Nicola Maguire, John Wilkinson and Adam Lewington, Reed Smith LLP
An ageing population, keen to ensure continuing fitness and good health as long as possible, is fuelling an increased interest in probiotics and dietary supplements. There has been lots of commentary in the press over recent years about the expiry of patents owned by Big Pharma and companies’ quests to expand their product pipeline by obtaining licences in new biotech products. Some are now looking to extend their product range outside drugs with big- and specialty pharmaceutical companies starting to expand into the probiotics field. As a result, this is becoming a growth market. Increased activity in this area has included, for example, Nestlé’s €50 million investment in Swedish probiotic player BioGaia, Pfizer’s acquisition of Danish company, Ferrosan and Reckitt Benckiser’s acquisition of Schiff Nutrition in the United States. Probiotics are regulated differently to drugs and so it is necessary to consider different factors when looking to acquire or obtain a licence for such products. In this article we assess the issues purchasers and licensees need to be aware of when undertaking transactions involving probiotics.
What are probiotics?
The term “probiotic” refers to live microorganisms, specifically probiotic bacteria, which are widely believed to provide a health benefit when consumed by humans. However, when considered in a legal context, the use of the term has different implications, especially regarding any health claims made for these products. Under European legislation, the term probiotic is considered to be an unauthorised health claim. The European Commission considers that the term implies that a product provides a health benefit, which could be misleading to consumers unless it can be substantiated. The regulations put in place by the commission provide that a health claim may only be permitted if it is based on generally accepted scientific evidence and is well understood by the average consumer. Currently, there are no approved health claims for probiotics. This is despite many applications having been made to the European Food Safety Authority (EFSA).
The key issues to focus on when entering into agreements concerning probiotics relate to regulatory and compliance requirements, marketing and promotional materials and any milestones agreed by the parties.
The main legislation regulating the health claims made by probiotics in Europe is contained in the Health Claim Regulations (No. 1924/2006) (HC Regulations), the purpose of which is to ensure high levels of protection for consumers and to aid in facilitating their choice. Furthermore, the HC Regulations seek to ensure that the types of products put on the market (including imported products) are safe and adequately labelled. The HC Regulations were introduced in response to the increasing number of foods labelled and advertised within the European Community with nutrition and health claims.
Article 13 of the HC Regulations has proved to be particularly controversial with manufacturers in the probiotics industry. The article specifically addresses health claims describing or referring to: the role of a nutrient or other substance in growth, development and the functions of the body; psychological and behavioural functions; or slimming or weight-control. These claims may be permitted if they are based on generally accepted scientific evidence and are well understood by the average consumer. The HC Regulations also provide a list of approved claims and state that any changes to the list will only be made based on scientific evidence after consultation with the EFSA. To introduce a new claim to the list a manufacturer must provide the competent authority in its member state with an application for a new claim which is then referred to the EFSA for scientific assessment.
Manufacturers have, so far, been unsuccessful in convincing the EFSA of the health claims for probiotic products. The EFSA has, since its establishment, published opinions on many claims, but has yet to accept any for a probiotic product. On 14 December 2012, the use of the term probiotic became a banned term under the HC Regulations, as not a single claim relating to the use of the term had been accepted by EFSA. This means that products cannot be sold in the EU claiming to be probiotics.
With this in mind, when entering into a collaboration or licence, the parties should agree on an approach as to how future evidence will be provided to the EFSA in support of a health claim. More specifically, they should agree to adapt their approach in light of other decisions that may be made by the EFSA. Additional points to consider in any submission to the EFSA should include clear, defined end points, clearly characterised bacterial strains (through molecular typing) and clear links to a cause-and-effect relationship for the product.
On 20 September 2013, the European Commission introduced Regulation No. 907/2013 (the Generic Descriptors Regulation), which sets out the rules for applications concerning the use of generic descriptors. Generic descriptors are words which have traditionally been used to indicate a characteristic of a class of foods or beverages which could imply an effect on health such as “digestive”. In the past these words have been exempt from the ban under the HC Regulation, The Generic Descriptors Regulation provides that generic descriptors for food and beverage products, which could be construed as health claims, will only be allowed if they have been in use for the product for more than 20 years in a member state. Where a company can demonstrate use of these descriptors prior to the passing of the Generic Descriptors Regulation it is possible to apply for an exemption to the ban.
The Generic Descriptors Regulation has not been well received by the probiotics industry. It is argued that proving a generic descriptor for a product presents a very real barrier to companies, especially smaller producers, as the additional information that is required on request by national authorities, namely the need to show consumer understanding of the implied health effects, as well as evidence that the consumer links the generic descriptors to the particular class of food or beverage, is difficult and expensive to provide. It is believed that most claims for probiotics will fail because the term is too closely associated in the average consumer’s mind with a health claim and there is insufficient history of the terms used in the EU marketplace. The word probiotic has not taken on the additional everyday meanings used by products such as “tonic” water.
