SLXP » Topics » Supply and Distribution Agreement with Watson Pharma, Inc.

These excerpts taken from the SLXP 10-K filed Mar 11, 2009.

Supply and Distribution Agreement with Watson Pharma, Inc.

On December 28, 2007, we announced that we entered into a Supply and Distribution Agreement with Watson Pharma, Inc., pursuant to which Watson will be Salix’s exclusive distributor to market and sell an authorized generic of Colazal (balsalazide disodium) Capsules 750 mg, Salix’s anti-inflammatory drug approved for the treatment of mildly to moderately active ulcerative colitis, in the United States. Watson agrees to use commercially reasonable efforts to sell authorized generic Colazal, and has sole discretion to establish prices and terms. Watson will pay Salix a portion of its profits for sales under the agreement, and Salix will supply Watson with all its requirements for the product. The agreement terminates in October 2011, provided that either party may terminate immediately upon bankruptcy of the other, or for uncured breaches of the other party. Salix may also terminate on 30 days notice if the agreement has become commercially unviable, if it obtains the right to prohibit other generics from being sold or if it ceases distribution of branded Colazal.

Supply and Distribution Agreement with Watson Pharma, Inc.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">On December 28, 2007, we announced that we entered into a Supply and Distribution Agreement with Watson Pharma, Inc., pursuant to which Watson will
be Salix’s exclusive distributor to market and sell an authorized generic of Colazal (balsalazide disodium) Capsules 750 mg, Salix’s anti-inflammatory drug approved for the treatment of mildly to moderately active ulcerative colitis, in
the United States. Watson agrees to use commercially reasonable efforts to sell authorized generic Colazal, and has sole discretion to establish prices and terms. Watson will pay Salix a portion of its profits for sales under the agreement, and
Salix will supply Watson with all its requirements for the product. The agreement terminates in October 2011, provided that either party may terminate immediately upon bankruptcy of the other, or for uncured breaches of the other party. Salix may
also terminate on 30 days notice if the agreement has become commercially unviable, if it obtains the right to prohibit other generics from being sold or if it ceases distribution of branded Colazal.

STYLE="margin-top:18px;margin-bottom:0px">MANUFACTURING

We own no manufacturing facilities. We
have in the past used and plan to continue to use third-party manufacturers to produce material for use in clinical trials and for commercial product. This manufacturing strategy enables us to direct our financial resources to product in-licensing
and acquisition, product development, and sales and marketing efforts, without devoting resources to the time and cost associated with building and maintaining manufacturing facilities.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Under our supply agreement with Alfa Wassermann, Alfa Wassermann is obligated to supply us with bulk rifaximin drug substance, the active pharmaceutical
ingredient in Xifaxan tablets, until July 2014 or introduction of a generic product, whichever occurs first. Our supply of rifaximin drug substance is manufactured by ZaCh Systems (formerly Zambon) in Lonigo, Italy, and Aventis in Brindisi, Italy.
Under a long-term supply agreement, rifaximin is converted into Xifaxan drug product for us by Patheon, Inc. in Whitby, Ontario. Bulk Xifaxan tablets are packaged into finished Xifaxan commercial bottles by Patheon and packaged into Xifaxan
commercial blister packs by Carton Service Inc. in Norris, Tennessee.

 


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Under our long-term supply agreement with aaiPharma, aaiPharma produces our commercial supply of 75 mg
and 100 mg Azasan finished product.

Under our long-term supply agreement with Paddock Laboratories, Inc. in Minneapolis, Minnesota,
Paddock produces our commercial supply of finished product of Anusol-HC Cream, Anusol-HC Suppositories and Proctocort Suppositories. In addition, through prior supply arrangements between King Pharmaceuticals and Crown Laboratories, Inc. in Johnson
City, Tennessee, Crown continues to produce our commercial supply of Proctocort Cream finished product.

Under our long-term supply
agreement with WellSpring Pharmaceutical Corporation in Oakville, Ontario, WellSpring produces our commercial supply of OsmoPrep finished product.

SIZE="2">Under our long-term supply agreement with Norgine in Hengoed, Wales, Norgine produces our commercial supply of MoviPrep pouches. For secondary packaging of MoviPrep into commercial finished kits, we have two vendors qualified: Norgine, at
its Hengoed, Wales facility; and Carton Service in Norris, Tennessee.

Merck manufactured our commercial supply of Pepcid Oral Suspension
and Diuril Oral Suspension through December 2008. Under a long-term supply agreement beginning in 2009, Paddock Laboratories in Minneapolis, Minnesota, now produces our commercial supply of Pepcid Oral Suspension and Diuril Oral Suspension.

