Life Sciences 2017

The Life Sciences guide provides expert legal commentary on the key issues for businesses involved in the life sciences sector. The guide covers the important developments in the most significant jurisdictions.

Last Updated March 01, 2017


Ian Dodds-Smith co-heads the practice and offers expertise across the spectrum of UK and EU regulatory issues. He has represented clients in significant cases against both centralised regulatory bodies and national agencies. Mr Dodds-Smith also advises market leaders from the medical device, pharmaceutical, chemical and food sectors on product liability defence. He has written extensively on regulatory obligations regarding the supply of medicines and product liability.

Arnold & Porter Kaye Scholer LLP represents a wide-ranging clientele from the life sciences industries. Lawyers advise market leaders on the full spectrum of regulatory, transactional and litigation matters. Areas of expertise include global compliance programmes, patent procurement, regulatory issues, internal and government investigations and patent and commercial litigation. As will be seen from the contents of this guide, the legal environment within which the life sciences industry operates remains in a state of flux and continues to pose challenges for governments, economists, scientists, businesses and, not least, lawyers.


Pricing and Reimbursement

Concerns around pricing and reimbursement of medicines are a dominant feature of the current landscape. Prices of medicinal products are subject to increasing scrutiny, with calls from governments and payers for industry to justify the prices of innovative new medicines with demonstrations of “value” and widespread reliance on health technology assessment. The European Medicines Agency (“EMA”) has reported that interest in its project coupling scientific advice with advice from health technology assessment bodies “rocketed” in 2015. Pricing concerns have certainly escalated, against a background where there is public demand for early access to new medicines and increased focus on speciality products and treatments for rare diseases, often associated with high costs and an inevitable lack of certainty over the magnitude of clinical benefit at the time of product launch. 

The focus on value has led to increasing numbers of acquisitions of products for rare diseases, orphan drugs and rights in personalised medicines and immunotherapies, with strong competition for available assets in these areas both from big pharma and from mid-market sized players. They are also proving to be of significant interest for those looking to fund research and development, whether through venture capital or via collaboration with third parties. Meanwhile, the challenges for big pharma of controlling overheads and in particular R&D spending have continued to present a significant driver behind much of the acquisition activity in this sector, and is increasingly viewed as a means of refreshing product pipelines whilst in-house R&D is cut or restructured.

The US Market

In the US market, traditionally more tolerant of higher prices, pricing issues hit the headlines when payers and the public balked at Turing Pharmaceuticals’ 5000% price increase on Daraprim (pyrimethamine) used to treat toxoplasmosis infections, often in AIDS patients. In the EU, where prices of medicines have long been an area of sensitivity for socialised health systems, a range of novel and often controversial measures have been introduced that do nothing to uphold the principles underpinning the EU marketing authorisation process. These include the enactment of laws to permit off-label use of cheaper products, despite the availability of a licensed alternative (eg Italy and France), and use of off-label comparators when considering the cost-effectiveness of orphan medicinal products (eg Sweden). Budgetary pressures and the implications of international reference pricing have given rise to the extended use of budget caps on medicines expenditure, where any overspend must be repaid by industry (eg Italy and the UK) and planned joint procurement of “expensive” medicines by Netherlands, Belgium and Luxembourg. The cost-effectiveness and/or affordability of medicines in the EU has been discussed in the European Parliament and the possibility of a common mechanism for setting prices in the EU and collaboration between health technology assessment bodies has been raised, although this runs counter to the increased demand of member states more generally to respect the principle of subsidiarity. In any event, recognition that this would be likely to be opposed by several member states in Central Europe which would see prices rise, even if they fell elsewhere, may mean this proposal will not gain any traction.

