“Cost of Goods” means the fully burdened aggregate reasonable direct and indirect costs and expenses incurred by AstraZeneca to manufacture the Vaccine Doses, consisting of:
(a) direct labor costs (salaries, wages, employee benefits, overtime costs and shift premiums);
(b) direct materials (including raw materials and intermediaries and interim packaging) costs;
(c) a fair and reasonable allocation of operating costs of facilities and equipment (including start up and cleaning costs of production), including an allocation of the cost of idle capacity at relevant manufacturing sites, in each case calculated by AstraZeneca in a manner consistent with its treatment of such costs (including idle capacity) with respect to other products;
(d) quality, release and in-process control costs;
(e) charges for reasonable spoilage, scrap or rework costs;
(f) amounts (without mark-up) that are paid to a third party, in connection with their manufacture of the Vaccine or any component thereof including any costs associated with technology transfer and/or establishment or manufacturing capacity;
(g) the reasonable allocation of facility overhead, both fixed and variable, to such manufacturing operation (including the allocable costs of administrators and managers overseeing manufacturing and production) maintenance, engineering, safety, finance, capital equipment depreciation to the extent such capital equipment is utilized with respect to the Vaccine Doses, supply chain management, management of agreements with third party contract manufacturers, and inventory write-off;
(h) any non-refundable or non-creditable Indirect Taxes, customs and excise duties, or similar Taxes; and
(i) any royalties paid or payable to third parties in connection with the exploitation of the Vaccine, such royalties to be calculated as a percentage of the costs described in (a) through (h) above.
Costs are incurred in multiple currencies and AstraZeneca will employ the prevailing AZ Exchange Rate to convert such costs to Euros at the time when the costs are incurred. “AZ Exchange Rate” means, on any date, the rate of exchange as published by Reuters as prevailing at 8:00 am (London) usually taken on the 25th day of the month prior to such date, where that day is a working day, or if the 25th day of the month is not a working day, the first day of the month following the 25th day of the month, or such other IFRS-compliant rate used by AstraZeneca consistently for the purpose of preparing its consolidated financial statements.
In each of the clauses (a) through (i), inclusive, to the extent specifically attributable to the manufacture of the Vaccine as determined in accordance with IFRS, as applicable, and in each case, calculated by AstraZeneca in a manner consistent with its treatment of such costs with respect to other products, and without disadvantaging the Vaccine on account of the terms of this Agreement or otherwise.
In addition to the costs listed above, “Cost of Goods” will also include each of the following costs and expenses incurred by AstraZeneca to manufacture the Vaccine, consisting of:
(a) costs and expenses for pharmacovigilance directly incurred for, or fairly allocable to, the Vaccine;
(b) regulatory filing fees for the Vaccine and other regulatory costs and expenses directly incurred for, or fairly allocable to, the Vaccine;
(c) supporting functions and the cost of working capital directly incurred for, or fairly allocable to, the Vaccine; and
(d) any other costs and expenses directly incurred for, or fairly allocable to, the Vaccine (e.g., legal, finance, reporting, compliance and executive management oversight).
The term “Cost of Goods” excludes each of the following:
(a) costs related to operation of the facility incurred while using the facility to manufacture other products;
(b) industrial operations-related corporate costs (such as but not limited to corporate projects, strategic analysis);
(c) any refundable or creditable Indirect Taxes, customs and excise duties, or similar Taxes;
(d) storage and distribution of the Vaccine;
(e) destruction for any material produced at risk; and
(f) costs and expenses directly incurred for, or fairly allocable to, post-launch safety and risk management studies for the Vaccine.
7. Funding Process and Audit
7.1 Generally. The Commission and the Participating Member States shall provide funding to enable AstraZeneca to: (i) harness sufficient drug substance and drug filling and finishing capacity in Europe, (ii) advance procurement of critical components including glass vials/stoppers, media, and other critical components to supply finished product of the Vaccine, and (iii) fill, finish and package the final Vaccine for distribution (“the Funding“). The Commission and the Participating Member States shall provide the Funding in an amount equal to the estimated Cost of Goods which at the Effective Date is estimated to be million Euros for the Initial Europe Doses.
7.2 Initial Funding. In partial consideration of the Vaccine Dose purchase rights granted by AstraZeneca to the Commission acting on behalf and in the name of the Participating Member States hereunder, the Commission shall pay to AstraZeneca a fixed amount equal to 336 million Euros as an estimate of the Upfront Costs as set forth in Schedule A (the “Initial Funding”) as follows:
(a) The Commission shall pay to AstraZeneca two-thirds of the Initial Funding (first Installment) within five (5) working days of the Effective Date; and
(b) The Commission shall pay to AstraZeneca one-third of the Initial Funding (second Installment) within twenty (20) days following the receipt from AstraZeneca of relevant evidence of the use of the first Installment and a relevant progress report of the continued progress towards manufacture of the Initial Europe Doses (e.g., reservation of manufacturing capacity, commencement of technology transfer, purchase of raw materials and purchase of vials). In the absence of reasonable relevant evidence, the Commission will have no obligation to pay the second Installment and may seek to recover the first Installment or a portion of it if available pursuant to Section 12.2(c).