Bayer AG in Wuppertal, Germany supplies us with bulk mesalamine active ingredient. Under a long-term supply agreement with Catalent Pharma
Solutions in Winchester, Kentucky, Catalent converts this mesalamine into our commercial supply of bulk Apriso, 375mg mesalamine capsules. The bulk Apriso capsules are then packaged into finished Apriso commercial bottles by Carton Service in
Norris, Tennessee.

Cosma S.P.A. in Bergamo, Italy supplies us with bulk metoclopramide active ingredient. Under a long-term supply
agreement with Catalent in Swindon, United Kingdom, Catalent converts this metoclopramide into our commercial supply of Metozolv, 5mg and 10mg tablets in blister packaging. The Metozolv blister packs are then packaged into finished cartons by Carton
Service in Norris, Tennessee.

Currently, under long-term supply agreements, we use balsalazide drug substance (the active pharmaceutical
ingredient in Colazal capsules) manufactured by OmniChem s.a., a subsidiary of Ajinomoto in Belgium, and PharmaZell (formerly Noveon Pharma, GmbH) in Raubling, Germany. Also, under long-term supply agreements, balsalazide is encapsulated into
Colazal drug product for us by Nexgen Pharma, Inc. (formerly Anabolic Laboratories) in Irvine, California. Bulk Colazal capsules are packaged into finished Colazal commercial bottles by Nexgen and Carton Service in Norris, Tennessee.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">With respect to our 1100 mg balsalazide tablet formulation and our 550 mg rifaximin tablet formulation, which are currently under development, we plan to
negotiate commercial supply agreements with the same manufacturers who supplied the drug substance and drug product for the supplies of the Phase III clinical trial material, if approved. Under our manufacturing and supply agreement with Glenmark
Pharmaceuticals, Ltd. in Mumbai, India, Glenmark supplies us with crofelemer, which we are currently investigating in a Phase III study, and will supply us with commercial supplies of crofelemer, if approved.

STYLE="margin-top:18px;margin-bottom:0px">SALES AND MARKETING

We currently market our products
and intend, if approved by the FDA, to market future products to U.S. gastroenterologists through our own direct sales force. We enter into distribution relationships outside the United States and in markets where a larger sales organization is
appropriate. Currently, our sales and marketing staff consists of approximately 150 people, which we believe should also position us to sell additional products, if and when acquired and/or approved for U.S. marketing. Because there are a relatively
small number of gastroenterologists that write a majority of the prescriptions in our indications, we believe that the size of our sales force is appropriate to reach our target physicians. Our sales force consists of approximately 100 employees who
regularly call on approximately 16,000 healthcare professionals. We also have approximately ten national account managers who regularly call on major drug

 


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wholesalers, managed care organizations, large retail chains, formularies and related organizations. We believe we have created an attractive incentive
program for our sales force that is based upon goals in prescription growth, market share achievement and customer service.

We cultivate
relationships of trust and confidence with the high prescribing gastroenterologists in the United States. We use a variety of marketing techniques to promote our products including sampling, journal advertising, promotional materials, specialty
publications, coupons, money-back or product replacement guarantees, educational conferences and informational websites.

These excerpts taken from the SLXP 10-K filed Mar 18, 2008.

Supply and Distribution Agreement with Watson Pharma, Inc.

On December 28, 2007, we announced that we entered into a Supply and Distribution Agreement with Watson Pharma, Inc., pursuant to which Watson will be Salix’s exclusive distributor to market and sell an authorized generic of Colazal (balsalazide disodium) Capsules 750 mg, Salix’s anti-inflammatory drug approved for the treatment of mildly to moderately active ulcerative colitis, in the United States. Watson agrees to use commercially reasonable efforts to sell authorized generic Colazal, and has sole discretion to establish prices and terms. Watson will pay Salix a portion of its profits for sales under the agreement, and Salix will supply Watson with all its requirements for the product. The agreement terminates in October 2011, provided that either party may terminate immediately upon bankruptcy of the other, or for uncured breaches of the other party. Salix may also terminate on 30 days notice if the agreement has become commercially unviable, if it obtains the right to prohibit other generics from being sold or if it ceases distribution of branded Colazal.

Supply and Distribution Agreement with Watson Pharma, Inc.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">On December 28, 2007, we announced that we entered into a Supply and Distribution Agreement with Watson Pharma, Inc., pursuant to which Watson will
be Salix’s exclusive distributor to market and sell an authorized generic of Colazal (balsalazide disodium) Capsules 750 mg, Salix’s anti-inflammatory drug approved for the treatment of mildly to moderately active ulcerative colitis, in
the United States. Watson agrees to use commercially reasonable efforts to sell authorized generic Colazal, and has sole discretion to establish prices and terms. Watson will pay Salix a portion of its profits for sales under the agreement, and
Salix will supply Watson with all its requirements for the product. The agreement terminates in October 2011, provided that either party may terminate immediately upon bankruptcy of the other, or for uncured breaches of the other party. Salix may
also terminate on 30 days notice if the agreement has become commercially unviable, if it obtains the right to prohibit other generics from being sold or if it ceases distribution of branded Colazal.

