The International Who’s Who of Life Sciences Lawyers has brought together three of the leading practitioners in the world to discuss key issues facing lawyers today.
Horn & Co Law Offices
Who’s Who Legal: What types of work have been keeping life sciences lawyers busy of late?
Helén Waxberg: A key area relates to funding and reimbursement issues. Increased generic entry on the market in various therapeutic areas has created increased price pressure by the national Price and Reimbursement Authority. Such price pressure relates not only to the reference product but also to other competing products within the same therapeutic group. In relation to this, several questions have arisen regarding, for example, definition of comparator product, need for product range and price acceptance, burden of proof in respect of cost-efficiency and also transparency issues. A great number of decisions are appealed to the administrative courts.
A second area is advice to originator companies in respect of various issues in relation to approaching loss of regulatory data protection and loss of patent protection.
A third area is pharmaceutical marketing issues involving, for example, the DTC prohibition and the border line between freedom of information and marketing as a consequence of the European Court´s ruling in the MSD case, pre-launch issues and information on websites in particular.
Yuval Horn: In Israel we have witnessed increasing licensing and joint development work, and public funding of projects in addition to the investments by venture capital funds in private companies. We advised on an increasing number of joint research and development agreements with non-Israeli partners and academic institutions, in which the parties sought public financial assistance (such as from the office of the Chief Scientist at the Israeli Ministry of Industry, Trade and Labour (OCS), BIRD, FP7 and similar funding).
In addition, with the growing public interest in life sciences companies, several life sciences companies have raised capital by either becoming publicly traded on the Tel Aviv Stock Exchange (TASE) or merging into such publicly traded companies. Despite the latest decrease in the TASE Biomed index, and relative risk associated with early-stage biomed companies, the appetite of investors for such companies on TASE has been substantial.
Peter Hut: Life science lawyers are dividing their time between increased FDA activity and a large number of business transactions.
During the past four years, FDA appropriations have doubled and user fees for drugs, biologics, and devices have also increased. With greater resources, FDA has increased its domestic and foreign inspections and its import detentions at the border. Following several years of escalating FDA requirements for proof of the safety and effectiveness of new drugs, the resulting backlog of new drug applications has kept lawyers busy helping their clients negotiate the final stages of approval.
The decreased productivity of the pharmaceutical industry, caused in part by the stringent FDA requirements, has created major transactional work for corporate lawyers involved in life sciences. First, there have been major mergers between large pharmaceutical companies. Second, as big pharma downsizes its own research, it increasingly invests in or purchases small biotech companies with promising assets.
Who’s Who Legal: Lawyers we spoke with noted the importance of keeping their clients informed of the implications of regulatory developments in the industry. Have you seen any significant new regulatory changes in your jurisdiction? If acting for clients with a multi-jurisdictional presence, what challenges do you face in terms of dealing with cross-border regulatory variations?
Helén Waxberg: The national Price and Reimbursement Board has recently implemented a new regulation introducing on reference products an obligation to decrease the price to 30 per cent in order to stay within the reimbursement scheme provided that certain criteria are met following the introduction of generic competition on the market.
Yuval Horn: During 2010 and 2011 several significant regulatory changes were enacted:
• In October 2010, the Israeli Ministry of Health and the Ministry of Finance issued a new directive with respect to the intellectual property conceived in research conducted in Israeli governmental hospitals. Under the directive, the products of such research are owned by the government, and the technology transfer company has full powers to act on the State’s behalf in connection therewith. The directive also sets clear distribution of royalties resulting from said products, and specifies limitations with respect to the opportunity to employ researchers who are employed by governmental hospitals.
• The OCS (in charge of the execution and implementation of the policy relating to research and development activities in the Israeli industry), published updated rules relating to its Technological Incubator Programme, under which 31 new companies were established during the first half of 2011 alone. Directive 8.3 was amended such that incubator companies are to receive the funding directly from the OCS, and are required to pay royalties from income derived from any product developed within the framework of the State-funded project, plus annual interest in the rate set forth in the Law for the Encouragement of Industrial Research and Development, 1984. The directive was further amended in November 2011 to include the terms of tenders for the establishment of four new incubators. These new incubators, expected to be selected by April 2012, should provide an additional boost to the thriving support of seed stage projects.
• In January 2011, the Ministry of Finance published a programme for encouragement of investments by Israeli institutional investors in venture capital funds which invest in Israeli ventures in the high-tech industry (“Programme”).
Under the Programme, the State shall allocate up to NIS200 million (US$53 million) to protect risks assumed by the institutional investors investing in the high-tech industry. The State undertakes to repay an institutional investor which participates in the Programme a defined amount of up to 25 per cent of its nominal investment, if the return by the venture capital fund’s investment is lower than a certain threshold amount. The protected investment amount may range between NIS25 million (US$7 million) and NIS125 million (US$35 million), and the aggregate investments in the fund by institutional investors shall not exceed 40 per cent of an approved fund under the Programme.
• The Israeli Income Tax Ordinance was recently amended, to create an incentives for Israeli angel investors to invest in seed-stage companies. An individual’s investment in seed-stage companies which complies with certain criteria (such as being incorporated and managed in Israel, not being registered on any stock exchange, usage of certain percentages of the investment for research and development) may now be recognised as an expense. Under this amendment, an investment of up to an aggregate amount of NIS5 million (US$1.33 million) in such companies may be deductable from the individual’s total income during a tax year, for a period of three tax years, subject to certain limitations.
