirements or if these third parties need to be replaced, our clinical trials may be extended, delayed, suspended or terminated. If any of these events occur, we may not be able to obtain regulatory approval of our product candidates.
We are a small company and our employees must work on many important and diverse matters at the same time. If we fail to attract, retain and motivate key personnel, or to retain our executive management team, or if we cannot provide additional resources to perform important tasks, we may be unable to successfully sustain or grow our business.
Our success and our ability to grow depend in part on our continued ability to attract, retain and motivate highly qualified personnel and on our ability to develop and maintain important relationships with leading academic institutions, clinicians and scientists. As a small company, we are highly dependent upon our executive management team and other key personnel, all of whom work on many complex matters that are critical to our success. The loss of services of any one or more members of our executive management team or other key personnel could delay or prevent the successful completion of some of our key activities. We do not carry key person insurance. Any employee may terminate his or her employment at any time without notice and without cause or good reason.
To grow our company we will need additional personnel. Competition for qualified personnel in the life sciences industry has historically been intense. If we cannot timely attract and retain quality personnel on acceptable terms, our failure to do so could adversely affect our business, financial condition, results of operations and growth prospects.
Risks Related to Our Intellectual Property
It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection.*
Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our products and product candidates, their use and the methods used to manufacture and, in some cases, distribute them, as well as successfully defending these patents against third party challenges. Our ability to protect our products and product candidates from unauthorized making, using, selling, offering to sell or importation by third parties depends on the extent to which we have rights under valid and enforceable patents, or have trade secrets that cover these activities.
The patent position of pharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Even if we are able to obtain patents covering our products and product candidates, any patent may be challenged, invalidated, held unenforceable or circumvented. For example, even though we have nine patents covering Xyrem, with expiration dates between 2019 and 2024, and seven of the patents are listed in the FDAs Orange Book, an ANDA was filed requesting permission from the FDA to market a generic form of Xyrem. We have received notices from the company that filed the ANDA stating that the ANDA included Paragraph IV certifications with respect to our patents listed in the FDAs Orange Book. In the case of Luvox CR, Actavis Paragraph IV certification alleges that the Elan patent, which is listed in the Orange Book for Luvox CR, is invalid. The expiration date for the Elan patent at issue is May 10, 2020.
The existence of a patent will not necessarily prevent other companies from developing similar or therapeutically equivalent products or protect us from claims of third parties that our products infringe their issued patents, which may require licensing and the payment of significant fees or royalties. Competitors may successfully challenge our patents, produce similar products that do not infringe our patents, or manufacture products in countries where we have not applied for patent protection or that do not respect our patents. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in our patents, our licensed patents or in third party patents.
The degree of future protection to be afforded by our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
| others may be able to make products that are similar to our product candidates but that are not covered by the claims of our patents, or for which we are not licensed under our license agreements; |
| we or our licensors or partners might not have been the first to make the inventions covered by our issued patents or pending patent applications or the pending patent applications or issued patents of our licensors or partners; |
| we or our licensors or partners might not have been the first to file patent applications for these inventions; |
| others may independently develop similar or alternative products without infringing our intellectual property rights; |
| our pending patent applications may not result in issued patents; |
| our issued patents and the issued patents of our licensors or partners may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges by third parties; |
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| we may not develop additional proprietary products that are patentable; or |
| the patents of others may have an adverse effect on our business. |
We also may rely on trade secrets and other unpatented proprietary information to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets and other unpatented proprietary information, our employees, consultants, advisors and partners may unintentionally or willfully disclose our proprietary information to competitors, and we may not have adequate remedies for such disclosures. If our employees, consultants, advisors and partners develop inventions or processes independently, or jointly with us, that may be applicable to our products under development, disputes may arise about ownership or proprietary rights to those inventions and processes. Enforcing a claim that a third party illegally obtained and is using any of our inventions or trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside of the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
Our research and development collaborators may have rights to publish data and other information to which we have rights. In addition, we sometimes engage individuals or entities to conduct research that may be relevant to our business. While the ability of these individuals or entities to publish or otherwise publicly disclose data and other information generated during the course of their research is subject to contractual limitations, these contractual provisions may be insufficient or inadequate to protect our trade secrets and may impair our patent rights. If we do not apply for patent protection prior to such publication, or if we cannot otherwise maintain the confidentiality of our innovations and other confidential information, then our ability to obtain patent protection or protect our proprietary information may be jeopardized. Moreover, a dispute may arise with our research and development collaborators over the ownership of rights to jointly developed intellectual property. Such disputes, if not successfully resolved, could lead to a loss of rights and possibly prevent us from pursuing certain new products or product candidates.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or commercialize, our products.
Our ability, and that of our partners, to commercialize any approved products will depend, in part, on our ability to obtain patents, enforce those patents and operate without infringing the proprietary rights of third parties. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal and factual questions. We have filed multiple U.S. patent applications and foreign counterparts, and may file additional U.S. and foreign patent applications related thereto. There can be no assurance that any issued patents we own or control will provide sufficient protection to conduct our business as presently conducted or as proposed to be conducted. Moreover, in part because of prior research performed and patent applications submitted in the same manner or similar fields, there can be no assurance that any patents will issue from the patent applications owned by us, or that we will remain free from infringement claims by third parties.
If we choose to go to court to stop someone else from pursuing the inventions claimed in our patents, our licensed patents or our partners patents, that individual or company has the right to ask the court to rule that these patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and consume time and other resources, even if we were successful in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of these patents is upheld, the court will refuse to stop the other party on the ground that the other partys activities do not infringe our rights to these patents or that it is in the public interest to permit the infringing activity. We have filed and are prosecuting a lawsuit against Roxane related to the Paragraph IV certifications delivered to us with respect to Xyrem. We and Elan are prosecuting a lawsuit against Actavis related to the Paragraph IV certification delivered to us with respect to Luvox CR. We cannot assure you that these, or other lawsuits we may file in the future, will be successful in stopping the infringement of our patents, that any such litigation will be cost-effective, or that the litigation will have a satisfactory result for us.
A third party may claim that we or our manufacturing or commercialization partners are using inventions covered by the third partys patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our products. Patent infringement lawsuits are costly and could affect our results of operations and divert the attention of management and development personnel. There is a risk that a court could decide that we or our partners are infringing third party patent rights which could be very costly to us and have a material adverse effect on our business.
The pharmaceutical and life sciences industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods do not infringe the patent claims of the relevant patent and/or that the patent claims are invalid or unenforceable, and we may not be able to do this.
Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing, and because
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publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for inventions covered by our licensors or our issued patents or pending applications, or that we or our licensors were the first inventors. Our competitors may have filed, and may in the future file, patent applications covering subject matter similar to ours. Any such patent application may have priority over our or our licensors patents or applications and could further require us to obtain rights to issued patents covering such subject matter. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the U.S. Patent and Trademark Office to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our U.S. patent position with respect to such inventions.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
Risks Related to Our Industry
The regulatory approval process is expensive, time consuming and uncertain and may prevent us or our partners from obtaining approvals for the commercialization of some or all of our product candidates.*
The research, testing, manufacturing, selling and marketing of pharmaceutical products are subject to extensive regulation by FDA and other regulatory authorities in the United States and other countries, and regulations differ from country to country. Approval in the United States, or in any jurisdiction, does not ensure approval in other jurisdictions. The regulatory approval process is lengthy, expensive and uncertain, and we may be unable to obtain approval for our product candidates. We are not permitted to market our product candidates in the United States until we receive approval from the FDA, generally of an NDA. Obtaining approval of an NDA can be a lengthy, expensive and uncertain process, and the FDA has substantial discretion in the approval process.
In addition, failure to comply with FDA and other applicable U.S. and foreign regulatory requirements may subject our company to administrative or judicially imposed sanctions, including warning letters, untitled letters, civil and criminal penalties, injunctions, product seizure or detention, product recalls, total or partial suspension of production and refusal to approve pending NDAs or supplements to approved NDAs. If we are unable to obtain regulatory approval of our product candidates, we will not be able to commercialize them and recoup our research and development costs.
Healthcare law and policy changes, including those based on recently enacted legislation, may impact our business in ways that we cannot currently predict and these changes could have a material adverse effect on our business and financial condition.*
In March 2010, the President signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or the Healthcare Reform Act. This law substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The Healthcare Reform Act contains a number of provisions that are expected to impact our business and operations, in some cases in ways we cannot currently predict. Changes that may affect our business include those governing enrollment in federal healthcare programs, reimbursement changes, fraud and abuse and enforcement. These changes will impact existing government healthcare programs and will result in the development of new programs, including Medicare payment for performance initiatives and improvements to the physician quality reporting system and feedback program.
Additional provisions of the Healthcare Reform Act, some of which became effective in 2011, may negatively affect our revenues in the future. For example, as part of the Healthcare Reform Acts provisions closing a funding gap that currently exists in the Medicare Part D prescription drug program (commonly known as the donut hole), we are required to provide a 50% discount on branded prescription drugs dispensed to beneficiaries within this donut hole. In addition, under the Healthcare Reform Act, the minimum Medicaid rebate has been increased from 15.1% to 23.1% of the average manufacturer price for our products. We expect that the Healthcare Reform Act and other healthcare reform measures that may be adopted in the future could have a material adverse effect on our industry generally and on our ability to maintain or increase our product sales or successfully commercialize our product candidates or could limit or eliminate our future spending on development projects.
In addition to the Healthcare Reform Act, there will continue to be proposals by legislators at both the federal and state levels, regulators and third-party payors to keep healthcare costs down while expanding individual healthcare benefits. Certain of these changes could impose limitations on the prices we will be able to charge for our products and any approved product candidates or the amounts of reimbursement available for these products from governmental agencies or third-party payors, or may increase the tax obligations on pharmaceutical companies such as ours.
To help patients afford our products, we have various programs to assist them, including a patient assistance program, a Xyrem voucher program and coupon programs for both of our products. Coupon programs, including our program for Xyrem, have recently received some negative publicity, and it is possible that new legislation could be enacted to restrict or otherwise negatively affect these
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programs. The enactment and implementation of any future healthcare reform legislation or policies could have a material adverse effect on our sales, business and financial condition.
We are subject to significant ongoing regulatory obligations and oversight, which may result in significant additional expense and limit our ability to commercialize our products.*
We are subject to significant ongoing regulatory obligations, such as safety reporting requirements and additional post-marketing obligations, including regulatory oversight of the promotion and marketing of our products. In addition, the labeling, packaging, adverse event reporting, storage, advertising, promotion and recordkeeping for our products are, and any of our product candidates that may be approved by the FDA will be, subject to extensive and ongoing regulatory requirements. If we receive regulatory approvals to sell our products, the FDA and foreign regulatory authorities may impose significant restrictions on the indicated uses or marketing of our products, or impose requirements for burdensome post-approval study commitments. The terms of any product approval, including labeling, may be more restrictive than we desire and could affect the commercial potential of the product. If we become aware of previously unknown problems with any of our products in the United States or overseas or at our contract manufacturers facilities, a regulatory agency may impose restrictions on our products, our contract manufacturers or on us. In such an instance, we could experience a significant drop in the sales of the affected products, our product revenues and reputation in the marketplace may suffer, and we could become the target of lawsuits.
The FDA and other governmental authorities also actively enforce regulations prohibiting off-label promotion, and the government has levied large civil and criminal fines against companies for alleged improper promotion. The government has also required companies to enter into complex corporate integrity agreements and/or non-prosecution agreements that impose significant reporting and other burdens on the affected companies. For example, our predecessor company was investigated for off-label promotion of Xyrem, and, while we were not prosecuted, as part of the settlement we entered into a corporate integrity agreement with the Office of Inspector General, U.S. Department of Health and Human Services through mid-2012. The investigation resulted in significant fines and penalties, which we guaranteed and have been paying; the final payment is due in 2012. The corporate integrity agreement requires us to maintain a comprehensive compliance program. In the event of an uncured material breach or deliberate violation, as the case may be, of the corporate integrity agreement or the other definitive settlement agreements we entered into, we could be excluded from participation in Federal healthcare programs and/or subject to prosecution.
We are also subject to regulation by regional, national, state and local agencies, including the DEA, the Department of Justice, the Federal Trade Commission, the Office of Inspector General of the U.S. Department of Health and Human Services and other regulatory bodies, as well as governmental authorities in those foreign countries in which we commercialize our products. The Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and other federal and state statutes and regulations govern to varying degrees the research, development, manufacturing and commercial activities relating to prescription pharmaceutical products, including preclinical testing, approval, production, labeling, sale, distribution, import, export, post-market surveillance, advertising, dissemination of information, promotion, marketing, and pricing to government purchasers and government health care programs. Our manufacturing partners are subject to many of the same requirements, which include obtaining sufficient quota from the DEA each year to manufacture sodium oxybate and Xyrem.
The federal health care program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical companies on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common manufacturer business arrangements and activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchases or recommendations of our products may be subject to scrutiny if they do not qualify for an exemption or safe harbor. We seek to comply with the exemptions and safe harbors whenever possible, but our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability.
The Federal False Claims Act prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Many pharmaceutical and other health care companies have been investigated and have reached substantial financial settlements with the federal government under these laws for a variety of alleged marketing activities, including providing free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting fees, grants, free travel, and other benefits to physicians to induce them to prescribe the companys products; and inflating prices reported to private price publication services, which are used to set drug payment rates under government health care programs. Companies have been prosecuted for causing false claims to be submitted because of the marketing of their products for unapproved, and thus non-reimbursable, uses. Pharmaceutical and other health care companies have also been prosecuted on other legal theories of Medicare and Medicaid fraud.
The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Several states now require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical
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products and to report gifts and payments to individual physicians in the states. Other states prohibit providing meals to prescribers or other marketing related activities. Still other states require the posting of information relating to clinical studies and their outcomes. In addition, California, Nevada, and Massachusetts require pharmaceutical companies to implement compliance programs or marketing codes. Currently, several additional states are considering similar proposals.
