Question
TRANSACTIONDESCRIPTION AND ANALYSIS
FACTS
CorporationA is (i) its own ultimate parent entity, (ii) headquartered in the United States with worldwide operations and(iii) engaged in the manufacture and sale of prescription drugs, including aparticular prescription drug (the "Prescription Drug"). Corporation Bis (i) its own ultimate parent entity, (ii) headquartered in the United States with worldwide operations(although much smaller than the operations of Corporation A) and (iii) engagedin the manufacture and sale of prescription drugs, but not including thePrescription Drug. Corporation A and Corporation B satisfy the size-of-the-partiestest.
CurrentlyCorporation A is the sole manufacturer of the Prescription Drug and, except inthe United States, the sole seller of the PrescriptionDrug worldwide. The sales by Corporation A worldwide, except the United States, in each of 2006 and 2007 wereapproximately $85 million, with the majority of sales being made in Europe. As to the sales of thePrescription Drug in the United States,Corporation A. previously sold all United States commercial rights to the Prescription Drug to CorporationC, which subsequently assigned such rights to Corporation D. Thesecommercial rights were comprised of intellectual property rights specific tothe Prescription Drug (including United States patents, trademarks and domain names), the new drugapplication for the PrescriptionDrug filed with the United States Food and Drug Administration, and certain of the Prescription Drugmarketing materials and other documentation related to the Prescription Drugmaintained by Corporation A. In addition, Corporation A and Corporation D haveentered into a supply agreement pursuant to which Corporation A supplies thePrescription Drug to Corporation D for sale in the U.S. Corporation D did notobtain from Corporation A or Corporation C any patent rights related to the processor manufacture of the Prescription Drug. The sales by Corporation D of thePrescription Drug in the United Statesin each of 2006 and 2007 were less than $10 million.
Corporation A proposes to sell all non-United Statescommercial rights to the Prescription Drug to Corporation B for approximately$150 million. The commercial rights arecomprised of non-United States intellectual property rights specific to thePrescription Drug (including patents, trademarks, and domain names), the healthregistrations for the Prescription Drug held in the various foreign countries(the "Health Certificates"), certain contracts relating exclusivelyto the Prescription Drug, and certain marketing materials and otherdocumentation related to the Prescription Drug maintained by Corporation A (the"Assets"). The Assets also include a United States factory processpatent which could be used in the manufacture of the Prescription Drug in the United States.Both as to the prior transaction with Corporation D and as to this transactionwith Corporation B, Corporation A has retained through a license back ofintellectual property enough rights to allow Corporation A to manufacture theingredients for the Prescription Drug that Corporation A has agreed to supplyto Corporation D and will agree to supply to Corporation B.
Inthat regard, Corporation A currently manufactures the Active PharmaceuticalIngredients ("API") for the Prescription Drug at one of itsfacilities in Europe. However, Corporation A has contracted withCorporation E, which is located in the United States, to process the API into thePrescription Drug (mixing the powdered API in a saline solution) and to packagethe Prescription Drug for supply to Corporation D and for worldwidedistribution by Corporation A.
TheHealth Certificates are not immediately transferable upon the sale of theAssets. Corporation A and Corporation B are required to apply for the transferof the Health Certificates in each foreign jurisdiction and Corporation B mayonly sell the Prescription Drug in each such jurisdiction upon the transfer ofthe applicable Health Certificate. Because Corporation A continues to hold theHealth Certificates for some period afterclosing, as part of the sale of the Assets, Corporation A will agree tocontinue to make sales of the Prescription Drug in the foreignjurisdictions for a period not to exceed two years, or until such earlier timeas the Health Certificates are transferred in theforeign countries. During this interim period, Corporation A will continue tosend the API manufactured in its facilities in Europe to Corporation Ein order to process and package thePrescription Drug in the United States under the Corporation A name, andCorporation A will continue to own the Prescription Drug that it sells outsidethe United States. During this time period, and as part of the purchaseof the Assets, Corporation B will receive approximately 30% of the proceedsfrom the sales of the Prescription Drug by Corporation A in the foreignjurisdictions. Once Corporation B receives a Health Certificate for aparticular foreign jurisdiction, Corporation B will sell the Prescription Drugin that jurisdiction under the Corporation B name.
Although the Assets do notinclude the right to sell the Prescription Drug in the United States, the Assets do include thefactory process patent to manufacture the Prescription Drug in the United States. Corporation A values the patentright to manufacture the Prescription Drug in the United States at zero,attributing this low value to the fact that Corporation D has the sole right to sell thePrescription Drug in the United States. But even if the United States patent had a greater value than zero, it would besubstantially less than $59.8 million.
It is almost certain thatCorporation B will contract with a third party tomanufacture the Prescription Drug, overseas or in the United States. Corporation B currently is innegotiation with Corporation E to have Corporation A's rights under Corporation A's contract withCorporation E assigned to Corporation B, or to enter into a new contract with Corporation E for the processing and packaging of thePrescription Drugunder Corporation B labels at such time as Corporation B receives permits tosell in foreigncountries. Corporation B will not acquire any manufacturing facilities fromCorporation A, whether in the United Statesor elsewhere, and will not hire any employees of Corporation A.
Following the sale of theAssets, Corporation A proposes to sell to Corporation B for approximately $110million an estimated six year supply of API for the Prescription Drug (the"Inventory") for sale in the foreign jurisdictions. The Inventory ofAPI has been manufactured by Corporation A in its facilities in Europe andwill remain stored in such facilities until such time as Corporation B decidesto have the Inventory processed and packaged.It is likely that Corporation B will reach an agreement with Corporation E tohave the Inventory of API processed into the Prescription Drug and packaged inthe United States under the Corporation B name. CorporationA has closed its production line in Europe for manufacture of API for the Prescription Drug because Corporation Abelieves that it has already made enough API to meet its supply obligations toCorporation B and to Corporation D. The patent protection for the manufactureof API for the Prescription Drug expires in 2013.
QUESTION
Is any filing required under theHart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the"Act"), in connection with the transactions described above?
ANALYSIS
The acquisition of assets isreportable under the Act if the value of the assets is $59.8 million (thecurrent threshold, subject to adjustment). However, under 16 C.F.R. 802.50, the acquisition of assetslocated outside the United States is exempt from the requirements of the Actunless the foreign assets the acquiring person would hold as a result of theacquisition generated sales in or into the United States exceeding $59.8 million (the current threshold,as adjusted) during the acquired person's most recent fiscal year.
In this instance, the Assets consist of foreign patents,foreign trademarks and related contracts performed in foreignjurisdictions (with the exception of the patent right to manufacture the PrescriptionDrug in the United States). Becausethe Assets (with the exception of the patent right to manufacture thePrescription Drug in the United States)relate only to foreign jurisdictions, the Assets to be acquired could not havegenerated sales in or into the United States. As to the patent right to manufacture the PrescriptionDrug in the United States, its fair market value may not be zero, but it iscertainly less than$59.8 million, where Corporation D has the sole right to sell the PrescriptionDrug in the UnitedStates, the annual sales in the United States of the Prescription Drug are lessthan $10 million and the largest current sales of the Prescription Drug aremade in Europe, where the Prescription Drug is currently manufactured.
The Inventory consists of API for the Prescription Drugmanufactured in Europe and stored in Europe. None of the Inventory thatCorporation B will acquire can ever be processed into the Prescription Drug andsold in the United States because thatright belongs exclusively to Corporation D. Therefore, the Inventory hasnot and cannot ever generate any revenues in or into the United States.
In view of the foregoing, it is our understanding that thetransactions described above would be exempt from the filing requirements underthe Act.