Friday, February 6, 2009

Vascular Solutions - Edited 10k

Thrombin qualification project expenses were $-0- for the year ended December 31, 2008 compared to $147,000 for the year ended December 31, 2007. On October 18, 2004, we entered into a supply agreement with Sigma-Aldrich Fine Chemicals, an operating division of Sigma-Aldrich, Inc. (Sigma) for the supply of thrombin to us. Pursuant to the terms of the agreement, we have paid for certain development costs of Sigma to allow Sigma to produce thrombin for our use. The initial contract term ends after 10 years and is automatically extended for up to five additional successive one year terms unless one party delivers notice of termination at least one year prior to the scheduled termination of the agreement. During the term of the agreement, Sigma has agreed not to sell thrombin of the type developed for us under the agreement in or as a component of a hemostatic product for medical use. We do not have any minimum purchase requirements under the agreement; however, if we purchase less than three lots of thrombin in any year then (1) Sigma will be released from its agreement not to sell thrombin in or as a component of a hemostatic product for medical use, and (2) Sigma will have the right to terminate the agreement upon 30 days notice.
The Sigma contract was part of our plan to fully qualify a second source of thrombin (in addition to the Thrombin-JMI(R) Supply Agreement discussed in "Agreements with King Pharmaceuticals, Inc." above) and to bring the new thrombin through the regulatory process to be used in our hemostatic products. We have purchased $2.7 million of thrombin from Sigma, of which we have expensed approximately $0.4 million in our development work and used approximately $0.3 million in product manufacturing. We received regulatory approval in the first quarter of 2008 allowing us to use the Sigma thrombin in our international hemostat products. A $0.7 million expense was incurred in the fourth quarter of 2008 relating to a reserve recorded against our existing supply of Sigma thrombin due to the uncertainty of whether this amount of thrombin will be utilized prior to expiration of its shelf life. The remaining Sigma thrombin balance of $1.3 million at December 31, 2008 is expected to be used in our hemostat products sold in international markets before expiration of its shelf life.
As described in "Agreements with King Pharmaceuticals, Inc." above, in January 2007 we entered into the Thrombin-JMI(R) Supply Agreement in the United States with King with a price fixed throughout the 10 year term, adjusted for a producer price index tied to pharmaceuticals. The thrombin price under the agreement is confidential information; however, the price reflects a 25% discount to the price we paid in the last year of our previous thrombin supply agreement with King. The Thrombin-JMI(R) Supply Agreement does not terminate or affect our ability to complete the qualification of our own second thrombin source; however, with the near-term economic need to qualify a second source eliminated, we will be able to evaluate and plan our continuing expenses and steps on this project. We do not expect to incur any significant thrombin qualification expenses in 2009.

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