special issues in m&a transactions for marketed products john a. hurvitz covington & burling...
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Special Issues in M&A Transactions for Marketed Products
John A. Hurvitz
Covington & Burling
Washington, DC
(202) 662-5319
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Overview
• Purchased Assets• Regulatory Issues• Returns, Rebates and Chargebacks• Manufacturing and Supply• Liability
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Purchased Assets
• Discrete Assets Will Be Conveyed – e.g., INDs, NDAs, Inventory, Patents, Trademarks, Contracts– Territorial restrictions– Wary of sufficiency representations
• Hybrid Asset Purchase, License, Right of Reference• Partial Assignment of Contracts• Personnel• Diligence Considerations
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Regulatory Issues
• United States– Practical considerations
• Europe– Tripartite Process
• Seller must apply for transfer• Buyer must affirmatively agree to assume responsibilities• Regulatory authorities must be assured that buyer can
and will assume legal and regulatory responsibility
– Closing Cannot be Conditioned on Transfer
• Pharmacovigilence
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European Practice Points
• Complexity Depends on the Manner of Approval– Centralized Approvals – clear process– Otherwise, up to 25 national marketing authorizations that are
transferred in different ways at different times
• Regulations permit selling of product without MA to ensure continuity of supply complexity
• Pricing and reimbursement typically attach to product
• Pending Applications
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Commercial Considerations
• Returns, Rebates and Chargebacks• Manufacturing and Supply
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PHARMACY(Retail, Mail-order)
DRUGWHOLESALER/DISTRIBUTOR
PHARMACYBENEFITSMANAGER
EMPLOYER/PLANSPONSOR OR
HEALTH INSURER
DRUGMANUFACTURER
CONSUMERPayment Flow
Rebate Flow
Product Flow
Prem
ium
NegotiatedP
ayment
NegotiatedP
ayment
Mem
ber Cost S
hare orP
ayment for D
rug if Cash P
ay
Prom
pt Pay.
Volum
e Discounts
Source: The Health Strategies Consultancy LLC
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Returns
• Notify Distributors• Split or Mark Lots• Channel Stuffing vs. Accelerated Returns
– Shelf life
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Rebates and Chargebacks
• Financial– Match responsibility with economic benefit– Chargebacks based on sale by wholesaler– Rebates based on utilization
• Government – e.g., Medicaid• Private – e.g., PBMs
– Rough justice based on pipeline– Sunset period
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Rebates and Chargebacks (cont’d)
• Regulatory– Seller must process and report rebates on its NDC
number– Buyer cooperation
• Reporting for “Best Price” calculations• Price increases can affect rebates
– Restrict price increases
– Cap liability
• Transition products from Seller’s to Buyer’s FSS
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Manufacturing and Supply
• Transition Services• Objectives of the Parties
– Capacity– Liability
• Structure appropriate incentives – e.g., escalating supply costs
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Liability
• Transition as of closing, except:– manufacturing defects in inventory or under
transition supply agreement– Post closing activities of Buyer
• Formula for prorating
Special Issues in M&A Transactions for Marketed Products
John A. Hurvitz
Covington & Burling
Washington, DC
(202) 662-5319