Advice You - Finance

In the course of managing a bankruptcy-centered law practice, one notices that certain themes tend to recur. One of the things that seems, repeatedly and quite understandably, to make the blood of credit managers in bankruptcy cases boil, is the prospect of being su

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

ed for a 'preference' while they are already stuck with a bad account receivable. This seems to many vendors to be the ultimate outrage. Having shipped goods, or rendered services on credit, in good faith, and in the expectation of being paid, and then, having alre

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

ady been burned (often for substantial sums) by the bankruptcy filing itself, they may find themselves pursued by a trustee or other estate representative, to give back the smaller amount they received on account of their claim within the 90-day period preceding the

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

bankruptcy filing.

After 25-odd years of minor tinkering with the preference laws as drafted in the Bankruptcy Code, which came into effect in 1979, Congress has, for the first time, and in response to intense lobbying by creditor-based interest groups, made signifi

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

cant, and wide-ranging changes which will, in the view of this author, work a sea change in this area.

First of all, we need to understand what a preferential payment is, and why the bankruptcy laws allow for their recovery, before exploring, in very broad strokes,

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

for purposes of this article, how and why the recent amendments to the Bankruptcy Code have helped 'level the playing field.'

The purpose of making preferential payments recoverable is to promote equality (or, more accurately, "equitable-ness") of distribution among

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

creditors. In other words, the pain should be shared on a reasonably equitable basis by those who are on the receiving end of bad receivables. To that end, certain payments made by troubled debtors, during the 90-day window preceding the bankruptcy filing are subj

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

ect to being brought back into the estate for redistribution, on an equitable basis, to the creditor body at large. There are a number of other technical requirements for a payment to be preferential, but these are beyond the scope of this article, and creditors are

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

encouraged to seek appropriate legal counsel as needed.

On the surface, this seems reasonably fair. After all, why should creditors who have a closer relationship with the bankrupt company, or who just scream louder, be paid while the other guy gets left holding t

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

he bag. But, alas, here's the dirty little secret of preference claims. For the most part, though not exclusively, they are pursued, by trustees in liquidation cases, in which there will ultimately be little or no recovery for unsecured creditors. So who gets the

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

oney recovered in these preference litigations? Why, the trustees, their lawyers and accountants, of course, whose rights to payment come before everyone else. So rather than being a vehicle for equitable redistribution of limited funds of an insolvent debtor, the

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

preference statute has been used as a tool for trustees and their professionals to build an estate as a source of trustee fees, and legal and accounting fees. In most such cases, the creditors end up with nothing at all, except the privilege of paying twice.

On the

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

other hand, the drafters of prior legislation wanted to encourage vendors to continue selling goods to troubled companies so as not to exacerbate an already difficult situation and bring on unnecessary or premature bankruptcies. So various defenses to preference cl

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

aims were introduced, to exempt certain payments made contemporaneously, or in the ordinary course of business and within invoice terms, from preference attack. These concepts, however, still left the burden on the creditor/defendant to prove these defenses, and the

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

y often found that it was easier and cheaper just to 'pay up' or settle the claims, however distasteful it seemed to them

So what has the new bankruptcy law done for these creditors? Well, it has, among other significant changes, substantially tightened up the 'ord

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

inary course' defense, making it substantially easier for creditors to establish them, by creating both a 'subjective' and an 'objective test' (again, the details of this are too technical for the scope of this article). Perhaps even more importantly, Congress has no

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

w exempted smaller payments from the reach of preference attack and changed venue provisions for others, thus requiring trustees or other estate representatives to sue where the preference recipient is located, rather than in the 'home' bankruptcy court. Previously,

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

the daunting prospect of defending on the other side of the country might well induce a creditor to settle a case even of dubious merit because of the expense involved of travel and the hiring of local counsel in a far-off district. Now, in many cases, the economic

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

s of this situation have been turned on their heads, and it might well be the trustee who will have to think twice, or three times, about bringing 'nuisance' preference cases when they have to be prosecuted in foreign jurisdictions.

Thus, although this legislation i

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

s very new, and largely untested, it seems that creditors in bankruptcy cases will, at least from their viewpoint, be getting a fairer shake, and will less often be having insult added to injury by having to enlarge the size of their already uncollectible receivables

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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Assumptions have a way of creeping into all parts of a problem-solving project. They’re often wrong, which can lead to a lot of wasted effort and even cause a problem-solving project to fail entirely. It’s very easy to take a strongly stated assertion as true, especially if it’s the boss who makes it.

A great way for self employed professionals to enhance their reputations is to write articles. But for many, the thought of writing an article calls to mind your school days of struggling to write a composition, trapped indoors while your friends played baseball without you.

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