7.3 Subsequent Funding. The Participating Member States shall pay the Fill/Finish/Packaging Costs, storage and distribution costs of the Vaccine, destruction for any material produced at risk, and costs and expenses directly incurred for, or fairly allocable to, post-launch safety and risk management studies for the Vaccine in accordance with Schedule A and Sections 7.4 and 10.3 and the Order Forms (the “Subsequent Funding”). All such costs shall be allocated on a per Dose basis on each shipment of Doses and added to the individual invoices for shipments of Vaccine to each Participating Member State.
7.4 Mechanism for Updated Total Costs of Goods
(a) The Parties agree that, notwithstanding any other provision of this Agreement, and while AstraZeneca acknowledges its obligation is to supply the Vaccine Doses at no profit, AstraZeneca shall not be requested or required to supply the Vaccine Doses at a loss. The Parties further agree that the estimated Upfront Costs of million Euros and Fill/Finish/Packaging Costs of 534 million Euros (for a total estimated Cost of Goods of 870 million Euros) were determined based upon available estimates at the Effective Date for the Initial Europe Doses Based on 300 million Initial Europe Doses, the price per Dose is currently estimated to be approximately 2.90 Euros per Dose. Of such amount, 336 million Euros (or approximately 1.12 Euros per Dose) will be paid by the Commission pursuant to the Initial Funding pursuant to Section and the remainder (currently estimated to be 1.78 Euros per Dose) shall be paid to AstraZeneca the Participating Member States as set forth below and in the Order Form total Cost of Goods is subject to adjustment as per paragraphs (b) and (c) below and the price per Dose in the Order Form shall be automatically adjusted to reflect the adjusted price per Dose Each price per Dose as adjusted from time to time is referred to as the “Price Per Dose.”
(b) To the extent that the total Cost of Goods exceed the estimated amount of 870 million Euros by less than 20%, AstraZeneca shall provide an updated purchase and payment schedule to the Commission, which shall state the delivery schedule of the Initial Europe Doses and the corresponding amounts payable by the Participating Member States, along with the corresponding Fill/Finish/Packaging Costs per Participating Member State within thirty (30) days following invoicing for such Doses.
(c) If AstraZeneca becomes aware that the estimated Cost of Goods are reasonably expected to exceed 870 million Euros by 20% or more, then AstraZeneca shall notify the Commission of such excess and provide the relevant evidence in this respect. Following such notice, AstraZeneca and the Commission shall agree to a payment or other mechanism which will result in AstraZeneca supplying the Participating Member States with a number of Doses without incurring a loss. Such mechanism may include a reduction in the number of Doses and/or a further increase in Price Per Dose.
(d) If following the finalization of the matters contemplated hereby, documentary evidence provided by AstraZeneca indicates that the Cost of Goods for the Initial Europe Doses sold is less than 870 million Euros or the Participating Member States paid more than the Cost of Goods for the Optional Doses or Additional Doses, AstraZeneca shall notify the Alliance Manager and work with the Alliance Manager to establish a fair and equitable way to return the amount of the excess payments to the Commission and/or Participating Member States, as applicable.
9.1 Initial Doses. AstraZeneca shall manufacture and supply to the Participating Member States the Initial Europe Doses at a price equal to their total Cost of Goods with no profit or loss for AstraZeneca, which, as of the Effective Date, is estimated at 870,000,000 Euros, of which 336,000,000 Euros shall be paid by the Commission and 534,000,000 Euros by the Participating Member States. This estimated amount shall be paid through the Initial Funding and Fill/Finish/Packaging Costs according to the terms of Sections 7.1, 7.2 and 7.3 of this Agreement.
9.2 Optional Doses. In the event the Commission exercises the option on behalf of and in the name of the Member States to obtain the Optional Doses in accordance with Section 5.2, AstraZeneca shall manufacture and supply the Optional Doses at a price equal to their Cost of Goods (i.e., the full price is calculated without any credit based on the Initial Funding).
9.3 Additional Doses. AstraZeneca shall provide any agreed Additional Doses at Cost of Goods until 1 July 2021, unless AstraZeneca determines in good faith that the COVID-19 Pandemic has not ceased as of 1 July 2021, in which case AstraZeneca shall provide any agreed Additional Doses at Cost of Goods until such later date as AstraZeneca determines in good faith that the COVID-19 Pandemic has ceased AstraZeneca shall promptly notify the Commission of any such later date suggested by AstraZeneca.