Compliance with various federal and state laws is difficult and time consuming, and companies that violate them may face substantial penalties. The potential sanctions include civil monetary penalties, exclusion of a companys products from reimbursement under government programs, criminal fines and imprisonment. Because of the breadth of these laws and the lack of extensive legal guidance in the form of regulations or court decisions, it is possible that some of our business activities could be subject to challenge under one or more of these laws. Such a challenge could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
The number and complexity of both federal and state laws continues to increase, and additional governmental resources are being added to enforce these laws and to prosecute companies and individuals who are believed to be violating them. In particular, the Healthcare Reform Act includes a number of provisions aimed at strengthening the governments ability to pursue anti-kickback and false claims cases against pharmaceutical manufacturers and other healthcare entities, including substantially increased funding for healthcare fraud enforcement activities, enhanced investigative powers, amendments to the False Claims Act that make it easier for the government and whistleblowers to pursue cases for alleged kickback and false claim violations and, beginning in March 2013 for payments made in 2012, public reporting of payments by pharmaceutical manufacturers to physicians and teaching hospitals nationwide. While it is too early to predict what effect these changes will have on our business, we anticipate that government scrutiny of pharmaceutical sales and marketing practices will continue for the foreseeable future and subject us to the risk of government investigations and enforcement actions. Responding to a government investigation or enforcement action would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
If we or any of our partners fail to comply with applicable regulatory requirements, we or they could be subject to a range of regulatory actions that could affect our or our partners ability to commercialize our products and could harm or prevent sales of the affected products, or could substantially increase the costs and expenses of commercializing and marketing our products. Any threatened or actual government enforcement action could also generate adverse publicity and require that we devote substantial resources that could otherwise be used in other aspects of our business.
If we fail to comply with our reporting and payment obligations under the Medicaid rebate program or other governmental pricing programs, we could be subject to additional reimbursement requirements, penalties, sanctions and fines which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
We participate in the federal Medicaid rebate program established by the Omnibus Budget Reconciliation Act of 1990, as well as several state supplemental rebate programs. Under the Medicaid rebate program, we pay a rebate to each state Medicaid program for our covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program under a fee-for-service arrangement, as a condition of having federal funds being made available to the states for our drugs under Medicaid and Medicare Part B. Those rebates are based on pricing data reported by us on a monthly and quarterly basis to the Centers for Medicare and Medicare Services, or CMS, the federal agency which administers the Medicaid drug rebate program. These data include the average manufacturer price, or AMP, and in the case of innovator products, the best price for each drug. As a result of the enactment of the Healthcare Reform Act, rebates now also are due on the utilization of Medicaid managed care organizations, effective March 23, 2010.
Under the Healthcare Reform Act, the minimum Medicaid rebate for branded prescription drugs has increased. There is also an additional rebate amount above the minimum rebate if price increases for the drug exceed the rate of inflation since the products launch. The Healthcare Reform Act changes this additional rebate formula for certain products that qualify as line extensions of existing drugs so that the rebate for these products can be increased and based on the additional rebate for the original drug. It also caps the total rebate amount for innovator drugs at 100% of the AMP for the drug. In addition, the Healthcare Reform Act changes the definition of AMP and additional legislation is currently pending that would further amend the AMP definition. CMS has yet to issue regulations to implement any of the enacted statutory changes. We cannot assure that there will not be additional increases in rebates or other costs and charges from government agencies. Regulations continue to be issued and coverage expanded by various governmental agencies relating to these programs, increasing the cost and complexity of compliance.
Pricing and rebate calculations vary among products and programs. The calculations are complex and are often subject to interpretation by us, governmental or regulatory agencies and the courts. The Medicaid rebate amount is computed each quarter based on our submission to CMS of our current AMP and best prices for the quarter. If we become aware that our reporting for prior quarters was incorrect, or has changed as a result of recalculation of the pricing data, we are obligated to resubmit the corrected AMP or best price for that quarter. Any corrections to our rebate calculations could result in an overage or underage in our rebate liability for past quarters, depending on the nature of the correction as well as changes in the 340B ceiling prices based on those rebate calculations, as discussed below, such that refunds to covered entities that purchased at the earlier prices may be due. In addition to retroactive rebates
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and the potential for 340B ceiling price refunds, if we are found to have knowingly submitted false average manufacturer price or best price information to the government, we may be liable for civil monetary penalties in the amount of $100,000 per item of false information, and, in September 2010, CMS and the Office of the Inspector General indicated that they intend to more aggressively pursue companies who fail to report this data to the government in a timely manner. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. CMS recently published information stating that many companies monthly and quarterly submissions are incomplete or incorrect. We cannot assure you that our submissions will not be found by CMS to be incomplete or incorrect.
Federal law requires that any company that participates in the Medicaid rebate program also participate in the Public Health Services 340B pharmaceutical pricing program in order for federal funds to be available for the manufacturers drugs under Medicaid and Medicare Part B. The 340B pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B ceiling price for the manufacturers covered outpatient drugs. These covered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a disproportionate share of poor patients and children. The 340B ceiling price is calculated using a statutory formula which is based on the AMP and rebate amount for the covered outpatient drug as calculated under the Medicaid drug rebate program. This means that to the extent the Healthcare Reform Act, as discussed above, changes the statutory and regulatory definitions of AMP and the Medicaid rebate amount, these changes also will affect the 340B ceiling price. The Healthcare Reform Act expands the 340B drug pricing program to include new covered entity types, effective for drugs purchased on or after January 1, 2010, although drugs that have received an orphan drug designation under section 526 of the Federal Food Drug and Cosmetic Act are exempt from the ceiling price requirement for the new categories of covered entities. The Healthcare Reform Act also obligates the Secretary of the Department of Health and Human Services to create regulations and processes to improve the integrity of the program and to update the agreement that manufacturers must sign to participate in the program to obligate manufacturers to sell to covered entities if they sell to any other purchaser and to report to the government the ceiling prices for its drugs. In addition, Congress is currently considering legislation that, if passed, would further expand the 340B program to require participating manufacturers to agree to provide 340B discounted pricing on drugs used in the inpatient setting by certain covered entity hospitals, where those drugs are used for the covered entitys uninsured inpatients.
Reimbursement may not be available for our products, which could diminish our sales or affect our ability to sell our products profitably.
In both U.S. and foreign markets, our ability to commercialize our products successfully and to attract strategic partners for our products depends in significant part on the availability of adequate financial coverage and reimbursement from third party payors, including, in the United States, governmental payors such as the Medicare and Medicaid programs, managed care organizations and private health insurers. Third party payors decide which drugs they will pay for and establish reimbursement and co-pay levels. Third party payors are increasingly challenging the prices charged for medical products and services and examining their cost effectiveness, in addition to their safety and efficacy. In some cases, for example, third party payors try to encourage the use of less expensive generic products through their prescription benefits coverage and reimbursement and co-pay policies. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our products. Even with studies, our products may be considered less safe, less effective or less cost-effective than existing products, and third party payors may not provide coverage and reimbursement for our products, in whole or in part. We cannot predict actions third party payors may take, or whether they will limit the coverage and level of reimbursement for our products or refuse to provide any coverage at all. For example, because Luvox CR is competing in a market with both branded and generic products, reimbursement by government and private payors may be more challenging than for new chemical entities. We cannot be sure that reimbursement amounts, or the lack of reimbursement, will not reduce the demand for, or the price of, our products. If reimbursement is not available or is available only to limited levels, we may not be able to effectively commercialize our products.
In recent years, there have been a number of legislative and regulatory changes in and proposals to change the healthcare system in ways that could impact our ability to sell our products profitably. These changes and proposals include measures that would limit or prohibit payments for some medical treatments or subject the pricing of drugs to government control and regulations changing the rebates we are required to provide. For example, a final rule published by the Department of Defense, or DoD, in March 2009, implementing the terms of the National Defense Authorization Act of 2008, established a program under which DoD expects rebates from pharmaceutical manufacturers on all prescriptions of covered prescription drugs (including innovator drugs and biologics) filled under the TRICARE retail pharmacy program from January 28, 2008 forward, unless DoD agrees to a waiver or compromise of amounts due. Additionally, under the final rule, to remain eligible for inclusion on the DoD Uniform Formulary, a pharmaceutical manufacturer must enter into a pricing agreement under which it agrees to pay rebates to DoD on TRICARE retail pharmacy utilization on a prospective basis. These rebates are meant to enable DoD to access pricing that is either close to or equal to Federal Ceiling Prices, defined under the Veterans Health Care Act of 1992. Per the process set forth in this rule, we entered into a retail rebate agreement with DoD in July 2009. These legislative and regulatory changes, including our entering into the retail rebate agreement with DoD, could impact our ability to maximize revenues in the Federal marketplace. As discussed above, recent legislative changes to the 340B drug pricing program, the Medicaid drug rebate program, and the Medicare Part D prescription drug benefit also could impact our revenues.
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We expect to experience pricing pressures in connection with the sale of our products due to the trend toward managed health care, the increasing influence of health maintenance organizations and additional legislative proposals. If we fail to successfully secure and maintain reimbursement coverage for our products or are significantly delayed in doing so, we will have difficulty achieving market acceptance of our products and our business will be harmed.
Product liability and product recalls could harm our business.*
The development, manufacture, testing, marketing and sale of pharmaceutical products entail significant risk of product liability claims or recalls. Side effects of, or manufacturing defects in, the products sold by us could result in exacerbation of a patients condition, serious injury or impairments or even death. This could result in product liability claims and/or recalls of one or more of our products. Both Xyrem and Luvox CR have boxed warnings in their labels.
Product liability claims may be brought by individuals seeking relief for themselves, or by groups seeking to represent a class. While we have not had to defend against any product liability claims to date, as sales of our products increase, we believe it is likely product liability claims will be made against us. We cannot predict the frequency, outcome or cost to defend any such claims.
Product liability insurance coverage is expensive, can be difficult to obtain and may not be available in the future on acceptable terms, if at all. Partly as a result of product liability lawsuits related to pharmaceutical products, product liability and other types of insurance have become more difficult and costly for pharmaceutical companies to obtain. Our product liability insurance may not cover all of the future liabilities we might incur in connection with the development, manufacture or sale of our products. In addition, we may not continue to be able to obtain insurance on satisfactory terms or in adequate amounts.
A successful claim or claims brought against us in excess of available insurance coverage could subject us to significant liabilities and could have a material adverse effect on our business, financial condition, results of operations and growth prospects. Such claims could also harm our reputation and the reputation of our products, adversely affecting our ability to market our products successfully. In addition, defending a product liability lawsuit is expensive and can divert the attention of key employees from operating our business.
Product recalls may be issued at our discretion or at the discretion of our suppliers, government agencies and other entities that have regulatory authority for pharmaceutical sales. Any recall of our products could materially adversely affect our business by rendering us unable to sell that product for some time and by adversely affecting our reputation. A recall could also result in product liability claims.
Risks Relating to Our Financial Condition
To grow our business, we will need to commit substantial resources, which could result in future losses or otherwise limit our opportunities or affect our ability to operate our business.
To grow our business over the longer-term, we will need to commit substantial resources to in-licensing and/or acquiring new products and product candidates, and to costly and time-consuming product development and clinical trials of our product candidates. We will also need to continue to invest in our commercial operations. Our future capital requirements will depend on many factors, including many of those discussed above, such as:
| the revenues from our commercial products and the costs of our commercial operations; |
| whether or not there is generic competition for our products; |
| the acquisition and/or licensing cost for any new products and product candidates; |
| the scope, rate of progress, results and costs of our development and clinical activities; |
| the cost and timing of obtaining regulatory approvals and of compliance with laws and regulations; |
| the cost of preparing, filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; |
| the cost of investigations, litigation and/or settlements related to regulatory activities; and |
| changes in laws and regulations, including, for example, health care reform legislation. |
One of our corporate goals is to expand our business through the licensing, acquisition and/or development of additional products and product candidates. We cannot assure you that our funds will be sufficient to fund these activities if opportunities arise, and we may be unable to expand our business if we do not have sufficient capital or cannot borrow or raise additional capital on attractive terms. In addition, if we use a substantial amount of borrowings or our funds to acquire or in-license products or product candidates, we may not have sufficient additional funds to conduct all of our operations in the manner we would otherwise choose.
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The terms of our credit agreement could restrict our operations, particularly our ability to respond to changes in our business or to take specified actions.
The terms of our credit agreement include, and any future indebtedness may include, a number of restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to take actions that may be in our best interests. The terms of our credit agreement include operating covenants restricting, among other things, our ability to: incur additional indebtedness and liens; effect mergers, consolidations and other fundamental changes; dispose of significant assets or enter into sale-leaseback transactions; pay dividends or make other restricted payments; make loans, advances or other investments including acquisitions of companies and products; and enter into transactions with affiliates. In addition, the terms of our credit agreement include financial covenants requiring us, among other things, to: maintain a certain consolidated fixed charge coverage ratio; maintain a certain leverage ratio; and maintain minimum liquidity. Our failure to comply with any of these covenants could result in a default under the terms of the credit agreement, which could permit the lenders to declare all or part of the outstanding borrowings to be immediately due and payable. Although we currently have sufficient funds to repay our debt, if our outstanding borrowings were to be accelerated and we have used significant amounts of our cash or intend to use significant amounts of our cash for other purposes, we might not have sufficient funds to repay those borrowings and conduct all of our operations in the manner we would otherwise choose, and any such acceleration could have a material adverse effect on our business, financial condition and results of operations.
