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Life Sciences 2016: Roundtable

Who’s Who Legal brings together five leading experts to discuss issues facing life sciences lawyers and their clients today.

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What legislative developments, if any, have occurred in your jurisdiction that have affected the focus of your practice?

Willem Hoyng: There are no legislative developments in the Netherlands except the decision to have a local division under the Unified Patent Court (UPC). In the case law we can detect a very critical attitude of the court of first instance towards patents, especially pharma patents.

The Advocate-General in an advice to the Supreme court in Bayer suggested that the Netherlands could embrace the “purposive interpretation” of patent claims advocated in the UK, but fortunately the Supreme Court refused to follow (as this can easily lead to a far too literal interpretation of claims). The court reiterated that the correct interpretation lies between two points of view: the inventive idea behind the claims as understood by the skilled person at the priority date (who has studied the description, the drawings and the prior art mentioned in the patent) and the letter of the claim. The Supreme Court refers for its opinion to the protocol in art 69 EPC.

Very recently the Court of Appeal in AstraZeneca-Resolution reversed another “patent bashing” decision of the Court of First Instance clearly applying the teaching of the Supreme Court.

David Gindler: The most significant development in the United States is the post-grant review procedures from the America Invents Act – and, in particular, inter partes review (IPR). The IPR has fundamentally changed patent litigaiton by providing an expedited procedure before the Patent Office to challenge the validity of a patent. The entire process takes only 18 months and has proven highly successful, insofar as the majority of decisions from the Patent Office find one or more of the challenged claims to be unpatentable. In my experience, most defendants in patent infringement actions are using the IPR procedure to challenge the validity of the asserted patent.

Peter L’Ecluse: Life sciences cover, of course, a wide range of rules and issues, but the developments that in my view stand out are: the adoption in December 2015 of a new EU data protection Regulation; the entry into force across Europe of “Sunshine” rules governing the financial relationships between pharmaceutical firms and health care professionals; and the new regulatory pathways being created at EU level and in various member states for the early adoption and reimbursement of innovative and promising medication.

Paola Sangiovanni: Italy is bracing itself for the new EU data protection regulation, and waiting for EU developments in the area of medical devices and IVDs. The current rules in those areas are outdated in many ways, and therefore a change was surely necessary. The impact of the new regulations on specific areas of life sciences remains to be seen (in particular, compliance with the data protection regulation appears fairly problematic for clinical research activities).

Yuval Horn: In 2015, we have witnessed statements by Israel Securities Authority with respect to the importance of deregulation and the adoption of reliefs to supervised entities, especially smaller and technology-oriented companies, aimed at supporting local capital markets. Special focus is being given to the fact that, in recent years, the local stock exchange has experienced a significant decrease in the number of initial public offerings, and – as borne out by our firm’s experience during 2015 – many Israeli companies (both private and those that are traded on the Tel Aviv Stock Exchange) have elected to conduct public offerings on foreign exchanges. In addition, we have advised on private issuances of securities, as well as funding options that would replace the companies’ public offering alternatives.

During 2015, significant amendments were made to the Law for Encouragement of Research and Development in the Industry, 5744-1984 (the R&D Law); this was the law under which the Office of the Chief Scientist (OCS) operated in providing governmental support and funding to research and development activities. Under the amended R&D Law, a new governmental entity – the National Authority for Technological Innovation (NATI) – was set up. This entity will be responsible for establishing and managing government incentive programmes, a task previously entrusted to the OCS. The idea behind this significant amendment, and the establishment of the new authority, was to increase the flexibility and efficiency of the management of such governmental support, which has been a developmental cornerstone of the Israeli technology sector throughout the past decades. The amendment came into force on 1 January 2016, and is unique in the sense that new authority has been granted broad discretion to determine the terms and rules applied to the support programmes it manages and supervises.

Also in 2015, the Israeli Supreme Court resolved an ambiguity with respect to the consideration payable to employees who develop IP during their employment (service inventions). In recent years, there were conflicting decisions with respect to the employee’s right to claim specific compensation for the invention of intellectual property, regardless of IP ownership provisions in their employment agreement. In 2015 the Israeli Supreme Court ruled that it would not intervene in a previous resolution of the compensation and royalties committee of the Ministry of Justice. The committee had resolved, in 2014, that an employee’s waiver of the right to monetary compensation from the employer, after the termination of employment, includes a waiver of the right to royalty payments for service inventions. While we await any further regulation of the matter, we advise clients to be cautious with respect to the obligations relating to compensation for service inventions.

Is the life sciences sector becoming more specialised these days? What kind of cases are you seeing time and again?

Willem Hoyng: It has always been quite specialised. These days we see biosimilars, second medical use, and the problem of enforcing carve-outs and many formulation patents often perceived by the Dutch courts as evergreening strategies.

David Gindler: My area of practice – patent litigation and licensing – is specialised insofar as there are attorneys, like me, who focus their practice in the life sciences. It is not necessarily specialised in the sense that it’s limited to attorneys with scientific backgrounds. I have no specialised training in the life sciences, but then neither do the judges or juries who decide patent infringement cases in our federal courts. It is therefore very important to be able to make complex scientific concepts understandable to the people who will be deciding the case.

Peter L’Ecluse: I agree with both Willem and David. Working in the life sciences sector requires a degree of specialisation to master the concepts proper to the sector. At the same time, developments are fast and manifold and thus require constant learning and adapting.

Paola Sangiovanni: Life sciences is perceived as a very specialised area of practice. In my experience, though, the interactions between regulatory, commercial, anti-corruption, antitrust and corporate issues are very strong and life sciences companies need to be very careful and assess the impact of their activities in such various areas. So, while specialized knowledge is important, mastering the “big picture” is even more so.

