Life Sciences 2018: Trends & Conclusions

Life sciences lawyers have had another busy year, reporting record-high levels of work across the board. For many life sciences and healthcare companies, 2017 was a particularly challenging year. Increased regulatory scrutiny, soaring R&D costs and heightened pricing pressures, coupled with the turbulent economic climate brought about by political changes, have led to fierce market competition. As a result, the legal community has experienced a surge in both contentious and non-contentious work in the sector, spurred on by the continued advancement of both major players and innovative start-ups. We spoke to some of the world’s most prominent practitioners in the life sciences space to examine some of the main trends affecting the market at the moment.

Regulatory developments

Over the past 12 months, new and old regulatory regimes have brought about great change in the sector. In Europe, the introduction of clinical trial legislation for pharmaceutical products and the impending medical devices regulations, due to come into force in 2019 and 2020 respectively, have reshaped the regulatory burden for life sciences clients across the market. As such, regulatory practitioners have reported an uptick in work advising and assisting clients on compliance matters. It is not just pure regulatory work that is shaping the European market, however. Since the final report of the European Commission’s pharmaceutical sector inquiry was published in 2009, pharmaceutical companies have come under increased scrutiny in Europe, while the past 12-18 months have seen a rise in intervention by competition authorities at both national and EU level.

Perhaps the hottest current topic in the pharmaceutical sector is that of pricing and reimbursement. Following the landmark judgments in 2016 in the Lundbeck and Servier cases, the past year has seen a new wave of excessive pricing cases. For instance, June 2017 saw the CMA publish its full decision in a case concerning Pfizer and its distributor, Flynn, for the imposition of excessive and unfair prices for an anti-epilepsy drug. Likewise, in Italy in May 2017, the European Commission opened a formal investigation into allegations that multinational pharmaceutical company Aspen was engaging in excessive pricing activities in breach of European competition rules. The increasing crossover between regulatory work and competition is a pertinent issue for practitioners, requiring greater cooperation between departments. Practitioners have noted a definite uptick in requests for regulatory advice from clients, a trend that seems only set to continue.

Europe is not the only place seeing large-scale regulatory reform in the life sciences space, however. Following proposals by the Chinese Food and Drug Administration early last year, the Chinese government launched its final outline for drug and device regulatory reform in October. Included within the document is a range of key policy issues, including improved drug trial data exclusivity, whereby an applicant may apply for data exclusivity at the same time as filing for marketing authorisation, and the deregulation of clinical trial conduct, which drastically simplifies the qualification process for study sites and ethical approval for clinical trials. China is also in the early stages of introducing a register to catalogue pharmaceutical products approved on the basis of safety and effectiveness, comparable to the Orange Book in the US.

Lack of transparency has been identified as one of the largest problems in the sector, and the steps being taken to address this signal a positive development for innovative and generic companies alike. One lawyer we spoke to told us, “The Orange Book approach should help to address the transparency issues in China, helping to align the system to international standards.”  The introduction of this new approach would allow for improved patent protection, incentivising local research and development and leading to an increase in domestic work for practitioners. The simplified regime could also benefit international outfits, leading to an increase in joint ventures in China, driving the work of law firms across the globe.

Commercial growth

With the development of novel therapeutic solutions and increased life expectancy, global healthcare expenditure continues to rise, with a projected total spend of US$8.7 trillion by 2020, according to Deloitte. The unfailing demand from consumers means that commercial activity within the sector remains active. The election of President Donald Trump in the US and the triggering of article 50 in the UK brought uncertainty to the market, with practitioners questioning the effects of commercial work across the life sciences space. Companies within the sector are accustomed to operating amid uncertainty, grappling with complex compliance matters and ever-increasing pressure on costs. The world’s ageing population ensures demand for scientific progress, keeping life sciences companies afloat in an increasingly unstable market. One lawyer we spoke to noted, “There’s always a trade-off between financing and transactions,” adding: “When the market is stronger, there are more transactions and when the market is weaker, companies focus more on licensing agreements to fundraise.” Despite  growing uncertainty, the global life sciences market has shown that it is readily adaptable, changing to suit the economic climate with ease. Practitioners report that “the corporate structures being put in place now are far more sophisticated than they were 10-15 years ago”, noting an increase in the scope of transactional work across the sector on an international scale. Despite fears that Brexit will affect the involvement of UK-based firms in life sciences transactions, the past year has shown commercial activity in the market to be keeping pace.

Healthy levels of M&A activity were also observed throughout the past year, with acquisitions by big pharma accounting for a significant portion of the total deal value. For instance, June 2017 saw the completion of the acquisition of Actelion Ltd by industry giant Johnson & Johnson for a total purchase price of US$30 billion. Additionally, in October, Gilead Sciences successfully purchased  Kite Pharma for US$11.9 billion. The dominance of pharmaceutical deals in this space is further supplemented by the explosion in the biotechnology field. As new start-up companies in the area reap the rewards of cutting-edge innovation, practitioners have noted a rise in the acquisition of new technologies by major players in the market. One notable example is  global biotechnology company Bioverativ’s agreement to acquire True North Therapeutics for up to US$825 million. The increase in major transactions in promising areas of development is certainly good news for transactional lawyers, who expect this healthy growth to continue into 2018.

Patent litigation trends

Numerous lawyers we spoke to told us about the changing nature of the patent landscape within the life sciences space. In a sector once dominated by small molecule generic litigation, lawyers have observed a marked shift in the types of disputes they encounter within their practice. The past year has once again been characterised by large-scale growth in the biosimilars market. The upsurge in biosimilar litigation shows no sign of slowing down, with one practitioner commenting, “Now we’re seeing the first originals coming off patent, we can expect far more litigation in this area in the future.” It is not only the types of products subject to litigation that are changing, however. Many of the practitioners we spoke to have also observed a change in the type of litigants they are seeing. As life sciences companies continue to develop, the once-distinct lines between generics and originators are starting to blur, with originators now housing generic arms, and generic companies being home to patentees. It remains to be seen whether this will change the practices of steadfast originator firms; however, it will be interesting to observe how the focus of practitioners develops.

The biologics market is not the only growing area within the sector. Many interviewees reported a rise in innovative, technology-related patented products entering the market. With the introduction of artificial intelligence and digital software into areas such as diagnostics, e-health and wearable devices, it is unsurprising that litigation in these areas has really taken off. As medical devices become increasingly complex, the regulation surrounding them develops, leading to an upsurge of patent disputes as well as a rise in compliance advice on regulatory aspects. Given the momentum that digitalisation in the life sciences arena has gained over the course of 2017, this trend seems set to continue long into the future.

Conclusions

The fiercely competitive life sciences market remains a challenging one for both companies and legal practitioners. Despite this, however, there is a general sense that the domain of the industry is expanding, and the clearer regulations improving both access to the market and the quality of product portfolios. Our editorial analysis reveals that many law firms tend to focus and exhibit strength in certain areas of life sciences. However, as the area continues to develop, a broader range of specialisms may be required. As mandates become increasingly international and the lines blur between once clearly separate areas of law, firms are required to demonstrate both versatility and high levels of industry expertise to prove that they have both the capabilities to manage complex multi-jurisdictional cases and the expertise to meet the growing needs of increasingly sophisticated clients.

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