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

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

3. 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. 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. 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. 6 Commercial Considerations Returns, Rebates and Chargebacks Manufacturing and Supply

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

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

9. 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. 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. 11 Manufacturing and Supply Transition Services Objectives of the Parties –Capacity –Liability Structure appropriate incentives – e.g., escalating supply costs

12. 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