On September 22, 2011, the Delaware Chancery Court awarded PharmAthene, Inc. a 50 percent share of profits above a certain threshold amount from sales of SIGA Technology Inc.’s pharmaceutical product known as ST-246, due to SIGA’s failure to negotiate in good faith for the grant of a license to PharmAthene. The outcome of this case provides an important reminder to executives, attorneys, and business development professionals that an obligation to negotiate in good faith is an enforceable obligation, which, if breached, can result in a significant award of damages.
On May 10th, at Foley & Lardner LLP’s 2011 Boston Life Sciences conference, I participated on a panel entitled “Match Making: Identifying Partners, Creative Collaborations and Long Term Outcomes.” Mike Morency, Ph.D., an Intellectual Property partner in Foley’s Boston office moderated the discussion among John A. Delyani, Ph.D., M.B.A., Head, Therapeutic Areas for Strategic Alliances at the Novartis Institute of BioMedical Research, Gerry Brunk, Managing Director at Lumira Capital, and me.
A number of interesting and instructional points were raised during the discussion, including:
- The general lack of an IPO market for life sciences companies and the resulting reliance on acquisitions as an exit for venture investors. Many more companies are approaching big pharma with acquisition proposals as a preferred structure to traditional collaboration and licensing deals. However, it was pointed out that acquisitions typically come with more risk for the acquiring company, and as a result, sometimes overall deal valuation can be lower than a traditional partnering structure in order to account for the increased risk.
- The importance of structuring collaboration and licensing deals to retain sufficient value for future investors and potential acquirors.
- The panel pointed out Epizyme and Plexxikon as examples of companies that successfully retained value in their collaboration deals. Epizyme’s March 2011 worldwide partnership with Eisai includes a right for Epizyme to opt into a profit share and co-commercialization arrangement in the United States. Plexxikon’s 2006 deal with Roche similarly included a co-promotion right. In January, Plexxikon exercised this co-promotion right, paving the way to Plexxikon’s acquisition by Daiichi Sankyo in March 2011.
- As a correlative point, the panel commented that companies should use caution when considering deal terms that may be viewed as unattractive to a potential acquiror. For example, obligations to license improvements or other intellectual property rights in the field, or broad noncompetition provisions may prevent acquisitions if the acquiring company does not want to be subject to those obligations. Of course, unfavorable change-of-control provisions could also effectively block future acquisitions.
- Bare-knuckle tactics are not as prevalent as some might think. Recent comments from some members of the venture community have criticized big pharma for engaging in aggressive and inappropriate negotiating tactics when dealing with life sciences companies, including walking away from fully-negotiated deals shortly before signing. The panel agreed that while this is currently a buyer’s market, they have not seen a change in negotiating tactics. It was further pointed out that sometimes it is the biotech company that walks away from a deal at the last minute, sometimes due to another partner becoming involved or for other reasons.
- The ways big pharma accesses new technology.
- John Delyani indicated that there is a relatively small team responsible for reviewing and analyzing the huge number of potential partnering and acquisition opportunities that are presented to them.
- In response to a question from the audience as to whether it is better for interested companies to approach big pharma scientists, executives, business development representatives or others, John advised that interested companies would have the best chance of success going through the business development team.
- In response to my question about whether more deals originate from the business development team’s outreach activities, such as discussions at partnering meetings, or opportunities sent in from interested parties, John said that a significant majority of their deals originate from business development’s scouting and outreach activities.
On May 16th, Amylin Pharmaceuticals announced that it had filed a lawsuit against Eli Lilly alleging that Lilly is engaging in anticompetitive activity and breaching its strategic alliance agreements with Amylin to maximize commercialization of BYETTA® (exenatide) injection, a first line treatment for type 2 diabetes. In September 2002, Amylin and Lilly entered into a Collaboration Agreement, U.S. Co-promotion Agreement and several related agreements for the development and commercialization of BYETTA. The companies are also collaborating on the development of BYDUREON™, a weekly dosage formulation of exenatide.