Our ability to use our net operating losses to offset potential taxable income and related income taxes that would otherwise be due could be limited if we do not generate taxable income in a timely manner or if an ownership change pursuant to Section 382 of the Internal Revenue Code is triggered.*
We have significant net operating loss carryforwards, or NOLs. Our ability to use our NOLs to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates of the NOLs, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use all of our NOLs. In addition, realization of our NOLs to offset potential future taxable income and related income taxes that would otherwise be due could be restricted by annual limitations on use of NOLs triggered by an ownership change under Section 382 of the Internal Revenue Code and similar state provisions, based on a calculation related to our market capitalization. An ownership change may occur if, during a three-year period, there is a change of 50% or more in the percentage ownership of our company by 5% shareholders or shareholder groups, as defined in the Code.
In July 2009, we entered into an NOL preservation lock-up agreement with most of our significant stockholders that restricts transferability of all of the shares of our common stock held by the stockholders who entered into the agreement, which expires in July 2011 unless terminated earlier under certain circumstances, in order to reduce the risk that we will undergo an ownership change within the meaning of Section 382(g) of the Internal Revenue Code prior to that time. We have the right to grant waivers under the agreement if requested by one or more parties and if the conditions set forth in the agreement are met, and we have done so. Section 382 of the Internal Revenue Code is an extremely complex provision with respect to which there are many uncertainties. Although the NOL preservation lock-up agreement is intended to reduce the risk of such an ownership change before July 2011, we cannot assure you that such an ownership change will not occur. In addition, we have not requested a ruling from the Internal Revenue Service, or IRS, regarding whether we have not experienced an ownership change since 2005, and, therefore, we have not established whether the IRS agrees with us that our NOLs have been effectively preserved for purposes of Section 382 of the Internal Revenue Code.
Risks Relating to Our Common Stock
The market price of our common stock may be volatile, and the value of your investment could decline significantly.
Investors who purchase our common stock may not be able to sell their shares at or above the purchase price. The price of our stock has fluctuated significantly from time to time and has increased substantially in the past year, and we cannot predict if it will continue to do so. The risk factors described above relating to our business and products could cause the price of our common stock to fluctuate significantly. In addition, the stock market in general, including the market for life sciences companies, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In addition, our stock price may be dependent upon the valuations and recommendations of the analysts who cover our business, and if our results do not meet our analysts forecasts and expectations, our stock price could decline as a result of analysts lowering their valuations and recommendations or otherwise. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of managements attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects.
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Future sales of our common stock in the public market could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress the market price of our common stock, and could impair our ability to raise capital through the sale of additional equity securities. As of April 29, 2011, we had 40,741,809 shares of common stock outstanding, all of which shares are eligible for sale in the public market, subject in some cases to the volume limitations and manner of sale and other requirements under Rule 144, and the restrictions under our NOL preservation lock-up agreement which expires in July 2011.
As of April 29, 2011, the holders of up to approximately 13,161,817 shares of common stock, based on shares outstanding as of that date, were entitled to certain rights with respect to the registration of such shares under the Securities Act of 1933, as amended, under an amended and restated investor rights agreement that we entered into with these holders in June 2007. In addition, upon exercise of outstanding options by our executive officers, our executive officers will be entitled to rights under the amended and restated investor rights agreement with respect to registration of the shares of common stock acquired on exercise. If such holders, by exercising their registration rights or otherwise, sell a large number of shares, they could adversely affect the market price for our common stock. If in the future we file a registration statement and include shares held by these holders pursuant to the exercise of their registration rights or otherwise, these sales may impair our ability to raise capital. We also entered into a registration rights agreement pursuant to which we filed a registration statement covering the resale of the 562,192 shares underlying the warrants that we issued in connection with the issuance of senior secured notes that were repaid in June 2010. In addition, we have filed registration statements on Form S-8 under the Securities Act to register the shares of our common stock reserved for issuance under our stock option and employee stock purchase plans, and intend to file additional registration statements on Form S-8 to register the shares automatically added each year to the share reserves under these plans.
We entered into a committed equity financing facility, or CEFF, in May 2008 with Kingsbridge Capital Limited, or Kingsbridge, which we amended in November 2009. The perceived risk of dilution from sales of our common stock to or by Kingsbridge in connection with the CEFF in the future may cause holders of our common stock to sell their shares, or it may encourage short selling by market participants, which could contribute to a decline in our stock price. If we were to draw down funds under the CEFF and Kingsbridge acquires shares in connection with a drawdown, there are no restrictions on its ability to sell those shares or engage in other transactions that could put downward pressure on the price of our common stock. If we sell shares to Kingsbridge under the CEFF, they will be issued at a discount from the average price of our common stock. This will have a dilutive effect on the holdings of our current stockholders, and may result in downward pressure on the price of our common stock. The CEFF expires in December 2012.
Pursuant to the terms of an investor rights agreement dated July 7, 2009, we entered into in connection with a private placement completed on July 7, 2009, we filed a registration statement under the Securities Act registering the resale of the 1,895,734 shares of common stock we issued to the investors pursuant to a securities purchase agreement we entered into with the investors on July 6, 2009, as well as the 947,867 shares of common stock underlying the warrants we issued to the investors pursuant to the securities purchase agreement. In addition, if we propose to register any of our securities under the Securities Act, either for our own account or for the account of others, the investors are entitled to notice of the registration and are entitled to include, at our expense, their shares of common stock in the registration and any related underwriting, provided, among other conditions, that the underwriters may limit the number of shares to be included in the registration.
Our executive officers and directors, together with their respective affiliates, own a significant percentage of our stock and will be able to exercise significant influence over matters subject to stockholder approval.
As of April 29, 2011, our executive officers and directors, together with the stockholders with which our executive officers and directors are affiliated or associated, beneficially owned approximately 50% of our capital stock. Accordingly, our executive officers and directors, together with their respective affiliates or associates, are able to determine the composition of our board of directors, retain the voting power to approve all matters requiring stockholder approval, including mergers and other business combinations, and continue to have significant influence over our operations. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on the market value of our common stock, and may prevent attempts by our stockholders to replace or remove our board of directors or management.
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, or for a change in the composition of our board of directors or management to occur, even if doing so would benefit our stockholders. These provisions include:
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| authorizing the issuance of blank check preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; |
| dividing our board of directors into three classes; |
| limiting the removal of directors by the stockholders; |
| eliminating cumulative voting rights and therefore allowing the holders of a majority of the shares of our common stock to elect all of the directors standing for election, if they should so choose; |
| prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; |
| eliminating the ability of stockholders to call a special meeting of stockholders; and |
| establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings. |
In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless, among other exceptions, such transactions are approved by our board of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders. Further, because some corporate takeovers occur through an acquirers purchase, in the public market or otherwise, of sufficient stock to give it control of a company, the NOL preservation lock-up agreement, which restricts the transferability of our securities, could have the effect of delaying or discouraging such a takeover of us.
We have never declared or paid dividends on our capital stock and we do not anticipate paying dividends in the foreseeable future.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently plan to invest all available funds and future earnings in the development and growth of our business and in the payment of our obligations. In addition, the terms of our credit agreement include, and any future indebtedness may include, a covenant restricting our ability to pay dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of potential gain for the foreseeable future.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
On February 8, 2011, we issued 20,221 shares of our common stock pursuant to the net exercise of warrants originally issued to certain investors in our Series BB preferred stock financing in 2005. Those warrants were exercisable for an aggregate of 33,756 shares of common stock and each had an exercise price of $9.34 per share. The number of shares issued upon the exercise of those warrants was reduced by an aggregate of 13,535 shares to effect the net exercise of the warrants in accordance with their terms.
On March 11, 2011, we issued 51,847 shares of our common stock pursuant to the net exercise of a warrant originally issued to an investor in our Series BB preferred stock financing in 2005. This warrant was exercisable for an aggregate of 78,573 shares of common stock and had an exercise price of $9.34 per share. The number of shares issued upon the exercise of this warrant was reduced by an aggregate of 26,726 shares to effect the net exercise of the warrant in accordance with its terms.
In issuing the above-mentioned shares, we relied on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, and/or Regulation D promulgated thereunder as a transaction by an issuer not involving a public offering.
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Item 6. | Exhibits. |
Exhibit Number |
Description of Document | |
3.1 | Fourth Amended and Restated Certificate of Incorporation of the Registrant (incorporated herein by reference to exhibit 3.1 in the Registrants quarterly report on Form 10-Q (File No. 001-33500) for the period ended June 30, 2007, as filed with the SEC on August 10, 2007). | |
3.2 | Amended and Restated Bylaws (incorporated herein by reference to exhibit 3.4 in the Registrants registration statement on Form S-1, as amended (File No. 333-141164), as filed with the SEC on May 17, 2007). | |
4.1 | Reference is made to Exhibits 3.1 and 3.2. | |
4.2 | Specimen Common Stock Certificate (incorporated herein by reference to exhibit 4.2 in the Registrants registration statement on Form S-1, as amended (File No. 333-141164), as filed with the SEC on May 17, 2007). | |
4.3A | Third Amended and Restated Investor Rights Agreement, made effective as of June 6, 2007, by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 4.3A in the Registrants quarterly report on Form 10-Q (File No. 001-33500) for the period ended June 30, 2007, as filed with the SEC on August 10, 2007). | |
4.3B | Waiver and Amendment Agreement, dated as of March 12, 2008, by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 4.3B in the Registrants annual report on Form 10-K (File No. 001-33500) for the period ended December 31, 2007, as filed with the SEC on March 31, 2008). | |
4.3C | Waiver and Amendment Agreement, dated as of May 7, 2008, by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 4.3C in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on May 9, 2008). | |
4.3D | Waiver and Amendment Agreement, dated as of July 6, 2009 by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 4.3D in the Registrants quarterly report on Form 10-Q (File No. 001-33500) for the period ended June 30, 2009, as filed with the SEC on August 14, 2009). | |
4.4A | Form of Series BB Preferred Stock Warrant of the Registrant (incorporated by reference to exhibit 4.6 to the Registrants registration statement on Form S-1 (File No. 333-141164), as filed with the SEC on March 9, 2007). | |
4.4B | Form of Series BB Preferred Stock Warrant of the Registrant, as amended (incorporated herein by reference to exhibit 4.4B in the Registrants annual report on Form 10-K (File No. 001-33500) for the period ended December 31, 2007, as filed with the SEC on March 31, 2008). | |
4.5A | Form of Common Stock Warrant of the Registrant (incorporated herein by reference to exhibit 4.5D in the Registrants annual report on Form 10-K (File No. 001-33500) for the period ended December 31, 2007, as filed with the SEC on March 31, 2008). | |
4.5B | Registration Rights Agreement, dated as of March 17, 2008, by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 4.5E in the Registrants annual report on Form 10-K (File No. 001-33500) for the period ended December 31, 2007, as filed with the SEC on March 31, 2008). | |
4.5C | Amendment and Waiver Agreement, dated as of November 10, 2009, by and among the Registrant, JPI Commercial, LLC and the other parties named therein (incorporated by reference to exhibit 4.5F in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on November 10, 2009). | |
4.6A | Warrant issued to Kingsbridge Capital Limited, dated May 7, 2008 (incorporated herein by reference to exhibit 4.6A in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on May 9, 2008). | |
4.6B | Registration Rights Agreement, dated as of May 7, 2008, by and between the Registrant and Kingsbridge Capital Limited (incorporated herein by reference to exhibit 4.6B in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on May 9, 2008). | |
4.6C | Amendment Agreement No. 1, dated as of November 20, 2009, by and between the Registrant and Kingsbridge Capital Limited (incorporated by reference to exhibit 4.6C in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on November 23, 2009). | |
4.7 | Form of Registered Direct Common Stock Warrant (incorporated herein by reference to exhibit 4.7 in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on July 16, 2008). |
36
Exhibit Number |
Description of Document | |
4.8 | NOL Preservation Lock-Up Agreement, effective as of July 7, 2009, by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 4.8 in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on July 7, 2009). | |
4.9A | Form of Common Stock Warrant of the Registrant issued on July 7, 2009 (incorporated herein by reference to exhibit 4.9 in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on July 7, 2009). | |
4.9B | Investor Rights Agreement, dated July 7, 2009 by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 10.88 in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on July 7, 2009). | |
10.1 | 2011 Executive Officer Compensation Arrangements. | |
10.2# | Master Services Agreement, dated April 15, 2011, by and between the Registrant, CuraScript, Inc. and Express Scripts Specialty Distribution Services, Inc. | |
10.3 | Separation Agreement, dated January 6, 2011, by and between the Registrant and Robert Myers (incorporated herein by reference to exhibit 10.53 in the Registrants annual report on Form 10-K (File No. 001-33500) for the period ended December 31, 2010, as filed with the SEC on March 8, 2011). | |
