Biovail Generic Adalat May Be Sublicensed Under Pending FTC Settlement

Biovail may sublicense Elan's generic version of Bayer's Adalat CC under a pending settlement with the Federal Trade Commission.

In effect, the FTC settlement would terminate the 1999 licensing deal between the two companies, under which Biovail acquired exclusivity to Elan's 30 mg generic extended-release nifedipine.

A settlement with the commission "would mean an unwinding of the agreement with Elan," Chief Financial Officer Brian Crombie told analysts attending UBS Warburg's specialty pharmaceuticals conference June 5.

Biovail licensed Elan's generic version of the 30 mg dose even though Biovail had filed an ANDA to market its own 30 mg version. The deal allowed Biovail's U.S. distributor Teva to launch months earlier; Elan's ANDA was approved March 10, 2000, while Biovail's 30 mg was cleared Dec. 4, 2000.

FTC's main objection to the 1999 licensing deal is that it removed a potential competitor from the 30 mg market, Biovail said. According to the commission, both Biovail and Elan could be marketing the product.

Under the licensing agreement, Biovail, which received approval for its 30 mg generic after Elan, did not market its version and instead marketed Elan's product.

One way to rectify the alleged anticompetitive action could be to sublicense Elan's 30 mg product so it could be marketed by a third party, Biovail said. The firm is providing documents to FTC that indicate its intention to sublicense the generic, an option the company has been exploring for the past year.

Biovail maintains that the Elan agreement encouraged competition because it expedited the entry of Adalat generics to the market.

Although Elan held exclusivity on the 30 mg dose, the firm was not planning to market the generic until it received approval of the 60 mg strength, Biovail said. The higher dose accounted for a more sizeable portion of the market than the 30 mg, the company noted.

If Elan had followed its strategy of waiting for the approval of its 60 mg strength to market the 30 mg, then Elan's 30 mg version would not be currently on the market, Biovail said. Elan has not yet received approval of the 60 mg strength. Biovail was tentatively approved to market a generic version of the 60 mg nifedipine dose at the time of the Elan deal.

FTC and Biovail are close to negotiating a settlement. Recent filings with the Securities & Exchange Commission state that "while Biovail and Elan maintain the agreement is valid, proper and enforceable, nevertheless, Biovail, the FTC and Elan are at an advanced stage of negotiations to settle these issues."

Termination of the deal under an FTC consent agreement would actually benefit Biovail, Crombie maintained. Such a move would positively impact the company's gross margin "because we would no longer be paying a royalty to Elan."

Although Biovail is considering sublicensing options, an unwillingness among interested parties to take on the litigation risk associated with Bayer's patent suit could hinder efforts to find a partner. Bayer's suit against Biovail on patent infringement is being heard in Puerto Rico.

Bayer lost a summary judgement in a patent infringement against Elan's generic 30 mg nifedipine; the case was dismissed on appeal. Biovail said it modeled its nifedipine XL ANDAs on Elan's ANDA in the hopes of a better chance of victory in court.

FTC has displayed an increasing interest in deals between generic manufacturers. Office of Policy Planning Director Ted Cruz recently noted that FTC is looking at situations where the manufacturer of a second generic receives an exclusive license from a first generic company and divides the profits (¹ (Also see "FTC To Testify On Generic Reform; Agency Report May Be “Months” Away" - Pink Sheet, 22 Apr, 2002.), p. 10).

Another red flag occurs when the first and second generics divide the market according to dosage strengths. FTC recently raised questions regarding an agreement between Andrx and Genpharm giving Andrx first-to-file exclusivity over the 10 mg and 20 mg strengths of generic Prilosec (² , p. 28).

Biovail's potential settlement would be the second such agreement with FTC. The firm agreed earlier this year to divest a patent for Tiazac that it in-licensed in January 2001 ("³ (Also see "FTC/Biovail Tiazac Settlement Blocks Royalties From Andrx On Generic" - Pink Sheet, 29 Apr, 2002.), p. 26).