Rise in Consumer Prices

But this debate often conceals the real issues. Despite these eye-catching stories about apparently disproportionate increases in the price of a few medicines, a population-weighted analysis of the Consumer Price Index versus the Medicines Price Index shows that whilst there has been a 30% rise [figures obtained from OECD, database on Consumer Price Index (consulted in April 2015), Health and Social Care Information Centre (statistics on average NIC per prescription items)] in consumer prices in Europe between 2000 and 2013, there has actually been a 24% decline in the nominal price of medicines, principally because of the impact of the well-publicised “patent cliff” in important therapeutic fields and the resulting expansion of generic usage. The returns on R&D for companies have been falling since the 1990s and the growth in the total cost of medicines reflects principally demographic changes and the number of people treated. Nevertheless, this and the ability of new medicines to treat the hitherto untreatable, but at short-term high cost, has made governments become as concerned about affordability as cost-effectiveness. Although the cost of medicines is a small proportion of total healthcare costs, it is an easier target for the implementation of budgetary savings in terms of the administrative burden and politics than tackling the other costs of delivering good health.

Pricing Practises

In the US, federal prosecutors and elected officials are increasingly investigating pricing practises of various pharmaceutical companies. US Congressional Committees have held several hearings, most recently focusing on Mylan Pharmaceutical’s pricing of the EpiPen. These investigations and inquiries have caused a national debate amongst public officials, health insurers and industry, including several federal and state proposals and legislation for increased drug-price transparency and negotiation. 

EU Legislation

Pricing issues, particularly those surrounding some medicinal products for rare diseases, may be one factor behind the EC’s decision to review the operation of EU legislation relating to orphan drugs and the definitions in the legislation relevant to the incentives provided for the development of such products. Amendments to the Commission’s Communication of 2003 on the interpretation of the law and possible revision to some definitions in the legislation itself are being considered in parallel. The Commission’s consultation paper of July 2016 focuses on the concept of “similar medicinal product” which is being reviewed in the light of technological developments relating to monoclonal antibodies and cell-based and gene therapy products. As so often in the past, technological advances outpace the ability of the legislature and competent authorities to adjust the legal framework and guidance in a timely fashion, which results in an unhelpful lack of legal certainty. 

Security of Medicines' Supply Chains

The security of medicines' supply chains has become an area of particular interest for regulators seeking to reduce the incidence of falsified medicinal products. The EU Intellectual Property Office has estimated that manufacturers of medicinal products lose about EUR10.2 billion a year in the EU market from counterfeit medicines. A number of systems have been developed to try to ensure authenticity of products, from allowing patients to check that online pharmacies are appropriately licensed, to ensuring that products may be identified at various points throughout the supply chain. In the EU, new legislation has introduced additional licensing requirements for entities that are involved in the supply chain but do not physically handle products, as well as an “end-to-end” verification system for prescription medicines that comes into effect in 2019. The cost of developing and implementing this system is extraordinarily high and whether those costs are truly proportionate to the size of the problem in particular areas (eg generics) is quite controversial, given that there is so much pressure to control the cost of medicines. Similarly, the US Congress enacted the Drug Supply Chain Security Act in 2013 to create a new system to identify and trace certain prescription medicines throughout the supply chain, as well as to impose a number of other requirements on supply chain partners (eg licensing and distribution standards).

Compliance and Enforcement Issues

Compliance issues and enforcement trends remain a focus for industry, particularly in relation to the US market. In the USA, whilst litigation and enforcement against manufacturers under the US Federal Food, Drug, and Cosmetic Act and False Claims Act has continued to grow in intensity, and whistle-blowers increasingly pursue qui tams without intervention from the government, several recent federal court decisions and cases have called into question the government’s off-label enforcement theories as contrary to the First Amendment to the US Constitution. In 2012, the Second Circuit applied the heightened scrutiny test articulated by the US Supreme Court in Sorrell v IMS Health to hold in United States v Caronia that the FDCA and FDA’s implementing regulations may not be interpreted to permit a misbranding conviction based on truthful and non-misleading speech alone, even if the speech was off-label. In August 2015, the US District Court for the Southern District of New York granted Amarin Pharmaceuticals a broad injunction against the FDA, permitting the company to engage in truthful and non-misleading speech about the off-label use of its Omega 3 fatty acid drug, Vascepa. Despite these favourable cases for industry, the FDA is still in the process of assessing its regulatory framework in this area and has not formally changed its policies or guidance (although the agency has announced a public meeting on the topic and recently shown a reticence with respect to public promotional violation enforcement).