STYLE="margin-top:18px;margin-bottom:0px">MANUFACTURING

We own no manufacturing facilities. We
have in the past used and plan to continue to use third-party manufacturers to produce material for use in clinical trials and for commercial product. This manufacturing strategy enables us to direct our financial resources to product in-licensing
and acquisition, product development, and sales and marketing efforts, without devoting resources to the time and cost associated with building and maintaining manufacturing facilities.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Currently, under long-term supply agreements, we use balsalazide drug substance (the active pharmaceutical ingredient in Colazal capsules) manufactured
by Omnichem s.a., a subsidiary of Ajinomoto in Belgium, and Pharmazell (formerly Noveon Pharma, GmbH) in Raubling, Germany. Also, under long-term supply agreements, balsalazide is encapsulated into Colazal drug product for us by Nexgen Pharma, inc.
(formerly Anabolic Laboratories) in Irvine, California. Bulk Colazal capsules are packaged into finished Colazal commercial bottles by Nexgen and Carton Service in Norris, Tennessee.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Under our supply agreement with Alfa Wassermann, Alfa Wassermann is obligated to supply us with bulk rifaximin drug substance (the active pharmaceutical
ingredient in Xifaxan tablets) until July 2014 or introduction of a generic product, whichever occurs first. Our supply of rifaximin drug substance is manufactured by ZaCh Systems (formerly Zambon) in Lonigo, Italy, and Aventis in Brindisi, Italy.
Under a long-term supply agreement, rifaximin is converted into Xifaxan drug product for us by Patheon, Inc. in Whitby, Ontario. Bulk Xifaxan tablets are packaged into finished Xifaxan commercial bottles by Pathoen and packaged into Xifaxan
commercial blister packs by Carton Service in Norris, Tennessee.

Under our long-term supply agreement with aaiPharma, aaiPharma produces
our commercial supply of 75 mg and 100 mg Azasan finished product. We are in the process of working with aaiPharma to qualify an additional Azasan drug product manufacturer.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Under our long-term supply agreement with Paddock Laboratories in Minneapolis, Minnesota, Paddock produces our commercial supply of finished product of
Anusol-HC Cream, Anusol-HC Suppositories and Proctocort Suppositories. In addition, through prior supply arrangements between King Pharmaceuticals and Crown Laboratories in Johnson City, Tennessee, Crown continues to produce our commercial supply of
Proctocort Cream finished product.

Under our long-term supply agreement with WellSpring Pharmaceuticals in Oakville, Ontario, WellSpring
produces our commercial supply of OsmoPrep finished product.

Under our long-term supply agreement with Norgine in Hengoed, Wales, Norgine
produces our commercial supply of MoviPrep pouches. We then supply Carton Service in Norris, Tennessee with these MoviPrep pouches for secondary packaging into finished commercial MoviPrep kits.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Merck has agreed to manufacture our commercial supply of Pepcid Oral Suspension and Diuril Oral Suspension through December 2008. We are in the process
of qualifying an alternate manufacturing site for commercial production of Pepcid OS and Diuril OS finished product.

 


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With respect to our products currently under development, namely our encapsulated granulated mesalamine,
our 1100 mg balsalazide tablet formulation and our 550 mg rifaximin tablet formulation, we plan to negotiate commercial supply agreements with the same manufacturers who supplied the drug substance and drug product for the supplies of the Phase III
clinical trial material.

These excerpts taken from the SLXP 10-K filed Mar 14, 2008.

Supply and Distribution Agreement with Watson Pharma, Inc.

On December 28, 2007, we announced that we entered into a Supply and Distribution Agreement with Watson Pharma, Inc., pursuant to which Watson will be Salix’s exclusive distributor to market and sell an authorized generic of Colazal (balsalazide disodium) Capsules 750 mg, Salix’s anti-inflammatory drug approved for the treatment of mildly to moderately active ulcerative colitis, in the United States. Watson agrees to use commercially reasonable efforts to sell authorized generic Colazal, and has sole discretion to establish prices and terms. Watson will pay Salix a portion of its profits for sales under the agreement, and Salix will supply Watson with all its requirements for the product. The agreement terminates in October 2011, provided that either party may terminate immediately upon bankruptcy of the other, or for uncured breaches of the other party. Salix may also terminate on 30 days notice if the agreement has become commercially unviable, if it obtains the right to prohibit other generics from being sold or if it ceases distribution of branded Colazal.