Amylin disclosed that in its sealed complaint filed with the United District Court for the Southern District of California, Amylin has alleged that Lilly is engaging in improper, unlawful and anticompetitive behavior in the manner in which it plans to implement its recent global alliance with Boehringer Ingelheim for BI’s TRADJENTA™ (linagliptin) tablets, a once-daily treatment for type 2 diabetes. Amylin is principally seeking to prevent Lilly from using the same sales force to sell both exenatide and TRADJENTA.
Since the complaint was filed under seal, we do not know Amylin’s specific arguments as to how Lilly breached the agreements with Amylin. These agreements have been publicly filed with the SEC (see here for the Co-Promotion Agreement and here for the Collaboration Agreement), so a review of some of the provisions may shed some light on the possible arguments by each party.
Sometimes collaboration or co-promotion agreements include provisions prohibiting a partner from developing or commercializing a competitive product. Neither the publicly filed Collaboration Agreement nor the Co-Promotion Agreement appear to include an explicit non-competition provision.
The Co-Promotion Agreement indicates in Section 2.1 that “The principal objective of the Parties hereunder is to maximize the commercialization of the Product in the [United States of America]” (emphasis added). The number of details and other specific obligations of the parties with respect to commercialization efforts are covered by the Commercialization Plan established by the parties’ Joint Commercialization Committee. The Commercialization Plan has not been publicly filed.
Section 3.7 of the Co-Promotion Agreement will presumably be an important aspect of the case:
3.7 PROMOTION OF OTHER PRODUCTS
While this Agreement is in effect, each Party has the right to have its Product sales force detail other products in any detail positions not reserved by the Parties for Product.
In the development responsibilities section of the Collaboration Agreement (Section 2.4(a)), there are a couple references to Lilly’s obligations to “maximize the commercial value of the Product:”
Lilly will use Commercially Reasonable Efforts, as provided in the Development Plan, to develop and obtain Marketing Approval for the Product outside of the U.S., and to maximize the commercial value of the Product.
Lilly will use Commercially Reasonable Efforts to assist Amylin, as provided in the Development Plan, to conduct Development of and obtain Marketing Approval for the Product in the U.S. and to maximize the commercial value of the Product.
The commercialization sections of the Collaboration Agreement do not include the same “maximize the commercial value of the Product” obligations, instead requiring Lilly to use Commercially Reasonable Efforts to commercialize in accordance with a Commercialization Program approved by the parties’ Joint Commercialization Committee. The Commercialization Program and other specific details about the parties’ respective commercialization efforts have not been publicly filed.
Hopefully, further details of the parties’ respective arguments in the case will come to light. Those arguments and the outcome of the case could provide a number of lessons for future deal-making. Stay tuned.
When a drug candidate is licensed to different licensees in different territories, the ability of each licensee to obtain marketing approval for the product may depend on access to data generated by the other. While license agreements do not always address this issue, there are some terms that can be useful in this type of situation.
Last year, a U.S. biotech company received a complete response letter from FDA for its experimental therapy. The results of two Phase III studies were submitted with the company’s New Drug Application (NDA). Unfortunately, the primary endpoint was not met in one of the studies. The FDA advisory committee recommended approval, but in the end, FDA required additional clinical testing to approve the drug.
The twist here is that data from a Phase III study in Japan had showed that the drug was safe and effective, but patient-level data was not included in the U.S. NDA because that data was not available to the U.S. company. You see, the U.S. biotech company is a licensee of the experimental drug product, but Japan is not part of its territory. Another licensee has Japanese rights and owns the results from the Phase III study conducted in Japan.
Would the patient-level data have been enough for FDA to approve the therapy? Maybe not.
Can provisions be inlcuded in license agreements to provide a licensee with access to data generated by another licensee? Yes.
Following are sample provisions from two publicly-filed agreements, where a non-worldwide licensee negotiated for access to data generated by other licensees.