There are two key regulatory problems facing companies wishing to deal in probiotics. In any agreement it must be clear firstly that the distributor will not be required to market a product as a probiotic; and secondly whether an application for a health claim will be made. It is possible that the time and cost of preparing a claim and the fact that the EFSA is unlikely to accept a probiotic product will mean that companies may need to look at alternative ways of marketing their probiotic products.
Marketing and promotional materials
When considering the marketing requirements for an agreement involving a probiotic there are several issues, especially regarding the materials used, which companies will need to assess.
One of the key issues, particularly when contracting with non-European suppliers, is to ensure that use of the term “probiotic” is not made a contractual part of any advertising material agreed between the parties. The parties will need to assess any marketing materials previously used by a supplier outside of Europe for use in Europe and agree any changes to comply with European regulations.
When determining the overall value of a transaction involving a probiotic, the parties should take into account any changes that may be required to rebrand a product for Europe. This may have significant cost implications and may prevent some suppliers from entering the European market. Instead they may decide to sublicense the product or bacteria culture to a company in Europe to market it under a new brand.
When agreeing marketing materials for probiotics, companies should be aware that the Food Safety Authority of Ireland (FSAI) has been advised by the EFSA that, any term which implies probiotic activity (ie, those that imply that bacteria in a product are beneficial for health) are health claims which are not permitted. The EFSA has advised that this includes the use of terms such as “live” or “active” when used to describe bacteria as they are seen as implying a probiotic function and are therefore considered health claims. However, the FSAI currently advises that it is possible for manufacturers to state the name of the bacteria in their product on labels. The basis for this advice is based on Directive 2000/13/EC on the labelling requirements for foods, which provides that the name of the microorganism culture the product contains is not required to be listed in the list of ingredients, but the manufacturer can choose to provide this information to consumers. It is likely that the EFSA will advise regulatory authorities in other member states to adopt a similar approach.
As we have discussed previously, it is possible to market a product under a generic descriptor such as “digestive”. However, a generic descriptor must still be approved and demonstrate 20 years use. Where this is possible companies may wish to specifically agree use of a generic descriptor in any marketing material used. Where a new generic descriptor needs to be applied for, companies may wish to agree on an application timetable.
Transactions (whether an acquisition or a licence) frequently involve future payments subject to the achievement of specified milestones. Companies, especially the seller or licensor, need to ensure that, in light of the European regulations, these are achievable and buyers need to ensure that they are not paying for a contingent value that may not crystallise. Milestones are often linked to the attainment of marketing authorisations for the product in question. However, with the current legislative stance and past decisions of the EFSA regarding health claims made by probiotics, getting an authorised health claim might present an unachievable milestone.
For probiotics in the same way as drugs, patent protection is often needed to provide assurances that the original investment can be recouped after the development process. Developers will therefore seek to appropriately protect their cultures to be able to recoup the costs of development before entering into any transactions. For example, AB Biotics was recently granted a composition patent for its lactobacillus plantarum blend with cholesterol reduction in food, pharmaceutical and veterinary formulations.
Microorganisms, such as probiotic bacteria, must satisfy the same criteria as any other patentable inventions. A patent may only be granted for an invention if that invention is new, involves an inventive step, is capable of industrial application and is not specifically excluded from protection as a patent. While plant or animal varieties, or any essentially biological processes for the production of plants or animals, are excluded from protection as patents, microbiological processes or their products are not excluded.
Regarding novelty, where a micro-organism is isolated for the first time this may constitute a novel and potentially patentable invention. To meet the requirements of the inventive step, the isolation must not be obvious to a person skilled in the art. Isolating bacteria from a commonly known mixture for the first time is likely to overcome this hurdle. If the bacteria can then be shown to have a practical use and to be capable of being made or used in industry, the industrial application requirement should also be met.
It is often difficult to patent microorganisms, particularly because it can be hard to describe them adequately and even if this can be done it can be difficult for other parties to replicate the microorganism (after the expiry of the patent) unless they have a sample of the microorganism. To address this, the International Depository Authority set up under the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure established a system of internationally recognised depositaries where samples can be deposited and the deposit can then be referred to in patent applications filed in countries adhering to this Treaty. Companies licensing patented microorganisms, acquiring manufacturers or employing developers of patented microorganisms should carefully review the patents or patent applications held and made by the target or licensor when considering the value of a transaction. The ease with which microorganisms such as bacteria can be replicated means that it is essential to ensure that as far as possible the microorganisms are covered by some sort of intellectual property right – if patents are not available, the confidentiality of the manufacturing know-how and the master feed-stock for the production of the probiotic is of crucial importance.
When undertaking a transaction involving a probiotic it is easy to assume that the considerations will be the same as those for a drug. However, there are certain areas where there are significant issues, particularly on the regulatory side, and these need to be considered and taken into account when determining the value of a product, the consideration which will be payable and the parties obligations regarding the product going forward. Each of these needs to be considered in the due diligence process, and where they are determined to contribute to the value in the transaction, appropriate warranties and indemnities should be included. As mentioned above, the consideration should be structured to reflect value inflections such as the granting of particular health claims.