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Research Trends and Conclusions: Life Sciences 2012

This edition features more lawyers in a greater number of jurisdictions than its predecessors. The expansion attests to the continuing leaps in sophistication and geographical spread the discipline has undergone in the past year, despite the travails of the global economy in general and life sciences companies in particular.

As with past editions, we examine the global life sciences market from four distinct vantage points in this book: intellectual property, transactional, regulatory and product liability work. In our analysis, we are mindful of the varying degrees to which practitioners in these areas are able to gain market visibility, as well as the obvious crossover between these areas that occurs in many lawyers’ practices.

A key talking point among the sources we consulted was the so called “patent cliff”: the ongoing expiration of the patents, and hence the exclusivity, of a large number of well-known drugs. In 2011, Pfizer’s Lipitor (at the time the world’s best-selling drug), Eli Lily’s Zyprexa and Johnson & Johnson’s Levaquin, all multibillion-dollar drugs, went off patent and opened the field for generic imitators. Later this year, Bristol-Myers Squibb and Sanofi-Aventis’ anti-platelet medication Plavix and AstraZeneca’s anti-psychotic Seroquel, as well as market-leading treatments for asthma, diabetes and arthritis by industry giants such as Merck, Takeda and Amgen, will also lose their exclusivity. With a relative shortfall in the number of new products in the pipeline to make up for these losses, lawyers around the world are expecting generic drug companies to claim an ever-larger portion of the market from big pharma in the coming years.

With unprecedented levels of market accessibility now open to generics issuing their own lines, the consumer cost of numerous drugs has fallen dramatically at a time when there is widespread popular pressure on governments around the world to reduce the cost of health care. Under these circumstances, a number of our sources pointed to an “inevitable increase in consolidation” between innovators, generics and research and development (R&D) companies, with a consequent rise in M&A, joint ventures and partnership transactions.

The turmoil in the global capital markets is reported to be another contributing factor: “Innovators are finding it hard to secure financing for research, so they are seeing better results from partnered products and licensing transactions than they would from internal R&D.” Last year saw Sanofi-Aventis acquire US biotech company Genzyme for more than $20 billion (the second-largest acquisition in biotech history according to Reuters): a move which recouped some of the net-profit losses the French company suffered in the first quarter of 2011, owing to the rise of generic competition. Transactional life sciences lawyers around the world expect such international tie-ups to become more commonplace as the patent cliff continues to effect big pharma.

In particular, sources mentioned that large western innovators were increasingly favouring emerging markets, particularly China, to acquire smaller companies and patents and to develop platforms for future R&D. Last year saw Sanofi complete its acquisition of Chinese pharma company BMP Sunstone and Novartis secure a deal for 85 per cent of vaccine producer Zhejiang Tianyuan Bio-Pharmaceutical, while GlaxoSmithKline and Cardinal Health both made important purchases in the country in 2010. According to Bloomberg, the high profitability generated by foreign-innovator-led deals is a large contributing factor to China’s current status as the world’s third-largest drug market after the USA and Japan. The current high premium placed on lawyers and firms with strong regulatory and transactional practices for multi-jurisdictional life sciences deals is expected to continue as this trend gathers momentum: the drugs market in China is predicted to expand by 17 per cent in 2012. However, with Chinese government officials in certain provinces echoing the measures taken in Europe and the USA to curb high prices on key pharmaceutical products, domestic and international companies in China may see their profit margins narrow in the coming years.

Another challenge for lawyers arising from increased consolidation in the life sciences market is a potential shortfall in patent litigation. “Relationships between pharma companies are becoming very harmonious,” according to one lawyer, “and there’s more demand for non-contentious IP than there is dispute work.” A number of our sources reported that greater diversity and retooling within the practices of lawyers who had previously focused the majority of their time on life sciences IP litigation was a new trend in their jurisdiction.

Increased inter-jurisdictional activity on the part of life sciences companies also gives rise to high demand for compliance work, and lawyers from several jurisdictions noted the challenges clients are facing from ever-stronger regulatory enforcement measures. Numerous life sciences companies have already been investigated under the US Foreign Corrupt Practices Act (FCPA) for their activities overseas, and the substantial charges issued to companies in other industry sectors have given clients pause. “FCPA cases have been a big wake-up call to our clients,” says one source. “They’re paying a lot of attention to compliance, to the merits of voluntary declarations and whistle-blowing and to beefing up their corporate governance.” These measures are particularly important for companies conducting clinical trials and research in developing nations, where controls might not be as sophisticated and can potentially put patients at risk.

Several of the lawyers we spoke to went further still, speculating that the FCPA, and similar regulations such as the UK Bribery Act, could effectively bring an end to the generous hospitality previously shown by life sciences companies to health-care staff in jurisdictions around the world. “The levels of scrutiny are intense,” according to one source. “Drug companies are becoming wary of even small gestures like pens and cups of coffee, and we are being called in ever-earlier to advise clients on how to head off this potential liability before it has a chance to materialise.”

