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Distribution Agreements
12 Months Ended
Dec. 31, 2015
Distribution Agreements [Abstract]  
Distribution Agreements

4.  Distribution Agreements

 

PhotoFix Distribution Agreement  

 

In 2014 CryoLife entered into an exclusive supply and distribution agreement with GBI to acquire the distribution rights to PhotoFix, a bovine pericardial patch stabilized using a dye-mediated photo-fixation process that requires no glutaraldehyde.  PhotoFix has received FDA 510(k) clearance and is indicated for use in intracardiac repair, including ventricular repair and atrial repair, great vessel repair and suture line buttressing, and pericardial closure. 

 

The agreement between CryoLife and GBI (the “GBI Agreement”) has an initial five-year term and is renewable for two one-year periods at CryoLife’s option.  Under the terms of the GBI Agreement, CryoLife is purchasing PhotoFix inventory for resale at an agreed upon transfer price and has the option, which became effective in March 2015, to acquire the PhotoFix product line from GBI.  In January 2015 the Company received its initial shipments and launched its distribution of PhotoFix.

 

ProCol Distribution Agreement  

 

In 2014 CryoLife acquired the exclusive worldwide distribution rights to ProCol from Hancock Jaffe.  The agreement between CryoLife and Hancock Jaffe (the “HJ Agreement”) has an initial three-year term and is renewable for two one-year periods at CryoLife’s option.  Per the terms of the HJ Agreement, CryoLife has the option to acquire the ProCol product line from Hancock Jaffe beginning in March 2016.

 

ProCol, which is approved for sale in the U.S., is a biological graft derived from a bovine mesenteric vein that provides vascular access for ESRD hemodialysis patients.  It is intended for the creation of a bridge graft for vascular access subsequent to at least one previously failed prosthetic access graft.  ProCol is complementary to the Company’s HeRO, which also serves patients with ESRD; however, ProCol provides vascular access for ESRD patients in an earlier-stage of treatment protocol than the HeRO Graft. 

 

In accordance with the terms of the HJ Agreement, CryoLife made payments to Hancock Jaffe of $1.7 million during 2014 and $576,000 in January 2015.  In exchange for these payments, CryoLife obtained the right to receive a designated amount of ProCol inventory for resale, a portion of which the Company received in 2014 and 2015.  Subsequent to this initial inventory purchase, CryoLife can purchase additional units from Hancock Jaffe at an agreed upon transfer price.  The Company began limited distribution of ProCol in the second quarter of 2014.  On September 29, 2014 Hancock Jaffe received FDA approval of the Premarket Approval (“PMA”) Supplement associated with its new manufacturing facility, and the Company began shipping product made in this new facility in the fourth quarter of 2014.

 

CryoLife made additional advance payments of $1.1 million in the aggregate during the remainder of 2015.  As of December 31, 2015 CryoLife had made a total of $3.3 million in payments to Hancock Jaffe and had received $1.3 million in inventory.  Therefore, as of December 31, 2015 CryoLife had approximately $2.0 million in remaining prepayments on its Consolidated Balance Sheet for which inventory had not yet been received.  During the second quarter of 2015 CryoLife notified Hancock Jaffe that it was in breach of the HJ Agreement due to, among other things, Hancock Jaffe’s failure to timely ship inventory.  In the fourth quarter of 2015 CryoLife and Hancock Jaffe amended the HJ Agreement.  This amendment included new terms which, among other changes, confirm Hancock Jaffe’s breach of the HJ Agreement; accelerate and allow CryoLife to assign the purchase option; outline Hancock Jaffe’s requirements to be eligible for additional advances; and modify the termination provisions.  The amendment does not cure Hancock Jaffe’s breach of the agreement.  CryoLife is currently monitoring Hancock Jaffe’s compliance with the terms of the amended HJ Agreement and determining what additional steps it can take to help ensure receipt of inventory and repayment of the additional advances.  If CryoLife is unable to secure full satisfaction or repayment of the amounts owed, or sell its interest in the agreement for an amount equal to or in excess of the carrying value of the related assets, the prepayment may become impaired in future periods.