10.4 | Jazz Pharmaceuticals, Inc. Cash Bonus Plan, as amended as of February 8, 2011 (incorporated herein by reference to exhibit 10.55 in the Registrants annual report on Form 10-K (File No. 001-33500) for the period ended December 31, 2010, as filed with the SEC on March 8, 2011). | |
31.1 | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended. | |
31.2 | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended. | |
32.1 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
* | The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed filed by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
# | Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. |
| Confidential treatment has been granted for portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. |
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: May 9, 2011
Jazz Pharmaceuticals, Inc. (Registrant) |
/s/ Bruce C. Cozadd Bruce C. Cozadd |
Chairman and Chief Executive Officer and Director (Principal Executive Officer) |
/s/ Kathryn E. Falberg Kathryn E. Falberg |
Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
/s/ Karen J. Wilson Karen J. Wilson |
Vice President, Finance (Principal Accounting Officer) |
38
EXHIBIT INDEX
Exhibit Number |
Description of Document | |
3.1 | Fourth Amended and Restated Certificate of Incorporation of the Registrant (incorporated herein by reference to exhibit 3.1 in the Registrants quarterly report on Form 10-Q (File No. 001-33500) for the period ended June 30, 2007, as filed with the SEC on August 10, 2007). | |
3.2 | Amended and Restated Bylaws (incorporated herein by reference to exhibit 3.4 in the Registrants registration statement on Form S-1, as amended (File No. 333-141164), as filed with the SEC on May 17, 2007). | |
4.1 | Reference is made to Exhibits 3.1 and 3.2. | |
4.2 | Specimen Common Stock Certificate (incorporated herein by reference to exhibit 4.2 in the Registrants registration statement on Form S-1, as amended (File No. 333-141164), as filed with the SEC on May 17, 2007). | |
4.3A | Third Amended and Restated Investor Rights Agreement, made effective as of June 6, 2007, by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 4.3A in the Registrants quarterly report on Form 10-Q (File No. 001-33500) for the period ended June 30, 2007, as filed with the SEC on August 10, 2007). | |
4.3B | Waiver and Amendment Agreement, dated as of March 12, 2008, by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 4.3B in the Registrants annual report on Form 10-K (File No. 001-33500) for the period ended December 31, 2007, as filed with the SEC on March 31, 2008). | |
4.3C | Waiver and Amendment Agreement, dated as of May 7, 2008, by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 4.3C in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on May 9, 2008). | |
4.3D | Waiver and Amendment Agreement, dated as of July 6, 2009 by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 4.3D in the Registrants quarterly report on Form 10-Q (File No. 001-33500) for the period ended June 30, 2009, as filed with the SEC on August 14, 2009). | |
4.4A | Form of Series BB Preferred Stock Warrant of the Registrant (incorporated by reference to exhibit 4.6 to the Registrants registration statement on Form S-1 (File No. 333-141164), as filed with the SEC on March 9, 2007). | |
4.4B | Form of Series BB Preferred Stock Warrant of the Registrant, as amended (incorporated herein by reference to exhibit 4.4B in the Registrants annual report on Form 10-K (File No. 001-33500) for the period ended December 31, 2007, as filed with the SEC on March 31, 2008). | |
4.5A | Form of Common Stock Warrant of the Registrant (incorporated herein by reference to exhibit 4.5D in the Registrants annual report on Form 10-K (File No. 001-33500) for the period ended December 31, 2007, as filed with the SEC on March 31, 2008). | |
4.5B | Registration Rights Agreement, dated as of March 17, 2008, by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 4.5E in the Registrants annual report on Form 10-K (File No. 001-33500) for the period ended December 31, 2007, as filed with the SEC on March 31, 2008). | |
4.5C | Amendment and Waiver Agreement, dated as of November 10, 2009, by and among the Registrant, JPI Commercial, LLC and the other parties named therein (incorporated by reference to exhibit 4.5F in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on November 10, 2009). | |
4.6A | Warrant issued to Kingsbridge Capital Limited, dated May 7, 2008 (incorporated herein by reference to exhibit 4.6A in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on May 9, 2008). | |
4.6B | Registration Rights Agreement, dated as of May 7, 2008, by and between the Registrant and Kingsbridge Capital Limited (incorporated herein by reference to exhibit 4.6B in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on May 9, 2008). |
39
Exhibit Number |
Description of Document | |
4.6C | Amendment Agreement No. 1, dated as of November 20, 2009, by and between the Registrant and Kingsbridge Capital Limited (incorporated by reference to exhibit 4.6C in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on November 23, 2009). | |
4.7 | Form of Registered Direct Common Stock Warrant (incorporated herein by reference to exhibit 4.7 in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on July 16, 2008). | |
4.8 | NOL Preservation Lock-Up Agreement, effective as of July 7, 2009, by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 4.8 in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on July 7, 2009). | |
4.9A | Form of Common Stock Warrant of the Registrant issued on July 7, 2009 (incorporated herein by reference to exhibit 4.9 in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on July 7, 2009). | |
4.9B | Investor Rights Agreement, dated July 7, 2009 by and between the Registrant and the other parties named therein (incorporated herein by reference to exhibit 10.88 in the Registrants current report on Form 8-K (File No. 001-33500), as filed with the SEC on July 7, 2009). | |
10.1 | 2011 Executive Officer Compensation Arrangements. | |
10.2# | Master Services Agreement, dated April 15, 2011, by and between the Registrant, CuraScript, Inc. and Express Scripts Specialty Distribution Services, Inc. | |
10.3 | Separation Agreement, dated January 6, 2011, by and between the Registrant and Robert Myers (incorporated herein by reference to exhibit 10.53 in the Registrants annual report on Form 10-K (File No. 001-33500) for the period ended December 31, 2010, as filed with the SEC on March 8, 2011). | |
10.4 | Jazz Pharmaceuticals, Inc. Cash Bonus Plan, as amended as of February 8, 2011 (incorporated herein by reference to exhibit 10.55 in the Registrants annual report on Form 10-K (File No. 001-33500) for the period ended December 31, 2010, as filed with the SEC on March 8, 2011). | |
31.1 | Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended. | |
31.2 | Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended. | |
32.1 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
* | The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed filed by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
# | Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. |
| Confidential treatment has been granted for portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. |
40
Exhibit 10.1
2011 Executive Officer Compensation Arrangements
Executive Officer | 2011 Base Salary Rate(1) |
2011 Target Bonus as % of Annual Base Salary Rate | ||||
Bruce C. Cozadd |
$ | 575,000 | 65 | |||
Russell J. Cox |
$ | 325,000 | 40 | |||
Michael A. DesJardin |
$ | 288,000 | 40 | |||
Mark G. Eller, Ph.D. |
$ | 288,000 | 40 | |||
Kathryn E. Falberg |
$ | 380,000 | 40 | |||
Carol A. Gamble |
$ | 362,000 | 40 | |||
Janne L. T. Wissel |
$ | 362,000 | 40 | |||
Karen J. Wilson(2) |
$ | 260,000 | 20-35 |
(1) | Base salary rate effective March 1, 2011. |
(2) | Ms. Wilson joined the company as Vice President, Finance on February 7, 2011 and became the companys Principal Accounting Officer effective March 9, 2011. |
Exhibit 10.2
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
MASTER SERVICES AGREEMENT
THIS MASTER SERVICES AGREEMENT (2011 Master Services Agreement) dated the 15th day of April, 2011 (the Effective Date), is by and among CURASCRIPT, INC., a Delaware corporation, having its primary business address at 6272 Lee Vista Boulevard, Orlando, Florida 32822 (CuraScript), JAZZ PHARMACEUTICALS, INC., a Delaware corporation, having its primary business address at 3180 Porter Drive, Palo Alto, California 94304 (Jazz Pharmaceuticals), and EXPRESS SCRIPTS SPECIALTY DISTRIBUTION SERVICES, INC., a Delaware corporation and an affiliate of CuraScript, having its primary business address at One Express Way, St. Louis, MO 63121 (ESSDS).
RECITALS
WHEREAS, Jazz Pharmaceuticals, CuraScript and ESSDS are parties to that certain Master Services Agreement, dated as of May 6, 2008, as amended by Amendment No. 1 to the Master Services Agreement dated as of August 31, 2010, (collectively, the Prior Master Services Agreement) through which CuraScript and ESSDS provide dispensing, distribution, nursing program and other services for the Product (as defined below); and
WHEREAS, the parties desire to terminate the Prior Master Services Agreement and enter into a new agreement through which CuraScript and ESSDS will continue to provide those services performed under the Prior Master Services Agreement, and undertake certain additional services associated therewith; and
WHEREAS, CuraScript and ESSDS have experience in providing the services desired by Jazz Pharmaceuticals, and are willing to provide such services for Jazz Pharmaceuticals on the terms set forth in this 2011 Master Services Agreement.
NOW, THEREFORE, in consideration of the premises and mutual promises herein stated, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
TERMS OF AGREEMENT
ARTICLE I
DEFINITIONS
As used in this 2011 Master Services Agreement, each of the following terms (and the plural or singular thereof, when appropriate) shall have the meaning set forth herein, except where the context makes it clear that such meaning is not intended:
Act shall mean the United States Federal, Food, Drug and Cosmetic Act, as amended from time to time.
Additional Services shall mean services relating to Product and the Xyrem Success Program®, to be performed by CuraScript or ESSDS, as applicable, and set forth in Exhibit D hereto, or as specified and agreed upon by CuraScript and Jazz Pharmaceuticals using an Additional Services Request Form included as Exhibit E to this 2011 Master Services Agreement. Such Additional Services Request Form shall be mutually agreed to and executed by both parties and, once so executed, shall be effective, incorporated by reference and made a part of this 2011 Master Services Agreement.
Affiliate of an entity shall mean any person or entity controlling, controlled by or under common control with such entity for so long as such control exists. As used herein, control means ownership, directly or indirectly, of at least fifty (50%) percent of the common stock or voting ownership interests of the entity in question.
AWP shall mean the average wholesale price of Product as reported by First Data Bank, Medi-Span, or another mutually agreed upon nationally recognized publication representing the list or catalog price upon which manufacturers base sales to wholesalers before prompt pay or other discounts are made available to such buyers.
Business Rules shall mean the written documents related to the Xyrem Success Program® that are mutually agreed upon in writing by CuraScript or ESSDS and Jazz Pharmaceuticals as of the Effective Date, which further describe the SOPs (as defined below) relating to how the Covered Services are to be performed. The Business Rules shall not be modified without the written consent of Jazz Pharmaceuticals and CuraScript or ESSDS unless required by law and only after prior written notification to Jazz Pharmaceuticals.
Central Pharmacy shall mean the facility or facilities licensed and operated by CuraScript or ESSDS, and utilized by CuraScript and ESSDS in connection with performance of the Covered Services.
Confidential Information shall have the meaning assigned to it in Section 5.1.
Covered Services shall mean those services to be performed by CuraScript or ESSDS, as applicable, relating to Product, including but not limited to the Xyrem Success Program, as set forth on Exhibit A, and any Additional Services set forth in Exhibit D, or agreed to by the parties from time to time using an Additional Services Request Form as set forth in Exhibit E.
Data shall mean the data specified on Exhibit F.
DEA shall mean the United States Drug Enforcement Administration.
FDA shall mean the United States Food and Drug Administration.
Fees shall mean the fees as described in Section 4.2 hereof below to be paid by Jazz Pharmaceuticals to ESSDS hereunder.
HIPAA shall mean Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH Act) and as further defined in the United States Code of Federal Regulations (CFR) 45, Parts 160 and 164 Security and Privacy provisions.
Page 2 of 24
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
Non-PAP Order shall mean each shipment of Product by ESSDS to any Non-PAP Patient in accordance with this 2011 Master Services Agreement.
Non-PAP Patient shall mean any Patient other than a PAP Patient.
Nursing Program Services shall mean those services set forth in Exhibit A designated and described as Nursing Program Services.
PAP shall mean the patient assistance program established by Jazz Pharmaceuticals, pursuant to which ESSDS will provide dispensing services pursuant to the applicable SOPs and Business Rules.
PAP Patient shall mean a Patient who has been approved by CuraScript, or such other organization that may provide such services, as eligible to participate in the PAP.
PAP Order shall mean each shipment of Product by ESSDS to any PAP Patient in accordance with this 2011 Master Services Agreement.
Patient shall mean an individual who properly completes all necessary intake and Xyrem Patient Success forms (the form and content of which shall be subject to Jazz Pharmaceuticals final approval, and which shall comply with applicable laws and all applicable FDA requirements), as described in the relevant SOPs and Business Rules.
Patient Confidential Information means individually-specific medical or prescription information and any other individually-identifiable information which may be deemed to be confidential or protected under federal or state law or regulations, including, without limitation, information that constitutes Protected Health Information as defined under HIPAA.
Person shall mean any natural person, corporation, organization, association, partnership, limited liability company, HMO, or similar entity.
Physician Confidential Information means information pertaining to a physician that is protected from use or disclosure pursuant to applicable law.
Product shall mean Xyrem® (sodium oxybate) oral solution and dosing kit.
Public Health Activities HIPAA Exception shall mean that certain exception in 45 C.F.R. § 164.512(b)(1)(iii), which allows a covered entity (e.g., a pharmacy) to disclose Patient Confidential Information to an entity that is subject to the jurisdiction of the FDA. Specifically, the exception is available for disclosures by a covered entity for a public health activity to an entity subject to the jurisdiction of the FDA with respect to an FDA-regulated product or activity. Pursuant to the public health activity requirement, the disclosure must be made for the purpose of activities related to the quality, safety, or effectiveness of an FDA-regulated product, rather than merely the commercial purposes of the manufacturer. Also, the minimum necessary standard under HIPAA applies to such public health disclosures.
Page 3 of 24
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
SOPs shall mean the written standard operating procedures of CuraScript or ESSDS, as applicable, mutually agreed upon in writing by CuraScript and Jazz Pharmaceuticals as of the Effective Date which further describe the operational processes of CuraScript or ESSDS, as applicable, as they relate to the requirements of the Xyrem Success Program. The SOPs shall not be modified without the written consent of Jazz Pharmaceuticals and CuraScript or ESSDS unless required by law and only after prior written notification to Jazz Pharmaceuticals.
Territory shall mean the United States of America, including its territories where ESSDS is allowed to legally distribute and ship the Product.
Marks shall mean those registered and common law trademarks of Jazz Pharmaceuticals that are listed in Exhibit C.
VA FSS shall mean the Veterans Administration Federal Supply Schedule pricing contract provided to Jazz Pharmaceuticals for the Product.
Voucher Program Services shall mean those voucher program services set forth in Exhibit A attached hereto and the related SOP.
WAC shall mean the wholesale acquisition cost of Product.
Xyrem Success Program shall mean the program for patients taking Xyrem for which CuraScript and ESSDS shall perform the Covered Services hereunder, and which, as between the parties, is Jazz Pharmaceuticals property and proprietary information. The Xyrem Success Program was created for the purpose of complying with FDA-mandated requirements relating to Product.