Kickback Allegations

Moreover, recent enforcement and ongoing cases in the USA have also increasingly focused on allegations that manufacturers have provided physicians and other healthcare professionals with kickbacks, with a particular focus on reimbursement support services. In addition, government prosecutors are vigorously investigating manufacturer donations to independent charitable foundations. Relationships between healthcare professionals and industry also remain a subject of scrutiny in the EU, with enforcement authorities considering hospitality arrangements and activities that purport to be advisory boards or educational events, but are, in fact, judged to have a promotional intent, including in relation to products or indications not yet authorised. Other relevant enforcement and industry trends in the USA include scrutiny of performance-based discounts and service fee arrangements, particularly with speciality pharmacies. The government is increasingly focused on kickback, discount, or rebate schemes between manufacturers and pharmacies or other providers that are purportedly used for patient adherence and refills or to switch patients onto a company’s drug. Lastly, numerous cases and settlements against pharmaceutical manufacturers continue to include alleged violations of the FCA by providing kickbacks to physicians and other healthcare professionals in the form of speaker fees, meals and other payments.

The EFPIA Code

Reflecting the US Physician Payments Sunshine Act, the EFPIA Code now provides that member associations must require their members to disclose transfers of value (including donations and grants, sponsorship to attend events and hospitality) to healthcare professionals and healthcare organisations. Such disclosures must be made either through publication on the company’s website or via a central platform, with reporting commencing in 2016 relating to transfers during the previous year. EFPIA member associations may deviate from this requirement only if and to the extent that implementation of the arrangements under the EFPIA Code would conflict with national laws (as would be the case, for example, in France where existing laws require disclosure of agreements with healthcare professionals and associated financial and non-financial benefits). An important area of controversy has been whether consent by individual healthcare professionals is required before transfers of value to them may be disclosed, in accordance with data protection legislation, in circumstances where adherence to national codes of practice is a voluntary rather than a legal obligation. The Information Commissioner in Spain has determined that disclosure may take place in the public interest and that consent by healthcare professionals is not, therefore, required. However, in other EU countries the position remains uncertain and, where a healthcare professional refuses to agree that relevant transfers of value may be disclosed, these are currently reported on an aggregate basis.

European Competition Authorities

Competition authorities in Europe - both the EC and national authorities - continue to focus on the pharmaceutical sector. Generic settlement agreements have come under particular scrutiny. The Commission has compiled its sixth review of such agreements and the General Court has recently issued judgments supporting its approach in Lundbeck (citalopram). This, together with the increasing number of decisions by the EC, has clarified the policy in relation to reverse-payment settlement agreements. The EC is now using both of the competition instruments at its disposal to regulate these agreements - the prohibition of anti-competitive agreements and of abuse of dominance. In generic settlement agreements, the relevant market (for purposes of abuse of dominance, where market definition is required) is likely to be the single molecule involved, and not the broader range of products. There also continues to be activity at national level, particularly in the UK, where a number of investigations in the sector are under way. This includes an investigation into excessive prices, which are rarely brought by competition authorities in any sector. The UK is also investigating other abuse of dominance cases, involving discounts as well as some agreements suspected by the authorities as being anti-competitive. In France, there has been a number of cases brought in relation to the denigration of generic pharmaceuticals, where that has allegedly had anti-competitive effects on market entry. Switzerland has also asserted its own competition law against pharmaceutical distribution agreements that prohibit resales by EU-based distributors into Switzerland.

The EMA

The EMA celebrated its 20th anniversary in 2015 and recommended approval of 39 products based on new active substances during the year, including several innovative and highly promising cancer treatments. It also further advanced its adaptive pathways project aimed at providing patients with early access and its PRIME scheme for supporting medicines that have the best prospect of providing major advantages over existing treatments or meeting unmet needs. Nevertheless, it described its “key deliverable” of 2015 as being the EU Clinical Trial Regulation. It views this as being “the most significant overhaul of the processes for authorisation and oversight of clinical trials in the last two decades.” The centralised portal and database creates a single point for submission of trial applications and provides for co-ordinated assessment and suspension of authorisations granted. However, implementation has been delayed to 2018 due to difficulties in getting the database up and running. In the meantime, the EMA reports an increased demand for scientific advice for early Phase I or II clinical trials.