In the 2007 Collaboration Agreement between Amgen and Daiichi Sankyo for rights to commercialize denosumab in Japan, the parties agreed to the following terms with respect to sharing of regulatory filings and clinical data in each other’s territory:
4.8 Sharing of Regulatory Filings. Each of the Parties will disclose to the other a draft copy of any Regulatory Filing in the Territory in the original language no less than thirty (30) days prior to filing it with a Governmental Authority. Each Party will consider in good faith any comments made by the other Party with respect to such filings. Each Party shall, no less frequently than quarterly, and more often as reasonably requested by the other Party, provide to the other Party (in such format as reasonably requested) all material preclinical and clinical data arising out of or relating to Dmab in trials thereof in the Territory (and outside the Territory, for Amgen) (or such subset of such data as the Parties may agree). Each of the Parties shall maintain a database which contains all clinical trial data accumulated from all clinical trials of Dmab in the Territory (in a computer readable format reasonably requested by Amgen). Upon the request of either Party, the other Party shall provide a right of reference to any requested Regulatory Filings or Regulatory Approvals in the Territory, and Amgen shall provide the same such right of reference to Collaborator with respect to such Regulatory Filings and Regulatory Approvals outside the Territory, in each case as reasonably necessary for the requesting Party’s development or commercialization of Dmab as permitted hereunder (or, with respect to Amgen, manufacture of Dmab). Notwithstanding the foregoing, Amgen shall not be required to provide to Collaborator nor to allow Collaborator to access (but shall provide a right of reference as set forth in Section 4.15.3 (Amgen Cooperation) to the extent necessary) Amgen’s manufacturing information with respect to Dmab or any sections of any such Regulatory Filing related thereto and neither Party shall have an obligation to provide information relating to any product other than Dmab.
In another Daiichi Sankyo agreement, this one the 2008 License, Co-Development and Co-Commercialization Agreement with ArQule for rights to ArQule’s oncology candidate, ARQ 197, outside of Japan and certain other Asian countries, the parties included the following provision for sharing data among licensees:
3.10.3 Right of Access. Each Party shall provide the other Party with access to all clinical project plans and clinical data, results and information derived from or relating to all Clinical Trials conducted, and all Regulatory Filings prepared, with respect to Collaboration Compounds and/or Licensed Products (collectively, “Product-Related Data”) in English and at no additional cost or expense. Notwithstanding anything to the contrary in this Agreement, ARQULE (a) may use, and provide to its Third Party licensees and collaborators, such Product-Related Data; provided, that, (i) ARQULE shall only have the right to share such Product-Related Data to its Third Party collaborators and licensees that have granted ARQULE the reciprocal right to share with DS clinical data, results and information, and information derived from or related to Regulatory Filings controlled by such Third Party collaborators and licensees for use with Licensed Products under this Agreement and (ii) ARQULE shall, upon DS’s request, use Commercially Reasonable Efforts to coordinate a global clinical trial targeting both within the Territory and the Asian Territory involving its Third Party collaborators and DS; (b) may use such Product-Related Data for the performance of its obligations and exercise of its rights under this Agreement; and (c) shall have a right of access, a right of reference and a right to use and incorporate all such Product-Related Data in any Regulatory Filings and Drug Approval Applications it makes with respect to Licensed Products. The Parties shall cooperate so that such Product-Related Data is transferred to ARQULE as expeditiously as possible.
These may or may not be model provisions, but they are two real-world examples of terms that have been used to provide a licensee with rights to data generated by the licensor or other licensees.
On March 16, 2011, Depomed, Inc. disclosed in an SEC filing that it entered into a settlement agreement with Abbott Laboratories to terminate an exclusive license agreement between the parties relating to Depomed’s gabapentin product. I have been paying close attention to this situation because it involved a potential dispute between the parties as to the meaning of diligence provisions in the license agreement.
In January, Abbott notified Depomed that despite the pending NDA for Depomed’s product, DP-1796, Abbott believed it was not obligated to launch and commercialize the product. A couple of weeks later, FDA approved DM-1796, or Gralise™ (Gabapentin) Tablets, for once-daily treatment of post-herpetic neuralgia (PHN), which is pain following healing of the rash associated with shingles. The parties engaged in a mediation proceeding and on March 16, disclosed the settlement of the dispute.
I have been curious to know what kind of argument Abbott may have had that, as an exclusive licensee, it was not required to launch and commercialize the licensed product after FDA approval. Depomed certainly did not see how Abbott could take this position as Depomed’s CEO said he was perplexed by Abbott’s decision.