ARTICLE II
SERVICES
Section 2.1 Covered Services. From and after the Effective Date, CuraScript and ESSDS shall provide the Covered Services as set forth in Exhibit A and Exhibit D with each partys obligations set forth therein. CuraScript and ESSDS shall use commercially reasonable efforts to meet the performance targets, as described in Exhibit A when performing the Covered Services.
Section 2.2 Exclusive Pharmacy/Distributor. During the term of this 2011 Master Services Agreement, and for so long as the FDA mandates single central pharmacy administration of the Xyrem Success Program®, all commercial, non-clinical Product sold by Jazz Pharmaceuticals, or made available through the PAP, in the Territory will be dispensed and/or distributed exclusively through ESSDS pursuant to this 2011 Master Services Agreement. During the term of this 2011 Master Services Agreement, ESSDS will not provide any of the Covered Services to any third party with respect to a pharmaceutical product containing sodium oxybate. If, during the term of this 2011 Master Services Agreement, the FDA no longer mandates single central pharmacy administration of the Xyrem Success Program® and Jazz Pharmaceuticals chooses to engage another distributor in addition to ESSDS (thus making ESSDS distributorship hereunder non-exclusive), Jazz shall provide ESSDS one
Page 4 of 24
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
hundred-eighty (180) days written notice thereof. Furthermore, in the event that Jazz Pharmaceuticals chooses to engage another distributor for commercial, non-clinical Product in addition to ESSDS (other than an Affiliate of ESSDS or CuraScript), CuraScript and ESSDS shall maintain the right to continue to provide Covered Services to any Patients enrolled in the Xyrem Success Program as of the date that CuraScript and ESSDS no longer maintain its exclusive pharmacy/distributor status. Notwithstanding the foregoing, Jazz Pharmaceuticals may establish a third party pharmacy/distributor to make available commercial, non-clinical Product in the Territory if ESSDS does not, or cannot, meet Jazz Pharmaceuticals requirements for dispensing and/or distributing the Product in the Territory in accordance with the terms and conditions of this 2011 Master Services Agreement.
Section 2.3 Warehousing. All commercial, non-clinical Product sold, or made available pursuant to this 2011 Master Services Agreement, in the Territory shall be warehoused by ESSDS at the Central Pharmacy in accordance with Exhibit A and any related SOPs and Business Rules, and with due care in accordance with the standards and practices which are generally accepted in the industry and exercised by other persons engaged in performing similar services in the local area and in accordance with all applicable federal and state laws and regulations.
Section 2.4 Data. As part of the Covered Services, ESSDS shall provide Data to Jazz Pharmaceuticals pursuant to mutually agreed upon time-frames and in mutually agreed upon formats subject to applicable law. (See Exhibit F). The Data may include Patient Confidential Information (which is intended to be used by Jazz Pharmaceuticals in a manner consistent with Public Health Activities HIPAA Exception). In providing the Data, CuraScript and/or ESSDS are relying on Jazz Pharmaceuticals representation made in Subsection 5.2(b) of this 2011 Master Services Agreement to the extent the Data includes any Patient Confidential Information. If Jazz requires additional data, the parties shall execute a mutually agreeable Additional Services form relating thereto. In no event will Jazz Pharmaceuticals or any of its employees request additional data fields from CuraScript or ESSDS outside of the Additional Services request process.
Section 2.5 Record Retention. ESSDS shall retain records it creates or receives in connection with the provision of Covered Services hereunder in accordance with applicable record retention requirements established by federal law and regulation, including but not limited to the Health Insurance Portability and Accountability Act of 1996, as amended, the Federal Food, Drug and Cosmetic Act, as amended, regulations issued by the Federal Drug Enforcement Agency, and in accordance with applicable state pharmacy licensure laws and regulations and shall not use such records for any commercial purpose other than in connection with the provision of the Covered Services.
Page 5 of 24
[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
ARTICLE III
SUPPLY OF PRODUCT; AUDIT
Section 3.1 Non-PAP Orders.
(a) General. Jazz Pharmaceuticals shall deliver to ESSDS at the Central Pharmacy sufficient quantities of Product to fulfil Non-PAP orders. ESSDS shall maintain a reasonable quantity of components (PIBAs, exacta-med syringes, empty bottles, dosing cups etc.) on-site or at a nearby facility to allow product disbursements to occur in a timely and efficient manner. The Product to be shipped pursuant to Non-PAP Orders will be furnished to, and held by, ESSDS on a consignment basis at the Central Pharmacy at all times, except as provided in Section 3.1(b). The consignment of Product hereunder shall at no time be construed as a loan or other debt financing or secured transaction arrangement between the parties, and title to consigned Product shall remain with Jazz Pharmaceuticals until transferred pursuant to subsection 3.1(b).
(b) Transfer of Title. Upon removal of consigned Product by ESSDS from the Central Pharmacy to fulfil a Non-PAP Order title to such Product shall pass to ESSDS and ESSDS shall have purchased from Jazz Pharmaceuticals such Product. ESSDS shall confirm all such purchases and shipments of Product in writing to Jazz Pharmaceuticals on a weekly basis via a confirmation of Product shipped which will document all purchases of Product by ESSDS in the previous week.
(c) Pricing for Non-PAP Orders. Subject to the restrictions set forth in Subsection 4.1(d) of this 2011 Master Services Agreement and any FDA or other government requirements, ESSDS shall have sole authority to determine pricing for Non-PAP Orders.
Section 3.2 PAP Orders. Subject to available space as determined by CuraScript and ESSDS, Jazz Pharmaceuticals shall deliver to ESSDS at the Central Pharmacy, at Jazz Pharmaceuticals own expense, sufficient quantities of Product to fulfil PAP Orders. The Product to be shipped by CuraScript pursuant to PAP Orders shall be for the account of Jazz Pharmaceuticals, and title to such Product shall remain with Jazz Pharmaceuticals until confirmation of the PAP Order in ESSDSs internal order processing system, at which time title will pass to the PAP Patient. Once CuraScript, or such other provider providing the same services, approves a Patient as meeting the PAP financial criteria and eligible to participate in the PAP, ESSDS shall treat such Patient as so eligible until ESSDS is notified otherwise by CuraScript or such other provider providing the same services. ESSDS shall fulfil PAP Orders as set forth in the applicable SOP and Business Rule.
Section 3.3 Risk of Loss. All risk of Product loss or damage during the time that such Product is at the Central Pharmacy prior to when title of such Product transfers to ESSDS pursuant to Subsection 3.1(b), shall be borne by Jazz Pharmaceuticals, except to the extent caused by the negligence or willful misconduct of ESSDS or CuraScript. Payment to Jazz Pharmaceuticals by ESSDS for Product lost or damaged while at the Central Pharmacy (i) after title of such Product has transferred to ESSDS pursuant to Subsection 3.1(b) or (ii) that is the result of ESSDSs or CuraScripts negligence or willful misconduct shall be based on Jazz Pharmaceuticals actual replacement costs, as reasonably determined and documented by Jazz Pharmaceuticals.
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Section 3.4 Financial Audit. During the term of this 2011 Master Services Agreement (excluding the months of December and January) and for a period of one hundred and eighty (180) days after the expiration or termination of this 2011 Master Services Agreement, upon thirty (30) days advance written notice and during normal business hours, Jazz Pharmaceuticals, or any third party auditor designated by Jazz Pharmaceuticals, shall be entitled to reasonably audit and reasonably inspect those books and records of CuraScript and ESSDS which are maintained by CuraScript, ESSDS or their affiliates in connection with its performance of the Covered Services for a period not to exceed the most recent prior twenty-four (24) month period from the date of the audit, subject to Section 5.1 and applicable law. Jazz Pharmaceuticals auditor shall not have a conflict of interest with ESSDS or CuraScript and will be required to sign a reasonable confidentiality agreement.
Section 3.5 Regulatory and Compliance Audits and Information Requests.
(a) CuraScript shall provide to Jazz Pharmaceuticals and/or the FDA, DEA, or any other governmental body all reasonable documents and information reasonably necessary and requested by the FDA, DEA, or any other governmental body in support of Jazz Pharmaceuticals regulatory filings or any governmental investigations or inquiries. Copies of all documents to be provided to the FDA or DEA shall be provided to Jazz Pharmaceuticals in advance, if practicable, or otherwise within two (2) business days of delivery to the FDA or DEA, unless prohibited by law. CuraScript shall notify Jazz Pharmaceuticals immediately upon receipt of notice of any inspection, notice or request by the FDA or DEA directed specifically toward Product or the Central Pharmacy, and Jazz Pharmaceuticals shall have the right to have an employee present at any such inspection, subject to legal confidentiality constraints imposed upon ESSDS.
(b) CuraScript and ESSDS shall from time to time (except in the months of December and January) submit to reasonable audits and reasonable inspections, including inspections of the Central Pharmacy, by Jazz Pharmaceuticals during normal business hours, including, but not limited to, audits of regulatory and quality assurance, Business Rules, SOPs, provided the scope of any such audit or inspection is reasonable and shall be limited to information for a period not to exceed the most recent prior twenty-four (24) month period from the date of the audit and information and facilities pertaining to Jazz Pharmaceuticals and subject to the restrictions contained in Section 5.1. Jazz Pharmaceuticals shall give CuraScript or ESSDS, as applicable, at least three (3) business days prior notice of the date of any such inspection and at least thirty (30) days prior notice of the initial date of any such audit, and Jazz Pharmaceuticals shall bear the out of pocket costs of such audit or inspection. Jazz Pharmaceuticals will provide a reasonably detailed audit scope of work and an agenda document with its notice prior to any such audit. If Jazz Pharmaceuticals uses a third party to conduct the inspection or audit, such third party: (i) shall not have a conflict of interest with CuraScript (or any CuraScript affiliate) as reasonably determined by CuraScript, and (ii) will be required to sign a confidentiality agreement in a form reasonably acceptable to CuraScript prior to commencing such inspection or audit.
(c) No employee of CuraScript or ESSDS who has been the subject of any disciplinary action by any State Board of Pharmacy or has been debarred or had debarment proceedings commenced against them by the FDA shall be entitled to perform Covered Services.
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(d) CuraScript and ESSDS represent and warrant to Jazz Pharmaceuticals that they (i) are not currently excluded, debarred, suspended or otherwise ineligible to participate in the Federal health care programs or in Federal procurement or non-procurement programs or is proposed for exclusion under such programs, and (ii) have not been convicted of a criminal offense that falls within the ambits of 42 U.S.C. §1320a-(7)a or §1320a-7(b)(1)-(3) but have not yet been excluded, debarred, suspended, or otherwise declared ineligible to participate in the Federal health care programs or in federal procurement or non-procurement programs. CuraScript and ESSDS agree that they will promptly notify Jazz Pharmaceuticals in writing if any of the representations and warranties made by CuraScript or ESSDS in this subsection (d) ceases to be true at any time during the term of this 2011 Master Services Agreement.
Section 3.6 Returns and Replacement. In the event that (A) Product is damaged or destroyed after title to such Product is transferred to ESSDS pursuant to Subsection 3.1(b) and (B) such damage or destruction [ * ], ESSDS will replace the Product to the Patient free of charge once the damaged Product is returned to ESSDS. ESSDS will monitor all reports of lost Product for the potential for abuse and diversion. CuraScript and ESSDS will cooperate with state and federal authorities fully in any investigations of lost Product, and will promptly provide reports of such loss to Jazz Pharmaceuticals within 1 week from ESSDSs conclusion of its investigation for the purpose of allowing Jazz Pharmaceuticals to track the Product and satisfy its FDA reporting requirements. ESSDS will investigate the loss of Product by interviewing the Patient, and/or physician, report the loss to Jazz Pharmaceuticals and to the appropriate regulatory authorities, as required by law, and record the loss in the Patients file. Where there is suspicion of abuse or diversion, ESSDS will immediately contact the Jazz Pharmaceuticals designee identified to ESSDS as responsible for DEA issues, and lost Product will not be replaced without Jazz Pharmaceuticals written approval. Where abuse or diversion is not suspected and the damage or destruction is the direct result of a defect [ * ], ESSDS will promptly replace the lost Product at no charge to the Patient; provided, however, Jazz Pharmaceuticals will reimburse ESSDS an amount equal to the replacement cost of such Product. All such return and replacement activities shall be reported to Jazz Pharmaceuticals by the account director at ESSDS on a monthly basis. Applicable fees will apply to the processing and shipping of another bottle and the WAC price will be applied to the bottle and record the shipment in the Patient file. For damaged Product [ * ], ESSDS will make a good faith effort to arrange for the damaged Product to be returned by the patient and replaced by ESSDS at its own expense. Upon receipt of damaged Product, ESSDS will keep the damaged Product in a secure locked area, and will dispose of it at ESSDSs cost in compliance with the applicable SOP for destruction of Product.
Section 3.7 Recalls. If Jazz Pharmaceuticals is required to recall or, on its own initiative, recalls or withdraws Product sold in the Territory, CuraScript and ESSDS shall reasonably assist Jazz Pharmaceuticals in such recall in accordance with applicable laws and regulations. For such purposes, ESSDS shall maintain a complete and current list of all Patients and other third parties to whom ESSDS has shipped (or dispensed) Product, as well as from whom ESSDS has accepted returns of Product, with the lot numbers of Product dispensed/distributed or returned. Jazz Pharmaceuticals shall pay for all reasonable documented
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costs and expenses incurred by CuraScript and ESSDS solely as a result of any such recall, unless the recall results from CuraScripts or ESSDS negligence or fault. CuraScript and ESSDS shall provide to Jazz Pharmaceuticals, at Jazz Pharmaceuticals request, any information reasonably requested by Jazz Pharmaceuticals in connection with Jazz Pharmaceuticals investigations relating to recalled Product, subject to the confidentiality constraints imposed by HIPAA and any other federal or state law.