Transparency of Clinical Data

Transparency of clinical data continues to be a controversial issue. Where data are used to obtain a marketing authorisation, the EU’s Clinical Trial Regulation requires the applicant for authorisation to submit the full clinical study reports to the EU database within 30 days of the marketing authorisation being granted (or its refusal or withdrawal). The requirement to submit the data for public access allows redaction of “commercially confidential information,” but the scope of that concept remains unclear. In the context of disclosure of pre-clinical and clinical data by the EMA in response to freedom of information requests, the EMA’s policy as to what is exempt from disclosure as commercially confidential remains the subject of several ongoing cases before the European Court (Pari Pharma; PTC Therapeutics; and MSD Animal Health and Invervet) where the President of the General Court has been willing to grant interim injunctions (now on appeal) pending review of the substantive issues that he has described as of global importance to industry. These cases also have potential relevance for the legality of the EMA’s 2014 policy on the proactive disclosure of clinical data after marketing authorisation has been granted which is already operated independently of the Clinical Trial Regulation. The balance between the broad and understandable interest in transparency and the commercial interests of companies in confidentiality for a period is, therefore, still to be fixed authoritatively.

In the USA, new rules were released in September 2016 by the Department of Health and Human Services and the National Institute of Health relating to the availability of information about clinical trials posted on the ClinicalTrials.gov register, but the lobby group “All Trials” immediately criticised various aspects, including the exclusion of Phase I trials from the new rules and lack of enforcement to date of relevant law. 

Brexit

At a political level, the impact of the UK’s referendum vote to leave the EU remains a topic of key concern to the pharmaceutical industry. The implications of the UK leaving the EU are many and wide-ranging, and much will turn on the ultimate relationship that the UK will have with the EU (which at the time of writing remained unclear). If the UK adopts an EEA-style arrangement, it will retain access to many of the benefits of the EU system, such as the centralised procedure and EU portal for clinical trials. In contrast, under a system of bilateral agreements, or a model relying on WTO rules, the UK’s relationship with the EU may alter dramatically. It is the prospect of these bilateral relationships that leads to much of the uncertainty about the implications of Brexit. What is clear is that industry dislikes uncertainty and investment in the UK may stall until companies and regulators, have further clarity as to the next steps.

Unitary EU Patent

The most significant development in Europe in the world of patents over recent times has been the march towards the creation of a unitary EU patent and unified court system (“the UPC”) to hear disputes concerning both the new unitary patents and the existing European patents (which despite its name is a bundle of individual national patents and which, presently, must be litigated in each individual country). Until 23 June 2016, all was looking good for the new system to begin in early 2017. However, the UK referendum result has wrecked that timeline. As things stand, the UK must ratify the UPC Agreement before the system can commence, but it seems politically unlikely that that will happen before Brexit. It is presently unclear whether it will be possible to renegotiate the Agreement such that the UK can remain a part as a non-EU member, or whether the other participating EU Member States will instead look to write the UK out of the Agreement so that it can come into effect elsewhere in the EU sooner rather than later. Either way, a start in 2017 is highly unlikely to happen.

Infringement of Second Medical Use Patents

Meanwhile, courts across Europe have been grappling with issues surrounding infringement of second-medical-use patents, in particular in litigation concerning the use of pregabalin for neuropathic pain. In the UK, the High Court held that, in principle, it would be direct infringement by a generic manufacturer where it is foreseeable to the manufacturer that the drug will intentionally be used by doctors and pharmacists for the patented indication, notwithstanding the use of a “skinny label” (although on the facts of the particular case it was found not to be foreseeable). However, the generic manufacturer could not be liable for indirect infringement as it does not supply any means to a doctor or pharmacist in order to implement the patented invention for the manufacture of the product. A ruling of the Court of Appeal is eagerly awaited. By contrast, the Regional Court of Hamburg in Germany ruled, on a preliminary injunction application, that acts of indirect infringement had been committed by a “skinny-label” generic manufacturer by, in effect, treating the Swiss-form claim as a product claim, not a process claim. There have also been injunction proceedings on the same patent in France, Spain and Denmark, with differing outcomes. This remains an area of uncertainty.

Conclusion

Given the wide-ranging and fast-paced developments in this field, lawyers working within the life sciences industry may empathise with the views of the Red Queen - “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”