Merger Mania: Consolidation and the Potential Effects on Exclusivity

August 18, 2015

By Kurt R. Karst

It seems that hardly a week passes (and sometimes, hardly a day or two) without news of a new merger or acquisition in the pharmaceutical or biotechnology industries.  Indeed, 2015 may be a record-breaking year for such deals (see here, here, and here).  Whether we’re talking about generic-on-generic, brand-on-brand, or brand-on generic acquisitions, however, there are exclusivity considerations companies must keep in mind to avoid inadvertently losing (or triggering) exclusivity.  We highlight a couple of those considerations below. 

We’ll start on the generic drug 180-day exclusivity side of the fence, and, specifically, with the triggering event to start the 180-day period: commercial marketing.  The statute, at FDC Act § 505(j)(5)(B)(iv)(4), provides that subject to the statutory forfeiture provisions, if an ANDA from a non-first applicant (i.e., a subsequent applicant) contains a Paragraph IV certification, approval of such ANDA “shall be made effective on the date that is 180 days after the date of the first commercial marketing of the drug (including the commercial marketing of the listed drug) by any first applicant.”  This provision of the FDC Act was added by the 2003 Medicare Modernization Act (“MMA”) and incorporates FDA’s previous determination (Docket No. 2000P-1446) that commercial marketing of an authorized generic by a first-filer eligible for 180-day exclusivity triggers that exclusivity. 

Back in 2012, FDA applied the Agency’s pre-MMA interpretation of the statute with respect to Teva’s claim to 180-day exclusivity for a generic version of Cephalon’s PROVIGIL (modafinil) Tablets, 100 mg and 200 mg.  Teva had acquired Cephalon on October 14, 2011, and on March 20, 2012, Cephalon announced the launch of an authorized generic version of PROVIGIL by Teva.  FDA determined that Teva’s commercial marketing of the PROVIGIL authorized generic triggered Teva’s 180-day exclusivity such that it would expire 180-days later on September 26, 2012 (see our previous post here). 

But FDA could have determined that 180-day exclusivity had been triggered months before, on October 14, 2011 when Teva acquired Cephalon.  It was at that time that “Teva immediately began marketing PROVIGIL under Cephalon’s NDA.”  FDA laid out this option in a footnote to an April 4, 2012 Letter Decision:

We have considered finding that Teva’s marketing of PROVIGIL upon its acquisition of Cephalon triggered its 180-day exclusivity, and believe that there is a strong argument for finding so.  We have refrained from adopting that interpretation in this case, however, because that exclusivity, if it were triggered by Teva’s acquisition of Cephalon, would expire on April 11, 2012 and, given the multiple uncertainties in this case, Teva had no notice that FDA considered it to be running.  Because of the potential for collusion between NDA holders and captive first generics, and the subversion of the statutory scheme that could result, the agency may in the future provide guidance on the effect of such a relationship between NDA holder and first applicant upon any claim for 180-day exclusivity.

We’re not aware of any further guidance from FDA on this issue, or whether or not the Agency has applied this position in other circumstances, but it’s clearly an issue FDA has considered and believes is consistent with the law.  With complex merger and acquisition deals, companies should not forget about this possibility . . . and ANDA applicants that might otherwise be blocked by 180-day exclusivity should also be aware of this FDA position in case it needs to be argued to FDA. 

Moving on to biological products, we note a provision added to the PHS Act by the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”).  Specifically, PHS Act § 351(k)(7), which concerns Reference Product Exclusivity (“RPE”), includes certain “anti-evergreening” provisions.  One of those provisions provides that the 12-year and 4-year RPE periods do not apply in the case of:

a subsequent application filed by the same sponsor or manufacturer of the biological product that is the reference product (or a licensor, predecessor in interest, or other related entity) for— (I) a change (not including a modification to the structure of the biological product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device, or strength; or (II) a modification to the structure of the biological product that does not result in a change in safety, purity, or potency. [(Emphasis added)]

In other words, for purposes of determining the start of the 12-year and 4-year RPE periods – i.e., the date of first licensure of a reference product –  FDA must take into consideration corporate relationships between sponsors. 

FDA provided insight on how the Agency intends to apply the “licensor, predecessor in interest, or other related entity” criterion in draft guidance issued in August 2014 (see our previous post here).  FDA explained that:

With respect to 351(k)(7)(C), the Agency intends to interpret the term “predecessor in interest” as it does in the 3-year new drug product exclusivity context.  It will consider any entity that the sponsor has taken over, merged with, or purchased, or that has granted the sponsor exclusive rights to market the biological product under the 351(a) application, or had exclusive rights to the data underlying that application to be a predecessor in interest for purposes of the first licensure provisions at section 351(k)(7)(C) of the PHS Act.

The Agency intends to consider a “licensor” under the BPCI Act to be any entity that has granted the sponsor a license to market the biological product, regardless of whether such license is exclusive.  This term would include, for instance, entities that continue to retain rights to develop, manufacture, or market the biological product, and/or rights to intellectual property that covers the biological product.

Although the BPCI Act does not define the term “other related entity,” the Agency generally will consider an applicant to be a “related entity” in this context if (1) either entity owns, controls, or has the power to own or control the other entity (either directly or through one or more other entities) or (2) the entities are under common ownership or control.  The Agency also may find that two parties are related entities for purposes of the BPCI Act if the entities are or were engaged in certain commercial collaborations relating to the development of the biological product(s) at issue.  In analyzing whether the relationship between the parties would result in a finding that they were “other related entities,” the Agency expects to consider not only ownership and control of the investigational new drug application (IND) and the BLA, but also the level of collaboration between the entities during the development program as a whole.

What this seems to indicate is that RPE determinations may very well be fluid because of after-the-fact happenings between companies.  Thus, FDA might determine, after granting two sponsors each a period of RPE for essentially the same biological product, that after a merger of the two sponsors (or the acquisition of one by the other), there is now, post-hoc, a different date of first licensure for the later approved product.  Such a post-hoc decision could significantly alter the landscape for biosimilar competition and affect how companies strategize about the BPCIA’s “patent dance” procedures.    Similarly, if a sponsor with RPE files a patent infringment lawsuit against a competitor developing essentially the same product, any settlement of the lawsuit that involves a license would presumably shorten the RPE of the competitor’s product.

As the merger and acquisition rage continues, buyers and sellers should take note of the potential effects on exclusivity: caveat emptor (and caveat venditor)!