Peter Hutt: Like the weather, regulation constantly changes. This is largely driven by forces that are beyond the control of FDA and other regulatory agencies. Congressional hearings, industry crises, and media stories often determine agency priorities, not rational planning. These events usually are peculiar to specific countries. The worldwide reach of the media today has the potential to spread an issue widely, but interest in a problem is usually largely contained to the jurisdiction where it originates.
Regulatory agencies in the major industrial countries, however, are in greater and more informal communication than ever before. When a new drug is being reviewed in more than one jurisdiction, either for approval or for removal from the market, it must be anticipated that the relevant regulatory agencies will remain in close contact throughout the process.
Who’s Who Legal: The imminent patent expiry of many blockbuster drugs may leave innovator companies prone to generic encroachment. Will coexistence with generics be the only solution for innovator companies in the future? What will be the main implications for the legal industry - will this blur the distinction between acting for both innovator and generic companies and will there be less dispute work between these parties?
Yuval Horn: Our assumption (supported by input we received from several clients) is that innovation is here to stay, for two main reasons, besides curiosity of human nature. First, we understand that the world of pharmaceuticals is evolving from the chemistry to biological agents, which provides for a more difficult (if not impossible) pathway for generics. In addition, the mapping of the human genome is paving the way to personalised medicine, which requires innovation: companies will attempt to locate mutations that will react to their new drugs. Similar attempts are conducted now – they are expected to increase in the future. Finally, biomarkers will play a significant role – and the innovation around them is not expected to cease in the near future. We therefore expect continuation of work with innovative companies. The decrease of generics work in itself is not expected to change our firm’s type and extent of legal work around the development, regulation and funding of such activities (we are a transactional firm).
Peter Hutt: The innovative pharmaceutical industry will forever be in confrontation with the generic drug industry. It is increasingly recognised that the Hatch-Waxman Act of 1984 was a failure, for two reasons. First, it relied on patent protection to provide an adequate period of market protection to recoup the major investment necessary to obtain approval of a new drug. But patents can and often are attacked in the courts and invalidated. Second, the statutory period of only five years of guaranteed market exclusivity – which cannot be invalidated by the courts – is far too short to allow the innovative industry to recoup its investment. Even the 12 years of market exclusivity in the new Biosimilars Act is unlikely to be sufficient. Third, no one anticipated that the cost of a new drug would escalate to an average of over US$2 billion. To sustain that level of investment, 20 years of market exclusivity would be more appropriate.
Congress must re-evaluate the Hatch-Waxman Act based on 25 years of experience, and substantially revise it before it does irreparable harm to the pharmaceutical industry.
Who’s Who Legal: Companies from the emerging markets have become more active in their involvement in the life sciences industry. Have you seen an increase in activity from any particular jurisdictions? How do you think this will, if at all, change the landscape of the life sciences industry? How important are the emerging markets for the more established life sciences companies?
Yuval Horn: The Israeli life science industry has grown substantially. According to the Israeli Life Science Industry (ILSI) database, from only a handful of biotech companies in the 1980s (the first one, Teva Pharmaceuticals Ltd, was founded in 1901), 788 companies are currently active in this sector.
According to the ILSI database, as of 2010, there were 61 molecules developed by Israeli biopharma companies in clinical trials, of which 23 were in phase I, 30 in phase II and eight in phase III. One leading example of a successful drug development company that completed its phase III clinical trials is Protalix Biotherapeutics Inc. (AMEX:PLX), which develops recombinant therapeutic proteins, that may potentially address Gaucher disease, Fabry disease, biodefence indications and auto-immune diseases.
Several venture capital funds have been set up and have profited from investment in early stage companies. Pontifax Investment Fund, which invests in early stage companies, partnered in 2009 with Hofmann-LaRoche in a strategic alliance, whereby Pontifax leads a process of identifying and investing in Israeli biotech companies that represent potential collaborative partners for Roche.
The prominent advantage of life science companies in Israel is their proximity to and evolution from world renowned academic institutions, lead by the Weizmann Institute of Science, The Hebrew University Jerusalem and Tel Aviv University. The commercialisation of their technologies has gained significant momentum during the past years. The leading example of a technology commercialisation success story is that of Copaxone, the first innovative drug developed in Israel which received FDA approval, for the treatment of relapsing-remitting multiple sclerosis, developed in the Weizmann Institute of Science, and licensed to Teva Pharmaceuticals Ltd. In 2010 Copaxone sales reached record global sales of US$3.32 billion.
Peter Hutt: The United States remains the only country that does not set drug prices. Thus, the high prices we pay for drugs, together with NIH funding, finance about 80 per cent of the drug research in the world. Companies in the emerging markets do contribute technical assistance. For example, about 80 per cent of the active pharmaceutical ingredients for our new drugs are now made abroad and about 50 per cent of clinical trials on our new drugs are conducted abroad. However, the companies that plan and finance the research and development of new drugs overwhelmingly remain in the United States.
Foreign countries are, of course, important markets for some drugs. And as they become wealthier, their importance will increase. But it will take many years before the infrastructure, entrepreneurship, and creativity that characterise the United States pharmaceutical industry can be approached abroad.