Section 3.8 Expired Product. Jazz Pharmaceuticals will, at its cost, replace Product that expires prior to the purchase thereof by ESSDS. Jazz Pharmaceuticals will not replace expired Product once it has been purchased by ESSDS. ESSDS will dispose of, or return, expired Product as reasonably directed by Jazz Pharmaceuticals, subject to applicable law, and Jazz Pharmaceuticals shall promptly reimburse ESSDS for all reasonable out-of-pocket expenses incurred in complying with the Subsection 3.8.
Section 3.9 Territory. CuraScript and/or ESSDS shall use commercially reasonable efforts to obtain and maintain all necessary licenses and approvals to distribute Product in the Territory.
Section 3.10 Central Pharmacy Relocation.
(a) ESSDS will not change the location of the Central Pharmacy without the prior written consent of Jazz Pharmaceuticals, not to be unreasonably withheld. Jazz Pharmaceuticals acknowledges that ESSDS intends to relocate the Central Pharmacy from its current address at 3168 Riverport Tech Center Drive, Maryland Heights, Missouri 63043, to a fulfilment facility at 8921a Springdale Avenue, St. Louis, Missouri 63134, and pharmacy facility at 8640 Evans Avenue, St. Louis, Missouri 63134 and Jazz Pharmaceuticals will not withhold its approval other than based upon a legitimate, documented commercial reason provided in writing to ESSDS. Jazz Pharmaceuticals reserves the right to reasonably inspect any new Central Pharmacy prior to the start of operations at such new Central Pharmacy. Jazz Pharmaceuticals shall not unreasonably withhold its approval in writing of any Central Pharmacy relocation, and any non-approval must be based on a legitimate, commercially reasonable reason.
(b) In the event that the Central Pharmacy is relocated, ESSDS shall assign a seasoned program director to manage the transition to ensure that a such a move: (i) does not result in any negative impact on patient service, (ii) does not cause interruption of services to comply with REMS/ Risk Map requirements, and (iii) does not result in material data systems interruption.
(c) ESSDS will be subject to the following financial penalty (Penalty) in the event that the average orders shipped per day from the Central Pharmacy in the first thirty (30) days immediately following the relocation go-live-date do not equal or exceed the average orders shipped per day in the sixty (60) days immediately prior to the relocation:
Average Orders Shipped |
Penalty | |
[ * ] reduction over last 60 days |
$[ * ] | |
[ * ] reduction over last 60 days |
$[ * ] | |
[ * ] reduction over last 60 days |
$[ * ] |
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The foregoing Penalty is applicable to processes/events within the control of ESSDS, including but not limited to phone/system availability, order scheduling, order shipping, safe/damage free move of Product to new location. It does not include delays caused by changes in payer criteria/coverage for Xyrem not related to the relocation of the Central Pharmacy, price increases, Product availability from manufacturer or Product/component quality. In the event that ESSDS experiences a delay in payer coverage related to the change in the Central Pharmacy, ESSDS will be responsible for shipping any active approved patients under the current payer at risk at the time of the facility change in order the ensure such patients do not experience a lapse in therapy.
(d) ESSDS shall be solely responsible for all out-of-pocket costs incurred by ESSDS, CuraScript and Jazz Pharmaceuticals in connection with the transfer of the Product to a new Central Pharmacy. In addition to the foregoing, ESSDS shall establish and qualify a pharmacy and an alternative storage facility other than the Central Pharmacy (the Back-Up Central Pharmacy) to provide the services for the Product under this 2011 Master Services Agreement to be utilized solely in the event that the Central Pharmacy is unable to dispense and/or distribute the Product as a result of a force majeure as set forth in Section 10.5 below. The Back-Up Central Pharmacy may only be used during such time as the Central Pharmacy is unavailable, and ESSDS shall not provide services out of the Central Pharmacy and Back-Up Central Pharmacy at the same time. The parties acknowledge that in or around the fourth quarter of 2011 or the 1st quarter of 2012, ESSDS intends to transfer the Central Pharmacy to the buildings located at 8921a Springdale Avenue, St. Louis, Missouri, 63134, and 8640 Evans Avenue, St. Louis, Missouri, 63134 and the parties agree to use their reasonable commercial efforts to facilitate that transition subject to Jazz Pharmaceuticals final inspection and approval, not to be unreasonably withheld. The alternative storage facility will be completed and available for Jazz Pharmaceuticals inspection in conjunction with the central pharmacy relocation.
ARTICLE IV
PURCHASE PRICE OF PRODUCT; FEES
Section 4.1 Purchase Price of Product. (a) With respect to all Product purchased by ESSDS pursuant to Section 3.1, ESSDS shall pay a purchase price to Jazz Pharmaceuticals equal to [ * ] as it may be changed by Jazz Pharmaceuticals with at least five (5) days prior written notice to ESSDS. Notwithstanding the foregoing, ESSDS shall pay Jazz Pharmaceuticals the [ * ] for any Product for which ESSDS is required to charge such [ * ].
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(b) Payment Terms. Payment for Product purchased by ESSDS shall be paid to Jazz Pharmaceuticals, and ESSDS may take a prompt pay discount against the Product price for payments made within the applicable time period in each year of the Agreement as set forth below:
Contract Year |
Prompt Pay Discount |
Payment Terms | ||
Effective Date April 30, 2012 |
[ * ] | @30 days | ||
May 1,2012-April 30,2013 |
[ * ] | @30 days | ||
May 1, 2013-April 30, 2014 |
[ * ] | @45 days | ||
May 1, 2014-June 30, 2015 |
[ * ] | @45 days |
(c) ESSDS shall be responsible for any sales tax or similar taxes payable in connection with the sale of Product to ESSDS.
(d) ESSDS shall have the right to establish the price at which it resells Product to Non-PAP Patients, and shall have all right, title and interest in and to any amounts that ESSDS receives from third parties in connection with Product dispensed or distributed pursuant to Non-PAP Orders; provided, however, that the price at which ESSDS sells Product shall not exceed the greater of (i) [ * ] percent of [ * ] for Product or (ii) the [ * ] Product.
Section 4.2 Fees. (a) As compensation for the Covered Services performed by CuraScript and ESSDS, Jazz Pharmaceuticals shall pay ESSDS the Fees described on Exhibit B, or in an Additional Services Request Form executed by both parties. ESSDS shall invoice Jazz Pharmaceuticals for the Fees on a monthly basis, and all undisputed Fees shall be due and payable to ESSDS within thirty (30) days of the date of ESSDSs invoice. On the first anniversary of the Effective Date, and each anniversary thereafter, ESSDS shall be entitled to increase each of the Fees by no more than a percentage which is equal to the percentage increase to the then current 12 month Consumer Price Index (CPI) for prescription pharmaceuticals (all items) as published by the U.S. Department of Labor, Bureau of Labor Statistics during such 12 month period. CuraScript or ESSDS shall notify Jazz Pharmaceuticals in writing within thirty (30) days after the effective time of any such increase in Fees.
(b) Jazz Pharmaceuticals represents and warrants that: (i) it is engaging CuraScript and ESSDS to perform bona fide, legitimate, reasonable, and necessary Covered Services; (ii) the Covered Services are not intended to serve, either directly or indirectly, as a means of marketing the Product or as remuneration in any way for steering patients or prescriber to the Product, (iii) the Covered Services are not intended to diminish the objectivity or professional judgment of CuraScript and (iv) that any service requirements imposed by Jazz Pharmaceuticals hereunder are reasonably appropriate to ensure appropriate patient care and use related to the Product; (v) the Covered Services do not involve the counseling or promotion of any off-label use of the Product; (vi) the Fees are not intended in any
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way as remuneration for referrals or for other business generated; (vii) the Fees represent fair market value for the Covered Services based on arms-length negotiations; and (viii) the Covered Services do not involve the counseling or promotion of a business arrangement or other activity that violates any state or federal law.
(c) ESSDS and CuraScript represent and warrant that the Fees charged Jazz Pharmaceuticals for Covered Services and any Additional Services pursuant to this 2011 Master Services Agreement represent the fair market value of such services actually performed and necessary to provide the Covered Services and any Additional Services. In the event of an amendment to the Agreement which substantially changes the scope of services performed hereunder, the parties will adjust the Fees in order to insure that such fees remain consistent with fair market value.
Section 4.3 Late Penalty. Any amount not paid by the owing party on or before the respective due date thereof shall bear interest at the rate of [ * ] percent per annum ([ * ] percent per month) or, if lower, the highest interest rate permitted by law.
Section 4.4 Adjustment. Beginning on the first anniversary of the Effective Date,, and annually thereafter, the parties will, in good faith, re-evaluate the Fees set forth on Exhibit B to determine whether an adjustment thereto is warranted in light of certain unanticipated expenditures, efficiencies, reductions or other circumstances that may necessitate such an adjustment; provided, however, in no event shall either party be obligated at such time to agree to any such adjustment. Notwithstanding the foregoing, nothing in this Section 4.4 shall limit CuraScripts ability to increase Fees pursuant to Section 4.2 of this 2011 Master Services Agreement.
ARTICLE V
CONFIDENTIAL INFORMATION; OWNERSHIP
Section 5.1 Nondisclosure Commitments. The parties acknowledge that, as a result of this 2011 Master Services Agreement, each may learn confidential and proprietary information, including, but not limited to, information about Jazz Pharmaceuticals operations, business, and products, and information about CuraScripts report formats, computer software, business, and operations (all of which shall collectively be considered the Confidential Information of the respective party). Except as specifically provided herein, neither Jazz Pharmaceuticals nor CuraScript shall disclose any Confidential Information of the other to any person or entity, or use, or permit any person or entity to use, any of such Confidential Information, excepting only: (a) disclosures to and use by the employees of Jazz Pharmaceuticals or CuraScript who have a reasonable need to know such information in connection with performance of this 2011 Master Services Agreement, (b) disclosures which are required by law, and (c) disclosures that are made on a confidential basis to the attorneys, accountants, and other professional advisors of Jazz Pharmaceuticals or CuraScript in connection with matters relating to this 2011 Master Services Agreement. Notwithstanding the foregoing, Confidential Information shall not include: (x) information which is public or becomes public through no fault of the receiving party, (y) information of which the receiving party has knowledge prior to receipt, and (z) information which is received by one party from a third person not under an obligation of confidentiality to the other party to this 2011 Master Services Agreement.
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Section 5.2 Patient Confidential Information/Physician Confidential Information.
(a) Except as otherwise provided in Subsection 5.2(b) or Section 6.7 of this 2011 Master Services Agreement, Jazz Pharmaceuticals shall not be entitled to receive any Patient Confidential Information. Each party shall maintain the confidentiality of all information and records, including patient information if such party receives Patient Confidential Information in any form or manner, to the extent required by applicable law, including, but not limited to, HIPAA. All patient-related data and information obtained by ESSDS and/or CuraScript hereunder shall be, and remain the property of, CuraScript and ESSDS and shall be deemed the Confidential Information of CuraScript and/or ESSDS. Neither CuraScript nor ESSDS will utilize Patient Confidential Information it comes into possession of as a result of this 2011 Master Services Agreement outside the scope of this 2011 Master Services Agreement. CuraScript and/or ESSDS will not engage in any activity designed to expand its information of individual Patients through the use of third parties for a purpose other than to effectuate the uses and disclosures contemplated by this 2011 Master Services Agreement. There shall be no prior use of Patient Confidential Information outside of the scope of this 2011 Master Services Agreement. Notwithstanding anything to the contrary, however, CuraScript and/or its affiliates may use any such Patient Confidential Information in the aggregate and on a de-identified basis with other drug-use data, to the extent permitted by law, without charge, for research, cost analysis, and other business purposes of CuraScript and its affiliates, provided said use (i) does not in any way compete with the business of Jazz Pharmaceuticals or (ii) result in the disclosure of the Confidential Information of Jazz Pharmaceuticals.
(b) Jazz Pharmaceuticals acknowledges that the manner in which ESSDS and CuraScript use and disclose patient information is subject to various privacy restrictions under state and federal law, including, but not limited to, HIPAA. Jazz Pharmaceuticals requires certain Patient Confidential Information in connection with the Xyrem Success Program. Jazz Pharmaceuticals represents and warrants that all such Patient Confidential Information included as part of such Data is intended for one or more of the purposes described in the Public Health Activities HIPAA Exception, and that all such Patient Confidential Information received from ESSDS and CuraScript will be used solely by Jazz Pharmaceuticals (and its employees and agents) to comply with such intended purpose(s) under the Public Health Activities HIPAA Exception and is the minimum amount reasonably necessary for such purpose. Jazz Pharmaceuticals will restrict access and use to such disclosed Patient Confidential Information to those employees and agents who are necessary to further the intended purpose related to the Public Health Activities HIPAA Exception. Except for the foregoing purpose or the purpose described in Section 6.7 herein, neither Jazz Pharmaceuticals nor any of its employees or agents will otherwise be entitled to receive Patient Confidential Information from CuraScript or ESSDS, and will not request such information. Except for the limited purposes described above, Jazz Pharmaceuticals represents and warrants that neither it nor any of its employees or agents will attempt to use such Patient Confidential Information to identify the identity of any patient, either alone or by combining the data elements with open data.
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(c) To the extent Physician Confidential Information relating to physicians residing in states that restrict the disclosure of Physician Confidential Information is provided by CuraScript or ESSDS to Jazz Pharmaceuticals pursuant to the terms of this 2011 Master Services Agreement, Jazz Pharmaceuticals represents and warrants that it intends to use such Physician Confidential Information solely for the facilitation of care management or patient adherence to a prescribed course of therapy relating to the Product, and not for any marketing, promotion, or any activity that could be used to influence sales or market share of the Product or to influence or evaluate the prescribing behavior of an individual healthcare professional who is protected by the applicable privacy law. If any other state, or the federal government, enacts a law that restricts further disclosure of Physician Confidential Information, Data provided pursuant to this 2011 Master Services Agreement shall be modified accordingly.
