On Monday, August 13, the Federal Trade Commission published on its website a Notice of Proposed Rulemaking that addresses transactions in the pharmaceutical, biologics and medicine manufacturing (Pharma) industry. The new rule would tweak the application of the Hart-Scott-Rodino premerger notification rules to Pharma transactions, including particularly licensing and distribution arrangements. Some transactions that have not been subject to the often-burdensome HSR reporting requirements in the past might become reportable.
It has long been acknowledged that the grant of an exclusive license or assignment of a patent may be deemed the acquisition of an asset, and if certain jurisdictional thresholds are met, such a license is subject to HSR notification rules. The new proposal would tinker with the interpretation of “exclusive” by having that analysis turn on whether “all commercially significant rights ” have been granted by a licensor to a licensee. The NPRM clarifies that exclusivity is not undermined where a licensor retains co-rights with respect to FDA approval and marketing. In a departure from past interpretations, certain transactions that are now commonly thought of as non-reportable distribution arrangements could become reportable “acquisitions” (if the transaction and the parties meet certain dollar threshold jurisdictional tests). Specifically, a distribution arrangement in which the licensor grants rights to develop and market a pharmaceutical product to a licensee, but where the licensee will rely on the licensor to be the exclusive manufacturer of the product, cannot rely on the licensor’s manufacturing alone to make the “acquisition” non-exclusive (and thus non-reportable).
The proposed rule is limited to pharmaceuticals, biologics and medicine manufacturing, and the application of the HSR rules to licenses in other industries is expected to remain as it is today. The Pharma world, however, should take notice of the proposal and consider the implications for drug manufacturers, developers and distributors. The rule may have implications for how new drug development is financed. The FTC has invited comments on the proposal, and instructions for such comments are set forth in the NPRM (which can be found here). The deadline for comments is October 25, 2012. Drinker Biddle can help.