We are often asked by our clients about the transfer of the FDA marketing approvals from one entity to another. This question arises both at the time of submission of the application to the FDA for market clearance and during the acquisitions, mergers, and financing of health and life sciences companies. With the life sciences sector (comprising pharmaceutical, biotechnology, and medical devices) being among the top areas of investment and financial activity, it is no surprise that the FDA market clearances and approvals are the key assets driving these financial deals.
Ownership of the Application
At the time of filing a 510(k) application, a firm must determine the structure of its business and technical relationship with its distributors and manufacturer to maximize its gain and minimize the liabilities. There appears to be a common misconception, particularly among the foreign manufacturers, that only a U.S. firm can submit a 510(k) application. Consequently, the foreign manufacturers use a U.S. distributor to submit an FDA application for them. As a result, the U.S. distributor becomes the owner of the 510(k), and in the absence of skillfully drafted legal documents with its U.S. distributor, a foreign manufacturer may potentially lose all of its investment. This confusion might arise partly because of the legal requirement that a foreign manufacturer must designate a U.S. agent in its FDA application. The foreign manufacturers often confuse a U.S. agent with the “submitter” of the application. It is the submitter who is the owner of the application and the 510(k) market clearance — a U.S. agent is merely a correspondent between a foreign applicant and the FDA.
When our clients approach us for advice on filing an FDA application for their products, we explain the significance of different structures of ownership and provide them with a copy of an application to show what it entails and particularly draw their attention to the coversheet from which the FDA determines who will be the owner, U.S. agent, distributor, and manufacturer. The decision of who will be the owner of a 510(k) application is very financially significant because it determines the course of the relationship of various parties to an FDA application and plays a vital role at the time of product modification, licensing, mergers, and acquisitions. For example, a foreign manufacturer that owns a 510(k) can commercially distribute its product through several distributors under the same market approval without requiring each distributor to obtain a separate 510(k). On the other hand, if the foreign manufacturer submits a 510(k) application through a U.S. distributor, then each distributor would be required to file its own 510(k) to market a device with identical specifications from a common manufacturer.
FDA does not have a policy regarding licensing of the 510(k) cleared devices. However, it prohibits two companies from manufacturing the same device under a single 510(k) clearance. This prohibition has a bearing on the decision to license the manufacturing of a 510(k) cleared device because the licensor must stop manufacturing the device or else the licensee will be required to obtain a new 510(k). The licensees are advised to obtain agreement from the licensor to cease manufacturing of the licensed device and to obtain an exclusive license. A non- exclusive license exposes the licensee to the risk of another firm manufacturing under the same clearance number.