Section 5.3 Ownership. All copyrights, trademarks, inventions, ideas, improvements, discoveries, enhancements, modifications, know-how, data and information of every kind and description conceived, generated made, or reduced to practice, as the case may be, by CuraScript or ESSDS, either alone or jointly with others, which arise out of or relate to the Product, including but not limited to the Xyrem Success Program and any related SOPs and Business Rules specifically created for the Xyrem Success Program, (the Inventions) will be the sole and exclusive property of Jazz Pharmaceuticals and shall be considered the Confidential Information of Jazz Pharmaceuticals. CuraScript and ESSDS agree to disclose all Inventions promptly to Jazz Pharmaceuticals, to assign all of their right, title and interest in and to any such Inventions promptly to Jazz Pharmaceuticals without royalty or any other consideration and to execute all applications, assignments or other instruments reasonably requested by Jazz Pharmaceuticals, in order for Jazz Pharmaceuticals to establish Jazz Pharmaceuticals ownership of such Inventions and to obtain whatever protection for such Inventions, including patent and copyright rights in any and all countries on such Inventions as Jazz Pharmaceuticals will determine. CuraScript and ESSDS further agree to cooperate fully with Jazz Pharmaceuticals in the process of securing and enforcing Jazz Pharmaceuticals rights to such Inventions and Jazz Pharmaceuticals will compensate both parties for their reasonable time devoted to such activities at Jazz Pharmaceuticals request and reimburse both parties for reasonable expenses incurred in connection therewith. Notwithstanding the foregoing, Jazz Pharmaceuticals acknowledges that CuraScript and ESSDS possesses certain inventions, processes, know-how, trade secrets, improvements, other intellectual properties and other assets, which have been independently developed by such party prior to this 2011 Master Services Agreement and which relate to its business or operations (collectively CuraScript Property). Jazz Pharmaceuticals, ESSDS and CuraScript agree that any CuraScript Property or improvements thereto which are used, improved, modified or developed independently by CuraScript or ESSDS under or during the term of this 2011 Master Services Agreement, without reference to, or reliance upon, the Inventions, the Product or the Confidential Information of Jazz Pharmaceuticals or their incorporation therein, are the exclusive property of CuraScript and/or ESSDS (as appropriate).
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ARTICLE VI
TERM AND TERMINATION
Section 6.1 Initial Term; Renewal. The term of this 2011 Master Services Agreement shall begin on the Effective Date and continue through June 30, 2015, unless terminated earlier or automatically extended in accordance with the terms hereof. Not less than one hundred and twenty (120) days prior to the end of the initial or any renewal term of this 2011 Master Services Agreement, any party may notify the other party in writing that it desires to terminate this 2011 Master Services Agreement, effective as of the end of the then current term. If no such written notification is given, this 2011 Master Services Agreement shall automatically continue with the same terms and conditions as set forth herein for an additional 2 year term(s), subject to the right of termination as otherwise provided herein.
Section 6.2 Termination for Bankruptcy. Any party shall have the right to terminate this 2011 Master Services Agreement upon five (5) days written notice, if (a) any other party files a petition for reorganization or liquidation under any federal or state bankruptcy law, or any such petition is filed against such other party and, in either case, the petition is not withdrawn or dismissed within sixty (60) days after filing, or (b) a receiver is appointed for any part of the other partys assets and said appointment is not vacated within sixty (60) days.
Section 6.3 Termination for Noncompliance. Jazz Pharmaceuticals shall have the right to terminate this 2011 Master Services Agreement upon five (5) days written notice to CuraScript if CuraScript is cited as non-compliant with material regulatory requirements pertinent to the Covered Services, as determined by an audit of CuraScript facilities by Jazz Pharmaceuticals and confirmed by a third-party audit, or if CuraScript is cited as non-compliant as determined by a regulatory body, and appropriate corrective action cannot be mutually agreed to by the parties within thirty (30) days after such determination of non-compliance or such earlier date as is specified by the regulatory body.
Section 6.4 Termination for Cause. Notwithstanding anything to the contrary herein, any party may give any other party written notice of a material breach of this 2011 Master Services Agreement. If the breaching party has not cured said breach within thirty (30) days from the date such notice was sent, this 2011 Master Services Agreement may be terminated at the option of any non-breaching party. If the amount of time commercially reasonable for the breach to be cured is longer than thirty (30) days, this 2011 Master Services Agreement may not be terminated by the non-breaching party pursuant to this provision until such commercially reasonable period of time has elapsed; provided, however, that in no event shall such cure period exceed sixty (60) days from the date such notice was sent. Notwithstanding the foregoing, Jazz Pharmaceuticals may terminate this 2011 Master Services Agreement under Section 10.5 if CuraScript or ESSDS is materially precluded from rendering Covered Services as a result of an event of force majeure or by any government action or exclusion, or if CuraScript or ESSDS fails to materially provide the Covered Services due to circumstances within CuraScripts or ESSDS control.
Section 6.5 Transition of Covered Services. Upon termination or expiration of this 2011 Master Services Agreement, the parties shall mutually agree on an expeditious schedule of transition of the Covered Services. If Jazz Pharmaceuticals terminates this 2011 Master Services Agreement pursuant to Section 6.2, 6.3 or 6.4, CuraScript shall be responsible for all costs and expenses incurred by CuraScript and ESSDS that are associated with such transition. If CuraScript or ESSDS terminates this 2011 Master Services Agreement pursuant to Section 6.2 or 6.4, Jazz Pharmaceuticals shall be responsible for all costs and expenses incurred by CuraScript
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and ESSDS that are associated with such transition. If this 2011 Master Services Agreement expires pursuant to the terms of Section 6.1, each Party shall be responsible for its own costs and expenses incurred in connection with such transition. CuraScript and ESSDS shall promptly return to Jazz Pharmaceuticals (or to any other third party in the Territory that can accept the Product as directed by Jazz Pharmaceuticals) all Product then in ESSDSs possession or control which has not been purchased by ESSDS pursuant to Subsection 3.1(b), and shall cooperate in the transition process to ensure an uninterrupted supply of Product to Patients.
Section 6.6 Return of Confidential Information. Upon termination or expiration of this 2011 Master Services Agreement, each party shall, if requested by the other party, promptly: (a) return to the other party all documentation and other materials (including all copies of original documentation or other materials) containing any Confidential Information, and (b) certify to the other party as to the destruction or return of all such documentation and other materials public through no fault of the receiving party.
Section 6.7 Transfer of Patient Information, Etc. Upon termination or expiration of this 2011 Master Services Agreement, for whatever reason, Jazz Pharmaceuticals shall have the right to transfer all Xyrem Success Program SOPs and Business Rules and the toll free Xyrem telephone number to another specialty pharmacy and/or distributor of its choice, and CuraScript and ESSDS shall cooperate with Jazz Pharmaceuticals in the transfer of such items to another qualified specialty pharmacy and/or distributor. Notwithstanding the foregoing, CuraScript and ESSDS shall not be required to, and Jazz Pharmaceuticals shall not, disclose any Confidential Information of CuraScript or ESSDS to such other qualified specialty pharmacy and/or distributor, except to the extent required by law. In addition, Jazz Pharmaceuticals may request that CuraScript or ESSDS transfer Patient Confidential Information to such other specialty pharmacy for the purpose of continuing treatment (as that term is defined under HIPAA) of such Patients, and CuraScript shall expeditiously honor such request to the extent disclosure of such Patient Confidential Information by CuraScript is permitted under applicable law, including, but not limited to, HIPAA. The purpose of any transfer of Patient Confidential Information is to assure, to the extent possible, a smooth transition for patients. If this 2011 Master Services Agreement has been terminated by Jazz Pharmaceuticals under Sections 6.2, 6.3 or 6.4, CuraScript shall be responsible for all expenses incurred by CuraScript in connection with the transition described in this Section 6.7. If CuraScript or ESSDS terminates this 2011 Master Services Agreement pursuant to Section 6.2 or 6.4, Jazz Pharmaceuticals shall be responsible for all costs and expenses incurred by CuraScript that are associated with such transition. If this 2011 Master Services Agreement expires pursuant to the terms of Section 6.1, each Party shall be responsible for its own costs and expenses incurred in connection with such transition.
ARTICLE VII
COMPLIANCE WITH LAW; REPRESENTATIONS AND WARRANTIES
Section 7.1 Compliance with Law. Each party agrees that it will perform its respective obligations hereunder in accordance with applicable federal, state and local laws, including, but not limited to, applicable DEA, FDA, state and local wholesale and pharmacy requirements, as applicable. Jazz Pharmaceuticals agrees that it will not use language stating that any entity other than ESSDS is the licensed pharmacy that distributes Product pursuant to this
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2011 Master Services Agreement in any written materials that ESSDS is requested by Jazz Pharmaceuticals to send to Patients as part of the Covered Services. Jazz Pharmaceuticals may, without restriction, use any language referring to the Xyrem Success Program, as well as any references to pharmacy in, or in conjunction with, any written materials that ESSDS is not requested by Jazz Pharmaceuticals to send to Patients or any other party; provided that Jazz Pharmaceuticals shall not use ESSDs or CuraScripts name in connection with such references, except where necessary or appropriate under law or regulation. If CuraScript reasonably believes that any correspondence from Jazz Pharmaceuticals to Patients that Jazz Pharmaceuticals requests CuraScript or ESSDS to send to Patients as part of the Covered Services does not comply with any applicable federal, state, or local law, CuraScript shall notify Jazz Pharmaceuticals and provide reasonable detail as to its reasoning; provided, however, the aforementioned shall not be construed as imposing any obligation on CuraScript or ESSDS to determine whether such materials are compliant with applicable law, and it shall be Jazz Pharmaceuticals obligation to ensure such compliance. The parties shall discuss CuraScripts or ESSDSs reasonable concerns and agree upon an alternative mailing or other course of action, if necessary. FDA laws are not limited to section 505 of the Federal Food, Drug and Cosmetic Act, but also include any special considerations required by the FDA for approval of any additional indication for the Product. CuraScript will be notified of such requirements in writing by Jazz Pharmaceuticals. In the event any such special FDA requirements cause CuraScripts or ESSDSs obligations under this 2011 Master Services Agreement to be materially more burdensome or expensive, the parties shall promptly negotiate an appropriate modification to the Fees, and if the parties cannot agree on such a modification, or CuraScript in good faith views such additional responsibility as too burdensome to continue with the 2011 Master Services Agreement, CuraScript and ESSDS shall have the right to terminate this 2011 Master Services Agreement without penalty upon 60 days written notice to Jazz Pharmaceuticals. If CuraScript believes that new or different procedures are necessary under applicable law, or that there are requests that necessitate modified or different procedures, CuraScript will notify Jazz Pharmaceuticals and the parties will work together in good faith to develop mutually agreed upon Business Rules or SOPs to address CuraScripts concerns. In the absence of such agreement, this 2011 Master Services Agreement and the existing Business Rules and SOPs shall control.
Section 7.2 Representations and Warranties.
(a) Each party hereby represents and warrants to the other party that: (i) it has all requisite corporate power and authority to enter into this 2011 Master Services Agreement and perform and observe all obligations and conditions required to be performed or observed by that party under this 2011 Master Services Agreement; (ii) neither the execution and delivery of this 2011 Master Services Agreement nor the performance by that party of its respective obligations under this 2011 Master Services Agreement will conflict with or result in a breach of any covenant or agreement between that party and any third party; (iii) this 2011 Master Services Agreement represents the legal, valid and binding obligation of that party; and (iv) as of the Effective Date, such party has (or will have at such time as performance of its obligations under this 2011 Master Services Agreement may require) obtained all of the local, state and federal permits, licenses or other regulatory registrations or approvals necessary for the performance of its obligations under this 2011 Master Services Agreement. ESSDS shall use reasonable commercial efforts to apply, obtain and maintain the requisite DEA license necessary in order for ESSDS to distribute Product to Patients.
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(b) In addition, Jazz Pharmaceuticals hereby represents and warrants that Product at the time of shipment to the Central Pharmacy: (i) shall not be adulterated or misbranded within the meaning of the Act, or within the meaning of any applicable state or municipal law in which the definitions of adulteration or misbranded are substantially the same as those contained in the Act, as the Act and such laws are constituted and effective at the time of shipment; and (ii) shall not be a product which may not, under the provisions of the Act or FDA guidelines pertaining to the Product, be introduced into interstate commerce. Jazz Pharmaceuticals further represents and warrants that: (i) all programs initiated by Jazz Pharmaceuticals and included as part of the Covered Services shall be structured in accordance with applicable law and regulatory guidance; (ii) Jazz Pharmaceuticals, and not CuraScript or ESSDS, shall be responsible for the content of all materials provided by Jazz Pharmaceuticals to CuraScript and ESSDS for use or distribution in connection with the Covered Services, and Jazz Pharmaceuticals shall ensure that all such materials have received the appropriate regulatory approval (e.g., FDA), if appropriate, and are educational and limited to communications that are intended to describe the Product or provide important Product-related information, and do not constitute marketing as defined under HIPAA; and (iii) Jazz Pharmaceuticals shall ensure that all programs initiated by Jazz Pharmaceuticals as part of the Covered Services, and related materials, in no way advocate any off-label use of the Product.
ARTICLE VIII
INDEMNIFICATION AND INSURANCE
Section 8.1 Indemnification.