Yuval Horn: As the Israeli life sciences sector has grown to remarkable transactions and size, so the management of life sciences companies has become more experienced. The transactions of Israeli companies, founders and investors with non-Israeli pharmaceutical and device companies must match world-market standards. This has led clients who were (or are) represented by other counsel to approach our firm for advice on licensing, joint development and asset purchase agreements, as well as merger and acquisition agreements that would require specialisation in due diligence and negotiations.

Besides the specialisation trend, our firm has advised on numerous transactions and discussions with technology transfer companies of academic and medical institutions, licence agreements, joint development and material transfer agreements as well as several asset sales and mergers of technology based companies. In addition, life science companies seeking public funding or transactions have sought our advice due to the specific disclosures that are required both in the prospectus and in the ongoing representation and discussions with the Israel Securities Authority and the Tel Aviv Stock Exchange Ltd. Finally, we have been advising on numerous transactions of inbound licenses from outside of Israel.

How would you compare the expectations of clients today to those of past? How has this relationship evolved over time?

Willem Hoyng: I do not think that there is a major change. Clients in life sciences want the best and that is what we try to give them. Of course, times have become more difficult with soaring health costs, far stricter rules in publicity, less new molecules and a pro-generic attitude – culminating in a much-criticised decision of the Court of First Instance in Shionogi v Resolution, a decision expected to be countered by the Court of Appeal. If this does not happen, the climate for pharma patents in the Dutch courts would be the worst in years.

David Gindler: I’m not seeing any significant changes in client expectations – although, as a general rule, over time we are seeing more clients who have a very “hands-on” role in the management of dispute resolution. That really improves the overall client relationship, because the client gets involved in the details of decision-making.

Peter L’Ecluse: I do not see any major changes. Clients are generally demanding but they have every right to be that way.

Paola Sangiovanni: Clients increasingly require assistance in both the legal and compliance areas. This further strengthens the relationship between client and counsel, as many decisions on the compliance side require a thorough understanding of issues previously mastered only by in-house attorneys.

Yuval Horn: The Israeli life sciences scene has changed dramatically. The landscape included very few companies when I began my practice in the sector in 1993, and currently boasts approximately 800 companies – mainly in medical devices, biotechnology, and health IT and telemedicine. As clients have set up companies that target specific drugs, biomarkers, pharmaceuticals or tissue engineering and cell therapy, they have become much more professional in their expectations and recognition of the requirements of their companies and advisors.

In addition, with the evolution of IT and the pace of the transactions, so has the pace of our work increased. Clients expect immediate turnaround even in complex transactions that require thorough review by different teams. The ability to communicate quickly on matters of principle as well as detailed technical matters also facilitates the interaction with clients on any matter that would require specific guidance.

What changes can we expect to see in the coming years within the sector, and how will this affect general area practice?

Willem Hoyng: Of course the major change will be the UPC!

David Gindler: Perhaps one of the biggest issues in the United States is the evolving case law on what is patentable subject matter. The Supreme Court has held that a patent claim that focuses on a natural phenomenon or law of nature does not recite patentable subject matter if the only other claim elements are well known or routine laboratory procedures. The Federal Circuit recently applied this rule to invalidate a patent broadly directed to a diagnostic procedure to detect cell-free foetal DNA in the plasma or serum of a pregnant woman. We can expect this area of patent law to draw a lot of attention, particularly for diagnostic tests that look for biomarkers, in the coming years.

Peter L’Ecluse: The UPC is indeed a major change in the patent arena. Elsewhere, I expect (as noted in my response to the first question) new rules for early market entry of innovative medicines. In addition, the EU will in 2016 effect a major overhaul of the rules governing medical devices. Furthermore, we will witness the implementation of the new data protection regulation in areas as diverse as the relationship between patient and healthcare professional, medical wearables, and the use of patient data for cost calculation and reimbursement purposes. I also foresee new legal issues resulting from the use of big data in healthcare.

Paola Sangiovanni: Legislators and regulators, both national and European, will be tempted to regulate innovative fields: telemedicine, personalised medicine, the internet of things, 3D printing, or any other “new” life sciences phenomenon. Depending on the understanding of the specific innovation and on the quality of the regulation, this may be a good or a bad idea.

Yuval Horn: Due to the global nature of the transactions, we see a growing number of Israeli companies and funds seeking transactions outside of Israel, including licence agreements. Also, in Israel the number of mergers and acquisitions doubled between 2014 and 2015. As market appetite for the public financing has varied during the last six months or so, we expect the increase in mergers and acquisitions to continue in 2016.

In Israel we also expect two significant regulatory changes to affect the ability to both raise public funding and obtain non-dilutive funding from the government.

As discussed earlier, the Israel Securities Authority recently published a proposal for a series of regulatory reliefs in the areas of corporate governance, administrative enforcement, securities offering procedures and reporting obligations. Such a proposal is expected to be implemented during 2016; it would be interesting to see if and to what extent such reliefs would incentivise technology-oriented companies, especially those deemed not yet mature for a NASDAQ offering, to consider the Israeli capital markets as a public offering alternative.

Also, it would be interesting to see how the amendment of the R&D Law, and the creation of a new government entity to establish and manage government incentive programmes, would apply discretion. In addition, we are waiting to understand the actual implications of new and existing support programmes, and whether the intended goal of this dramatic change – enabling a less rigid support regime consistent with the rapidly changing and global technology sector – would indeed be achieved by the new authority.

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