The agreement was an Exclusive License Agreement between Depomed and Solvay Pharmaceuticals dated November 19, 2008. Abbott acquired Solvay in February 2010 and therefore assumed Solvay’s rights and obligations as licensee under the agreement. The agreement was publicly filed by Depomed with its Form 10-K filed with the SEC in March 2009.
Following are the diligence provisions in the license agreement as filed with the SEC (apologies for all of the redactions):
4.2 Commercially Reasonable Efforts to Commercialize. Commencing upon issuance to Solvay of Regulatory Approval with respect to the Product in a country of the Territory, Solvay will exercise Commercially Reasonable Efforts to commercialize the Product in the Field in such country of the Territory. Without limiting the foregoing, Solvay shall, itself or through Affiliates or sublicensees, Launch the Product in each country of the Territory within [***] days after it receives a letter from the Regulatory Authority in such country stating that the Product is approved in such country.
4.3 Specific Activities. Subject to Section 4.2 and provided that no Generic Product has been approved for commercial sale in the Field in the United States, and except to the extent limited by restrictions imposed by any Governmental Authority or Applicable Law, Solvay agrees to engage in the following specific activities relating to the Product in the United States:
(a) – (q) [Mostly redacted]
4.4 Promotional Requirements. Provided that no Generic Product has been introduced in the Field in the United States, and except to the extent expressly prohibited or restricted by Governmental Authority or Applicable Law, Solvay shall, in the United States, perform the activities described in subsections (a) and (b):
(a) conduct Details with respect to the Product in the Field in the Territory as follows:
(i) if the AE Profile relating to somnolence is [***], then a minimum of [***]; or
(ii) if the AE Profile relating to somnolence is [***], then a minimum of [***]; and
(b) spend not less than:
(iii) [***] Dollars ($[***]) on Promotional Expenditures in and/or [***];
(iv) [***] Dollars ($[***]) on Promotional Expenditures in [***];
(v) in [***], an amount equal to [***]; and
(vi) in [***], an amount equal to [***].
Section 4.2 provided a general obligation for Abbott to use Commercially Reasonable Efforts to commercialize the product and specifically required launch after approval. The definition of “Commercially Reasonable Efforts” was almost entirely redacted. It would be interesting to know Abbott’s position as to how Section 4.2 did not require it to launch and commercialize the product after FDA approval.
While Sections 4.3 and 4.4 have been heavily redacted, they set forth specific obligations for Abbott to perform a minimum number of Details and spend a minimum amount of money on promotional activities. On a conference call, Depomed said that the value of these activities was estimated at between $85 million and $135 million.
Sections 4.3 and 4.4 would not have applied if a Generic Product had been approved for sale or introduced in the Field in the U.S. The license agreement defines “Generic Product” as follows:
“Generic Product” means a pharmaceutical product that is the subject of either (i) an Abbreviated New Drug Application referencing data contained in an NDA and for which Regulatory Approval has been granted by the FDA, or (ii) an equivalent application and equivalent approval by a regulatory authority for such a pharmaceutical product in the OUS Territory.
The Generic Product definition above does not appear to be limited to generics of Depomed’s proprietary formulation of gabapentin. Did Abbott try to use the Generic Product wording as a limitation on its obligations?
Gabapentin in other formulations has been available as a generic since 2004. Did Abbott argue that the generic gabapentin products made Sections 4.3 and 4.4 inapplicable even though the generic versions already were available when the agreement was signed?
Abbott eventually agreed to terminate the license agreement and pay Depomed $40 million, so presumably the diligence provisions held their ground in the end.
On June 15, 2010, Neurocrine Biosciences, Inc. and Abbott International Luxembourg S.à r.l entered into a $575 million collaboration deal for the development and commercialization of elagolix, Neurocrine’s novel, first-in-class oral gonadotropin-releasing hormone (GnRH) antagonist for the treatment of endometriosis-related pain and uterine fibroids. The collaboration agreement was filed by Neurocrine with the U.S. Securities and Exchange Commission. While the publicly filed agreement has been heavily redacted, a significant portion of the agreement is available for review, and there are a number of provisions that may be of interest to practitioners, business development professionals, and others in the pharma space.