Supply and Distribution Agreement with Watson Pharma, Inc.

STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%">On December 28, 2007, we announced that we entered into a Supply and Distribution Agreement with Watson Pharma, Inc., pursuant to which Watson will
be Salix’s exclusive distributor to market and sell an authorized generic of Colazal (balsalazide disodium) Capsules 750 mg, Salix’s anti-inflammatory drug approved for the treatment of mildly to moderately active ulcerative colitis, in
the United States. Watson agrees to use commercially reasonable efforts to sell authorized generic Colazal, and has sole discretion to establish prices and terms. Watson will pay Salix a portion of its profits for sales under the agreement, and
Salix will supply Watson with all its requirements for the product. The agreement terminates in October 2011, provided that either party may terminate immediately upon bankruptcy of the other, or for uncured breaches of the other party. Salix may
also terminate on 30 days notice if the agreement has become commercially unviable, if it obtains the right to prohibit other generics from being sold or if it ceases distribution of branded Colazal.

STYLE="margin-top:18px;margin-bottom:0px">MANUFACTURING

We own no manufacturing facilities. We
have in the past used and plan to continue to use third-party manufacturers to produce material for use in clinical trials and for commercial product. This manufacturing strategy enables us to direct our financial resources to product in-licensing
and acquisition, product development, and sales and marketing efforts, without devoting resources to the time and cost associated with building and maintaining manufacturing facilities.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Currently, under long-term supply agreements, we use balsalazide drug substance (the active pharmaceutical ingredient in Colazal capsules) manufactured
by Omnichem s.a., a subsidiary of Ajinomoto in Belgium, and Pharmazell (formerly Noveon Pharma, GmbH) in Raubling, Germany. Also, under long-term supply agreements, balsalazide is encapsulated into Colazal drug product for us by Nexgen Pharma, inc.
(formerly Anabolic Laboratories) in Irvine, California. Bulk Colazal capsules are packaged into finished Colazal commercial bottles by Nexgen and Carton Service in Norris, Tennessee.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Under our supply agreement with Alfa Wassermann, Alfa Wassermann is obligated to supply us with bulk rifaximin drug substance (the active pharmaceutical
ingredient in Xifaxan tablets) until July 2014 or introduction of a generic product, whichever occurs first. Our supply of rifaximin drug substance is manufactured by ZaCh Systems (formerly Zambon) in Lonigo, Italy, and Aventis in Brindisi, Italy.
Under a long-term supply agreement, rifaximin is converted into Xifaxan drug product for us by Patheon, Inc. in Whitby, Ontario. Bulk Xifaxan tablets are packaged into finished Xifaxan commercial bottles by Pathoen and packaged into Xifaxan
commercial blister packs by Carton Service in Norris, Tennessee.

Under our long-term supply agreement with aaiPharma, aaiPharma produces
our commercial supply of 75 mg and 100 mg Azasan finished product. We are in the process of working with aaiPharma to qualify an additional Azasan drug product manufacturer.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Under our long-term supply agreement with Paddock Laboratories in Minneapolis, Minnesota, Paddock produces our commercial supply of finished product of
Anusol-HC Cream, Anusol-HC Suppositories and Proctocort Suppositories. In addition, through prior supply arrangements between King Pharmaceuticals and Crown Laboratories in Johnson City, Tennessee, Crown continues to produce our commercial supply of
Proctocort Cream finished product.

Under our long-term supply agreement with WellSpring Pharmaceuticals in Oakville, Ontario, WellSpring
produces our commercial supply of OsmoPrep finished product.

Under our long-term supply agreement with Norgine in Hengoed, Wales, Norgine
produces our commercial supply of MoviPrep pouches. We then supply Carton Service in Norris, Tennessee with these MoviPrep pouches for secondary packaging into finished commercial MoviPrep kits.

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">Merck has agreed to manufacture our commercial supply of Pepcid Oral Suspension and Diuril Oral Suspension through December 2008. We are in the process
of qualifying an alternate manufacturing site for commercial production of Pepcid OS and Diuril OS finished product.

 


11







Table of Contents


Index to Financial Statements


With respect to our products currently under development, namely our encapsulated granulated mesalamine,
our 1100 mg balsalazide tablet formulation and our 550 mg rifaximin tablet formulation, we plan to negotiate commercial supply agreements with the same manufacturers who supplied the drug substance and drug product for the supplies of the Phase III
clinical trial material.

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