Dear Dawn,
I hope this message finds you well. I am writing in my capacity as lead associate at Calderwood & Harkness LLP on behalf of our client, Solstice Biomedical Devices Ltd. and its US subsidiary, Solstice Biomedical Inc. (Matter No. 1037-00003), regarding proposed amendments to the Distribution Agreement dated March 15, 2024 (Ref. SBD-ADS-2024-0315) between Solstice Biomedical Devices Ltd. and Ascendant Distribution Solutions LLC.
As you know, the Distribution Agreement provides for a five-year exclusive US distribution term for the Pulsar™ CRM System (FDA 510(k) No. K232847, Class II, Product Code MHX). In preparation for Solstice's planned October 1, 2024 US commercial launch, our team has been conducting a comprehensive US sales and marketing compliance review. As part of that review, we have identified several areas where the Distribution Agreement's compliance provisions should be strengthened to ensure robust alignment with federal healthcare compliance requirements. We believe these enhancements will benefit both parties and lay a solid foundation for a successful and compliant commercial partnership.
Attached for your review are redline and clean copies of proposed amendments to Sections 7 and 12 of the Distribution Agreement. I have summarized the key changes below.
**I. Proposed Amendments to Section 7 (Compliance)**
*A. Sub-Distributor Compliance Certifications*
The current agreement permits ADS to engage up to five authorized sub-distributors with Solstice's prior written approval. We propose adding a requirement that each sub-distributor execute a standalone Compliance Certification (in a form to be provided by Solstice) before commencing any distribution activities, with annual re-certification thereafter. The Compliance Certification must cover adherence to the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)), the False Claims Act (31 U.S.C. §§ 3729–3733), and applicable state marketing compliance laws.
*B. Sunshine Act Data-Collection and Reporting Obligations*
We propose a new sub-section requiring ADS to collect, track, and report to Solstice all transfers of value made by or on behalf of ADS (and its sub-distributors) to covered recipients—physicians and teaching hospitals—that are reportable under the Physician Payments Sunshine Act (42 U.S.C. § 1320a-7h). Data must be transmitted to Solstice in a format and on a timeline that allows Solstice to meet its CMS Open Payments reporting obligations. For reference, the 2024 reporting thresholds are $12.49 per instance and $100 in aggregate per covered recipient per calendar year. ADS would be required to provide quarterly data submissions, with a final annual reconciliation due no later than February 15 of the following year, enabling Solstice to meet the March 31 CMS reporting deadline. We note that Solstice's estimated Year-1 reportable transfers across all programs are approximately $650,000, a material portion of which may flow through or be initiated by ADS, underscoring the importance of reliable data-collection processes.
*C. Compliance Training Requirements for ADS Personnel*
We propose a new provision requiring all ADS personnel involved in the sale, marketing, or distribution of Pulsar™ products to complete Solstice-approved compliance training within 60 days of the amendment's effective date, and annually thereafter. The training curriculum must cover the Anti-Kickback Statute, the False Claims Act, Sunshine Act reporting, FDA promotional restrictions applicable to the Pulsar™ CRM System (cleared indications: continuous cardiac rhythm monitoring in adult patients with suspected or documented cardiac arrhythmias—with no off-label promotion), and AdvaMed Code of Ethics (2020 Revision) requirements, including the $150 per-person, per-event meal and hospitality cap.
*D. Enhanced Compliance Representations and Warranties*
The proposed amendments include enhanced representations that ADS has not been excluded from participation in any federal healthcare program and will promptly notify Solstice of any government investigation, subpoena, or enforcement action relating to the distribution of Pulsar™ products.
*E. Termination for Compliance Violations*
We propose clarifying Solstice's right to terminate the Distribution Agreement immediately upon written notice in the event ADS or any sub-distributor materially breaches the compliance provisions of Section 7, subject to a 30-day cure period for breaches that are reasonably curable.
**II. Proposed Amendments to Section 12 (Audit Rights)**
*A. Expanded Scope of Audit*
Currently, Solstice may audit ADS's compliance records with 30 days' written notice, up to twice per calendar year. We propose expanding the scope of auditable records to include: (a) all records relating to transfers of value to healthcare professionals and healthcare entities; (b) sub-distributor compliance certifications and training records; (c) promotional materials used by ADS in connection with Pulsar™ products; and (d) records of ADS compensation and incentive arrangements for personnel involved in Pulsar™ distribution, to confirm alignment with Anti-Kickback Statute requirements.
*B. "For Cause" Audit Right*
We propose a new provision allowing Solstice to conduct an additional audit outside the twice-per-calendar-year limitation if Solstice has a reasonable, good-faith basis to believe a compliance violation has occurred, with 15 days' written notice (rather than the standard 30).
*C. ADS Cooperation and Access*
ADS would be required to provide reasonable access to relevant personnel for interviews during audits and must not destroy or alter records subject to audit.
*D. Audit Costs*
Routine audits would remain at Solstice's expense. However, if an audit reveals a material compliance deficiency, ADS would bear the cost of that audit and any follow-up audit.
**III. Commission Structure**
For completeness, I wanted to note that our compliance review also examined the 18% commission on net US sales provided for in the Distribution Agreement. We have concluded that, with appropriate documentation and the safeguards reflected in the amendments proposed herein, the commission structure can be maintained in a manner consistent with applicable safe harbor requirements. Accordingly, no amendment to the commission provisions is proposed at this time.
**IV. Relationship to Broader Compliance Framework**
These proposed amendments are part of a broader compliance framework being developed for Solstice's US commercial operations, which encompasses physician consulting agreements, speaker programs, sales compensation structures, and compliance program infrastructure—including a compliance hotline operated by Clearpath Ethics Services Inc. The amendments are designed to ensure that Ascendant's role as exclusive US distributor is fully integrated into this compliance architecture from the outset.
**V. Requested Timeline and Next Steps**
We respectfully request that you and Greg Paige provide comments on the proposed amendments within 15 business days—i.e., by **July 22, 2024**. Given the October 1, 2024 planned US commercial launch date, it is important that we finalize these amendments well in advance to allow adequate time for implementation, including sub-distributor certifications and personnel training.
To facilitate discussion, I would like to propose scheduling a call during the **week of July 8** to walk through the amendments in more detail. I am happy to coordinate availability among all parties copied on this message. Please do not hesitate to share any preliminary questions or concerns in the interim—we are committed to working collaboratively toward mutually acceptable language.
We sincerely appreciate Ascendant's partnership and cooperation as we work together to build a strong compliance foundation for the US launch of the Pulsar™ CRM System. We look forward to your feedback.
Best regards,
**Amy Whitfield** Associate, Healthcare & Life Sciences Calderwood & Harkness LLP 1250 Avenue of the Americas, 38th Floor New York, NY 10020 Direct: (212) 554-3891 Email: awhitfield@calderwoodharkness.com
**Attachments:** 1. Redline — Section 7 (Compliance), ADS Distribution Agreement (Ref. SBD-ADS-2024-0315) 2. Redline — Section 12 (Audit Rights), ADS Distribution Agreement (Ref. SBD-ADS-2024-0315) 3. Clean Copies — Proposed Amended Sections 7 and 12
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