(a) CuraScript and ESSDS shall, jointly and severally, indemnify and hold harmless Jazz Pharmaceuticals and its directors, officers, employees, and affiliates from and against all third party claims, liabilities, losses, damages, costs, and expenses (including without limitation reasonable attorneys fees) arising out of: (i) any material breach by CuraScript or ESSDS of this 2011 Master Services Agreement, including, but not limited to, their representations and warranties; (ii) the negligent act or negligent omission, or the willful misconduct, of CuraScript, ESSDS or any of their employees or agents in connection with the performance of their obligations under this 2011 Master Services Agreement; and (iii) CuraScripts or ESSDSs use of patient information in violation of applicable laws governing confidentiality; except to the extent any of the foregoing claims arise out of Jazz Pharmaceuticals negligence or willful misconduct or breach hereunder, including, but not limited to, a breach of Jazz Pharmaceuticals representations and warranties hereunder.
(b) Jazz Pharmaceuticals shall indemnify and hold harmless CuraScript and ESSDS and their directors, officers, employees and affiliates from and against all third party claims, liabilities, losses, damages, costs, and expenses (including without limitation reasonable attorneys fees) arising out of: (i) any material breach by Jazz Pharmaceuticals of this 2011 Master Services Agreement, including, but not limited to, its representations and
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warranties; (ii) the negligent act or negligent omission, or the willful misconduct, of Jazz Pharmaceuticals or any of its employees or agents in connection with the performance of its obligations under this 2011 Master Services Agreement; (iii) any claim relating to the manufacturing of the Product provided to CuraScript or ESSDS by Jazz Pharmaceuticals or use of the Product provided to CuraScript or ESSDS by Jazz Pharmaceuticals to a Patient or other individual; and (iv) use by CuraScript or ESSDS of a Mark in accordance with the terms of this 2011 Master Services Agreement; except to the extent any of the foregoing claims arise out of CuraScripts or ESSDSs negligence or willful misconduct or breach hereunder, including, but not limited to, a breach of CuraScripts representations and warranties hereunder.
Section 8.2 Insurance. Each party shall procure and maintain during the term of this 2011 Master Services Agreement, product liability insurance in the amount of at least [ * ] per occurrence, and [ * ] in the aggregate, and general liability insurance in the amount of at least [ * ] including, but not limited to, for contractual liability and personal and bodily injury. Each party shall provide the other party with evidence of such insurance upon request. A party may not cause or permit such insurance to be cancelled without obtaining comparable replacement coverage or modified to materially reduce its scope or limits of coverage during the term of this 2011 Master Services Agreement.
ARTICLE IX
TRADEMARKS
Section 9.1 Grant of License. Jazz Pharmaceuticals grants to CuraScript and ESSDS a nonexclusive, royalty-free, non-transferable license to use the Marks in the Territory, solely in connection with the rendering of the Covered Services and sale of Product contemplated by this 2011 Master Services Agreement, and CuraScript and ESSDS each accept the license subject to the following terms and conditions.
Section 9.2 Ownership of the Service Marks. CuraScript and ESSDS each acknowledges that Jazz Pharmaceuticals is the exclusive owner of the Marks and that all use of the Marks by CuraScript and ESSDS will inure to the benefit of and be on behalf of Jazz Pharmaceuticals. CuraScript and ESSDS will do nothing inconsistent with such ownership and will reasonably assist Jazz Pharmaceuticals in recording the evidence of this license arrangement with any appropriate government authorities. Nothing in this 2011 Master Services Agreement shall give CuraScript or ESSDS any right, title, or interest in the Marks other than the right to use the Marks in accordance with this 2011 Master Services Agreement, and CuraScript or ESSDS will not attach the title of Jazz Pharmaceuticals to the Marks.
Section 9.3 Quality Standards. All use of the Marks by CuraScript or ESSDS will be in compliance with the quality control standards that are furnished from time to time by Jazz Pharmaceuticals or its agents. CuraScript and ESSDS will reasonably cooperate with Jazz Pharmaceuticals in facilitating Pharmaceuticals ultimate control of such nature and quality standards, will permit reasonable inspection of CuraScripts and ESSDSs operation, and, upon request of Jazz Pharmaceuticals, will supply Jazz Pharmaceuticals with specimens of all uses by CuraScript or ESSDS of the Marks.
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Section 9.4 Marking. CuraScripts and ESSDSs use of the Marks will comply with all marking requirements and other laws pertaining to trademarks in force during the term of this 2011 Master Services Agreement.
Section 9.5 Form of Use. CuraScript and ESSDS will use the Marks only in the form and manner and with appropriate legends as prescribed from time to time by Jazz Pharmaceuticals.
Section 9.6 Infringement Proceedings. CuraScript will promptly notify Jazz Pharmaceuticals of any unauthorized uses of the Marks by others that come to CuraScripts attention. Jazz Pharmaceuticals will have the sole right and discretion to bring infringement, dilution or unfair competition proceedings involving the Marks.
Section 9.7 Effect of Termination. Upon termination of this 2011 Master Services Agreement, CuraScript and ESSDS will immediately discontinue all use of the Marks and any term or symbol confusingly similar thereto, will cooperate with Jazz Pharmaceuticals or its agents to apply to the appropriate authorities to cancel any recording of evidence of this 2011 Master Services Agreement from all government records, and will destroy all printed materials bearing the Marks.
ARTICLE X
MISCELLANEOUS
Section 10.1 Notices. Except as otherwise specified in this 2011 Master Services Agreement any notice or other communication required or contemplated under the provisions of this 2011 Master Services Agreement shall be in writing and (a) delivered in person, evidenced by a signed receipt, (b) deposited in the United States mail, first class postage prepaid, (c) sent by electronic facsimile transmission, or (d) sent via Federal Express, Airborne, or any other similar express delivery service, to the addresses indicated below or to such other persons or addresses as the parties may provide by written notice to the other. The date of the notice shall be (x) the date of delivery if the notice is personally delivered or sent via Federal Express or similar express delivery service, or (y) three (3) days after the date of mailing if the notice is mailed by United States mail.
If to CuraScript or ESSDS: | Express Scripts, Inc. | |
c/o Express Scripts Specialty Distribution Services, Inc. & CuraScript, Inc. | ||
One Express Way | ||
St. Louis, MO 63121 | ||
Attn: Legal Department | ||
with a copy to: | CuraScript, Inc. | |
6272 Lee Vista Boulevard | ||
Orlando, FL 32822 | ||
Attn: Pharma Contracting Department |
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If to Jazz Pharmaceuticals: | Jazz Pharmaceuticals, Inc. | |
3180 Porter Drive | ||
Palo Alto, CA 94303 | ||
Attn: Executive Director, Health Systems | ||
Fax No. (650) 496-3781 | ||
with a copy to: | Jazz Pharmaceuticals, Inc. | |
3180 Porter Drive | ||
Palo Alto, CA 94303 | ||
Attn: Senior Vice President and General Counsel | ||
Fax No. (650) 496-3781 |
Section 10.2 Invalidity. Should any of the provisions hereof become legally invalid or unenforceable, the remainder of this 2011 Master Services Agreement shall remain effective, provided that the essential purpose of the 2011 Master Services Agreement can still be carried out. In such event, the parties agree to negotiate a mutually acceptable amendment to the terms and conditions of this 2011 Master Services Agreement.
Section 10.3 Non-Waiver. A failure by either party to insist upon strict compliance with any term of this 2011 Master Services Agreement, to exercise any option, to enforce any right, or to seek any remedy upon any default of the other party shall not affect, or constitute a waiver of, the first partys right to insist upon strict compliance with that term, to exercise that option, to enforce that right, or to seek that remedy with respect to that default or any prior, contemporaneous, or subsequent default. No custom or practice of the parties at variance with any provision of this 2011 Master Services Agreement shall affect, or constitute a waiver of, a partys right to demand strict compliance with all provisions of this 2011 Master Services Agreement.
Section 10.4 Remedies. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY PUNITIVE, SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR ANY LOSS OF PROFIT OR REVENUES RESULTING FROM EITHER PARTYS BREACH OF THIS 2011 MASTER SERVICES AGREEMENT; PROVIDED, HOWEVER, THAT NOTHING IN THIS SECTION 10.4 SHALL LIMIT EITHER PARTYS RIGHT TO INDEMNIFICATION UNDER SECTION 8.1 OF THIS 2011 MASTER SERVICES AGREEMENT AGAINST ANY CLAIM BROUGHT BY A THIRD PARTY. The rights and remedies of each party under this 2011 Master Services Agreement shall be cumulative and in addition to any other rights or remedies available to such party, whether under any other agreement, at law, or in equity, including without limitation specific performance, a temporary restraining order, and temporary or permanent injunctions.
Section 10.5 Force Majeure. If the performance of any part of this 2011 Master Services Agreement by either party shall be affected for any length of time by fire or other casualty, government restrictions, war, riots, strikes, or labor disputes, lock out, transportation delays, and acts of God, or any other similar causes which are beyond the reasonable control of such party, such party shall not be responsible for delay or failure of performance of this 2011 Master Services Agreement for such length of time; provided, however, that the obligation of the
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parties to pay amounts then due shall not be suspended or delayed; and provided, further, that if CuraScript is precluded from rendering Covered Services for a continuous period in excess of ten (10) business days, Jazz Pharmaceuticals shall be entitled to terminate this 2011 Master Services Agreement upon five (5) days written notice to CuraScript.
Section 10.6 Governing Law. This 2011 Master Services Agreement and performance hereunder shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to choice of law principles.
Section 10.7 Successors and Assigns. This 2011 Master Services Agreement may not be assigned by any party hereto without the prior written consent of the other parties, except that any party may assign this 2011 Master Services Agreement, without the prior written consent of the other parties, to any of its Affiliates, to any purchaser of all or substantially all of its assets or to any successor corporation resulting from any merger or consolidation with or into such corporation. In the event of any such assignment, the assignee shall expressly assume in writing the performance of all the terms and conditions of this 2011 Master Services Agreement and all of the obligations to be performed by the assignor. Any assignment not in accordance with this 2011 Master Services Agreement will be void.
Section 10.8 Relationship of the Parties. The parties are independent contractors and shall not be considered as an employee, agent or legal representative of any other party for any purposes whatsoever. Nothing herein shall be construed to create a partnership, joint venture or general agency. Except as expressly provided for herein, the parties shall have no authority to act for or on behalf of the any party or to sign or otherwise enter into any kind of contract, undertaking or agreement, or make any promise, warranty or representation, with respect to the Product or any other matter on behalf of any other party, and no other party shall be bound by or liable for any acts, obligations, or defaults of the other party, its employees or agents. Each party shall have exclusive liability and responsibility for workers compensation insurance, taxes and other obligations with respect to itself, its employees and agents.
Section 10.9 Equal Opportunity. This contract is subject to the equal opportunity clause set forth in 41 C.F.R.s. 61-1.4 (a), which is incorporated herein by reference.
Section 10.10 Complete Agreement; Amendment. This 2011 Master Services Agreement (together with the Exhibits, Business Rules, and SOPs, all of which are hereby incorporated herein by reference) contains the entire agreement between the parties and supersedes all prior or contemporaneous discussions, negotiations, representations, warranties, or agreements relating to the subject matter of this 2011 Master Services Agreement. This 2011 Master Services Agreement may not be amended or changed in any of its provisions except by a subsequent written agreement between the parties.
Section 10.11 Headings. The article, section and paragraph headings used in this 2011 Master Services Agreement are for convenience only and are not part of the agreement between the parties.
Section 10.12 Survival. Notwithstanding any provision of this 2011 Master Services Agreement to the contrary, Article I, Section 3.3, Section 3.5(a), Article IV, Article V, Section 6.5, 6.6, 6.7, Article VII, Sections 8.1, 8.2, 9.2, 10.3, 10.4, 10.6, 10.12 and 10.13 shall survive the expiration or termination of this 2011 Master Services Agreement for any reason.
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Section 10.13 Termination of Prior Agreement. Upon execution of this 2011 Master Services Agreement by CuraScript, ESSDS and Jazz Pharmaceuticals, the Prior Agreement and any Amendments, Exhibits, and Addenda thereto shall terminate and be of no further force or effect.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have signed this 2011 Master Services Agreement as of the Effective Date.
CURASCRIPT, INC. | JAZZ PHARMACEUTICALS, INC. | |||||||
By: | /s/ Susan Lang |
By: | /s/ Carol A. Gamble | |||||
Name: | Susan Lang |
Name: | Carol A. Gamble | |||||
Title: | SVP & Chief Supply Chain Officer |
Title: | Sr. Vice President & General Counsel | |||||
Date: |
4/15/11 |
Date: |
4/18/11 |
EXPRESS SCRIPTS SPECIALTY DISTRIBUTION SERVICES, INC.
By: | /s/ Susan Lang |
|||||||
Name: | Susan Lang |
|||||||
Title: | SVP & Chief Supply Chain Officer |
|||||||
Date: |
4/15/11 |
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Exhibit 31.1
CERTIFICATION
I, Bruce C. Cozadd, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Jazz Pharmaceuticals, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 9, 2011 | By: |
/s/ Bruce C. Cozadd | ||
Bruce C. Cozadd Chairman and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Kathryn E. Falberg, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Jazz Pharmaceuticals, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 9, 2011 | By: | /s/ Kathryn E. Falberg | ||
Kathryn E. Falberg Senior Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION (1)
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. Section 1350), Bruce C. Cozadd, Chief Executive Officer of Jazz Pharmaceuticals, Inc. (the Company), and Kathryn E. Falberg, Senior Vice President and Chief Financial Officer of the Company, each hereby certifies that, to the best of his or her knowledge:
1. | The Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, to which this Certification is attached as Exhibit 32.1 (the Periodic Report), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, and |
2. | The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
In Witness Whereof, the undersigned have set their hands hereto as of May 9, 2011.
/s/ Bruce C. Cozadd Bruce C. Cozadd Chairman and Chief Executive Officer |
/s/ Kathryn E. Falberg Kathryn E. Falberg Senior Vice President and Chief Financial Officer |
(1) | This certification accompanies the Quarterly Report on Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Jazz Pharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing. A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Jazz Pharmaceuticals, Inc. and will be retained by Jazz Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. |