This excerpt taken from the ABII 8-K filed Nov 8, 2007.
We will be dependent upon New APP LLC to manufacture Abraxane® for a term of four or five years, and the manufacture of pharmaceutical products is highly regulated.
In connection with the separation and distribution agreement, we will enter into a manufacturing agreement with New APP LLC, a subsidiary of New APP, for the manufacture of Abraxane® and our pipeline products whereby New APP LLC will agree to undertake certain of the tasks necessary to manufacture Abraxane® and our pipeline products until December 31, 2011, with this agreement automatically extended by one year if either New APP LLC elects to exercise its option to extend the lease on our Melrose Park manufacturing facility or we elect to exercise our option to extend the lease on New APPs Grand Island manufacturing facility. Accordingly, we will be dependent upon New APP LLC to manufacture our products. The amount and timing of resources that New APP LLC devotes to the manufacture of our products is not within our direct control. Further, in the event of capacity constraints at the manufacturing facilities, the manufacturing agreement provides that the available capacity will be prorated between us and New APP LLC according to the parties then current use of manufacturing capacity at the relevant facilities. Any loss in manufacturing capacity pursuant to these proration provisions could be detrimental to our business and operating results. While the manufacturing agreement allows us to override these proration provisions, we may only do so by paying New APP LLC additional fees under the manufacturing agreement. If we are forced to pay New APP LLC additional fees to retain our capacity rights under the manufacturing agreement, it could be detrimental to our operating results. See Relationship Between New APP and Us After the Separation and DistributionManufacturing Agreement.
The manufacture of pharmaceutical products is highly exacting and complex, due in part to strict regulatory requirements and standards which govern both the manufacture of a particular product and the manufacture of these types of products in general. Problems may arise during their manufacture due to a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures and environmental factors. If problems arise during the production of a batch of product, that batch of product may have to be discarded. This could, among other things, lead to loss of the cost of raw materials and components used and lost revenue. If such problems are not discovered before the product is released to the market, recall costs may also be incurred. Under the terms of the manufacturing agreement, we have the final responsibility for release of the products manufactured pursuant to the manufacturing agreement and will bear all expenses in connection with any recall of products, unless the recall is a result of New APP LLCs gross negligence, bad faith, intentional misconduct or intentional breach, in which case New APP LLC would bear all costs and expenses related to such product recall, subject to the $100 million limit on liability under the manufacturing agreement. To the extent New APP LLC encounters difficulties or problems with respect to the manufacture of our pharmaceutical products, including Abraxane®, this may be detrimental to our business, operating results and reputation.