• Indication-Splitting Deal Structures
  • October 27, 2003 | Author: Judith A. Hasko
  • Law Firm: Cooley Godward LLP - Palo Alto Office
  • More than ever, biopharmaceutical companies are considering whether to structure their corporate partnering deals in a manner that involves indication-splitting -- i.e., a transaction in which the partner receives licenses to sell a given drug formulation only to treat a particular condition while the grantor retains rights to sell the same, or interchangeable formulations of the same drug, for other uses.

    In the 1990s, this controversial practice gained notoriety for spawning long and expensive disputes over the allocation of product revenues between companies having rights to sell into the same market the same drug formulation to treat different diseases. Such disputes arise because in certain countries (including the United States) physicians can prescribe an approved drug for any purpose, and because methods of tracking which conditions afflict the patients to which a pharmaceutical is sold are either imprecise or unavailable. Until recently, biopharmaceutical companies would not pursue an indication-splitting deal structure in view of the complexities and potential pitfalls of such deals for both parties. Accordingly, corporate partners would typically receive licenses for all uses of a given pharmaceutical product formulation.

    However, as the current economic climate spurs biopharmaceutical companies to find maximum value in every deal, such companies are exploring new ways of allocating product-marketing rights for different indications in their corporate-partnering deals, including indication-splitting. Agreements governing indication-splitting transactions must address mechanisms for tracking sales at a particularly fine level of detail (for example, specifying data-collection methods to be applied based on currently available services) to allow both parties to be confident that they will capture revenues from sales of the relevant product for their respective markets. Without such mechanisms, such an agreement may not provide to a court sufficient detail to effect the parties' intent.