More recent regulatory developments include the Leahy-Smith America Invents Act, otherwise known as the Patent Reform Act, which was passed in the US in September last year. Sources suggested the “first to file” provisions under the act, which replace the former “first to invent” system, will create a more efficient and transparent system by which inventors can gain patent protection, as well as speeding up the progress of drugs going to market by reducing the possibility of competitors bringing lawsuits over who was the first to invent a product. However, there is also potential for a growth in challenges brought by generic companies against patent holders who, as the Generic Pharmaceutical Association notes, could use the act’s provision for supplementary investigation as a means by which to disguise inequitable conduct. “The act will undoubtedly help clear the PTO’s (US Patent and Trademark Office) backlog,” says one lawyer: “and there will be less work around for litigators unless the generics can build strong cases.”

On the product liability side, dispute work remains active according to our sources. Late last year it emerged that the French government was seeking to recall tens of thousands of faulty breast implants, following the liquidation of Poly Implant Prothèses SA and the criminal investigation of the company and its founder. Since then, plans for mass tort suits against the company from groups of the more than 300,000 women worldwide who have the implants have become commonplace. “The number of legal claims against the company, and perhaps the surgeries that performed the work, looks set to be huge,” according to one lawyer, who notes the effect of the scandal on other life sciences companies: “I think those of us who aren’t in court defending these claims will be in the boardroom advising on ways to avoid any similar liability falling at the feet of our clients.”

Leading Firms by Number

The firms that lead this year’s research have all seen a steady expansion in their listings since the first edition of this book was published in 2008, and all have seen a sharp rise in their totals in this edition (see Chart 1). (It is important to note here that, prior to the publication of the 2011 edition, Lovells and Hogan & Hartson existed as separate entities.)

While Bird & Bird and Hogan Lovells expanded their listings in China and Hong Kong respectively, the largest increases in recognised professionals at these firms occurred in traditionally strong regions such as Europe and the US. A closer look at the geographical distribution of the lawyers at these leading firms indicates the continuing precedence of European and US-based offices (see Chart 2).

Leading Firms by Country

While big pharma pursues opportunities in emerging markets, traditionally strong jurisdictions remain the central hubs of legal counsel in the life sciences. And although China and Japan both count themselves among the top three pharmaceuticals markets in the world (and post-modest expansion in the number of domestic lawyers recognised in our listings), the USA and Europe remain the strongest contributors to our listings overall. These regions are still the fastest-expanding bases of expertise in this edition, as our leading firms demonstrate: Covington & Burling LLP adds substantially to its total in DC and Hogan Lovells added names in Belgium, France and the Netherlands, while Sidley bolstered its teams in both the US and Belgian capitals, as well as New York.

The pattern of growth among the leading firms in this edition is mirrored in the listings as a whole, which this year see more lawyers recognised than ever before (see Chart 3).

Growth in the number of lawyers listed in DC and Belgium makes a sizeable contribution to the overall expansion of our listings; however, a number of jurisdictions in Europe, Asia and the Middle East, as well as in states outside the US capital, all chart year-on-year expansion. This would suggest, as some lawyers note, that the multinational expansion and numerous tie-ups between traditionally dominant life sciences companies and smaller regional companies has led to material increases in the sophistication of the life sciences bar in previously less well recognised countries.

Total Listings

With the trend towards international consolidation among life sciences companies, the former distinctions between lawyers that act for innovators as opposed to generics, or domestic clients as opposed to internationals, are becoming less clear. The patent cliff, that has seen so many notable drugs lose their exclusivity, has caused “a small revolution” in the practices of numerous lawyers who are now “developing expertise and trying to get boots on the ground in new jurisdictions” at the same time as they are “working more closely with companies that [they] used to be opposed to in IP matters.”

Alongside the optimistic expansion of life sciences companies and the high-value deals being transacted, there is also an atmosphere of caution as regulatory measures, applying to US and Europe in particular, become more stringent and life sciences product liability is more prominent in the public consciousness. “Clients are looking to lawyers to bridge the gap between necessary expansion on one hand and compliance on the other,” says one source.

The following listings, which feature more lawyers than ever before, are a testament to the leaps in sophistication the global life sciences bar has undergone in the past year as it responds to numerous challenges. This expansion mirrors the rude health exhibited by the life sciences industry as a whole, even in the financially troubled climate of the past four years. It is no surprise then that almost all the lawyers we consulted reported that their department had continued to hire new lawyers in preparation for the ongoing demands of clients. “There’s a noticeable trend among clients: they’re starting to wake up to the rewards of working more closely with law firms,” concludes one lawyer. “We have high hopes for the year to come.”

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