February 9, 2010
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Adapted from a bulletin by my colleagues Evan Cobb and Brad Newman:
In the U.S., Section 365(n) of the bankruptcy code provides protection to licensees in the event their licensor becomes insolvent. Canadian law has not historically had that protection, forcing licensors to set up dedicated IP holding companies or other bankruptcy-remote structures to protect their licensees. However, recent amendments to Canada’s insolvency legislation provide a solution for licensees, at least in the case of intellectual property licensors that are restructuring under the Companies’ Creditors Arrangement Act (“CCAA”) or Bankruptcy and Insolvency Act (“BIA”) proposal regime.
Under the amendments, even if an intellectual property license has been successfully disclaimed by an insolvent licensor, the licensee’s right to use, or its ability to enforce a right of exclusive use of, the licensed intellectual property is not affected for the duration of the license agreement (which includes any rights of renewal). The right to continued use is conditional upon the licensee’s continued performance of its obligations under the license agreement in relation to that usage.
Some cautionary notes regarding the Canadian amendments:
- The amendments do not provide protection to licensees in a standard bankruptcy or receivership scenario. If a receiver or bankruptcy trustee of the licensor were to sell the licensed intellectual property and terminate the license associated therewith, licensees would generally be left only with an unsecured claim against the assets of the licensor.
- The exact definition of “intellectual property” is uncertain. Under the U.S. Bankruptcy Code, “intellectual property” is defined specifically (and excludes trademarks). A similar definition may be adopted in Canada, but at the moment the application could be quite broad.
- Obligations “in relation to” use of the intellectual property that the licensee has to comply with may be uncertain in some circumstances. License fees that aggregate payments for all usage, exclusivity rights and maintenance services may be problematic in light of the amendments. Precise delineation of obligations under a license agreement that are attributable to use of the licensed intellectual property would be a prudent drafting response to the amendments.
Read the whole bulletin for more analysis of the amendments’ implications for IP licensors and licensees.
July 22, 2009
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Many of the articles and talks on biotech funding over the past year or so have lamented that public markets are closed to biotechs, and that the absence of a public exit, coupled with the preference for licensing over M&A by big pharma, would seriously dis-incentivize venture funding for biotech startups. Two data points this week suggest the tide may be turning:
- Human Genome Sciences’ drug candidate for Lupus shocked analysts, showing positive results in its clinical trial, which sent HGS shares up almost 400% and boosted shares of two other companies working on products in the same pathway. More importantly, it reminded risk-seeking investors of the outsize returns that make them love biotech stocks. Remember last week’s NVCA study showing a 20% cost-of-capital for biotech? Everyone (including me) focused on the take-away argument for biologics exclusivity, but now is a good time to remember that the cost-of-capital calculations are backed into from the historical (outsized) returns shown by biotech’s success stories.
- PwC-NVCA numbers released Monday showed biotech as the biggest recipient of funds in Q2, exceeding every other industry (thanks in part to the crappy numbers for other industries, but still…), and getting $3.67 billion for 612 companies January-June.
The change in mood has been immediate. One obvious example is this piece in the WSJ’s Venture Capital blog that touts the value of biotech partnering deals as a boon to investors. The same partnering deals that just a few weeks ago were described as barriers to VC exits are now a rationale for follow-on investment.
Not that there aren’t still challenges. The Aveo Pharma deal in the WSJ post has two important features — they retained key assets for an M&A or public exit and their partner took equity in the licensing deal — but a few more headlines like “Biotech Start-Ups Striking It Rich With Partnerships” and we could be on the road to a biotech recovery.
April 8, 2009
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Merck & Co., Inc. and Cardiome Pharma Corp. announced a collaboration and license agreement that provides Merck with exclusive global rights to the oral formulation of vernakalant for the maintenance of normal heart rhythm in patients with atrial fibrillation.
Here’s the deal:
- US$60 million upfront
- up to US$200 million in development and approval milestones
- up to US$100 million for approval and subsequent indication milestones
- tiered royalty payments
- and up to US$340 million in sales threshold milestone payments
- Cardiome retains a U.S. co-promotion right
- Merck will be responsible for all future costs associated with the development, manufacturing and commercialization
- Merck has granted Cardiome a secured, interest-bearing credit facility of up to US$100 million that Cardiome may access in tranches over several years commencing in 2010.
Cardiome and Astellas Pharma U.S., Inc. have a deal for vernakalant (IV) in the United States, Canada and Mexico; and this deal provides a Merck affiliate, Merck Sharp & Dohme (Switzerland) GmbH, with exclusive rights to the IV formulation outside of the United States, Canada and Mexico.
Effectiveness is subject to the HSR clearance, as well as other customary closing conditions.