Special Issues in M&A Transactions for Marketed Products

1. Special Issues in M&A Transactions for Marketed Products John A. Hurvitz Covington & Burling Washington, DC jhurvitz@cov.com (202) 662-5319

2. Overview • Purchased Assets • Regulatory Issues • Returns, Rebates and Chargebacks • Manufacturing and Supply • Liability

3. 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

4. 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

5. 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

6. Commercial Considerations • Returns, Rebates and Chargebacks • Manufacturing and Supply

7. CONSUMER Premium Payment Flow Rebate Flow EMPLOYER/PLAN SPONSOR OR HEALTH INSURER Product Flow Negotiated Payment Member Cost Share or Payment for Drug if Cash Pay PHARMACY BENEFITS MANAGER DRUG WHOLESALER/ DISTRIBUTOR PHARMACY (Retail, Mail-order) Negotiated Payment Prompt Pay. Volume Discounts DRUG MANUFACTURER Source: The Health Strategies Consultancy LLC

8. Returns • Notify Distributors • Split or Mark Lots • Channel Stuffing vs. Accelerated Returns • Shelf life

9. 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

10. 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

11. Manufacturing and Supply • Transition Services • Objectives of the Parties • Capacity • Liability • Structure appropriate incentives – e.g., escalating supply costs

12. Liability • Transition as of closing, except: • manufacturing defects in inventory or under transition supply agreement • Post closing activities of Buyer • Formula for prorating

13. Special Issues in M&A Transactions for Marketed Products John A. Hurvitz Covington & Burling Washington, DC jhurvitz@cov.com (202) 662-5319