Clinical Trials: Negotiating contracts with Pharmaceutical Companies
Negotiating contracts with pharmaceutical companies can be tough, but there are ways that suppliers and providers can protect themselves against excessive risk.
Many pharmaceutical companies, and especially the biggest of the Big Pharma companies, rarely accept changes to their standard contracts, potentially leaving the supplier or provider exposed to excess risk. In this article we examine the options to address that risk.
When negotiating the terms of a contract with a pharmaceutical company, you can expect to struggle to gain acceptance that any of their terms are negotiable. In these circumstances, your approach should be to:
- focus on key areas which are of concern to you, rather than to attempt to rewrite the entire contract;
- make an assessment of the risks associated with the contract, including bearing in mind any changes which you have managed to agree with the pharmaceutical company;
- establish whether those risks can be mitigated in any way; and
- decide whether to go ahead or walk away taking account of wider reputational issues or financial risk exposure.
The key areas to focus on are:
- Ensuring that the commercial terms are clear – Is it clear service what is being provided, by whom, by when, and how much the supplier will be paid (and when)? Is there any mechanism which could endanger payment being made in full, such as a broad right for the pharmaceutical company to withhold payment in various broad circumstances?
- Limit of liability, indemnities and general risk exposure – Standard contracts often include uncapped liabilities and indemnities (an ‘indemnity’ is a promise to cover the cost of specified liabilities). Standard terms often expose suppliers to potentially very high costs, such as paying the pharmaceutical company’s legal fees in the event of a claim made by a patient, whilst not limiting the supplier’s liability under the contract. It is important that suppliers and providers try to include a limit of liability so as to ensure that their risk exposure is kept at a manageable level – and any ‘limit of liability’ clauses need to be carefully drafted to ensure that they are legally enforceable.
- Patient data – Will you be handling or sharing any patient data? Data concerning a person’s health is classed as Special Category Data under data protection law, which is especially sensitive and so needs extra protection. Businesses who process any Special Category Data also need to identify a lawful basis under UK GDPR and satisfy the conditions for processing such sensitive data.
- Insurance – Contracts often require that the supplier carry specified levels of insurance cover, but even if this isn’t a requirement of the contract it is often vital that suppliers check that they have enough insurance cover in place.
- Governing law and jurisdiction – Especially in contracts where the pharmaceutical company is based overseas, the standard terms may specify that the law governing the contract is the law of another country, and that the courts of that overseas country have exclusive jurisdiction to settle any claims. This could mean that the supplier needs to obtain the advice of overseas lawyers, be limited to issuing court proceedings in the courts of the overseas country as its sole remedy in the event of a dispute, or potentially having to defend a claim made against it in an overseas court. All of this adds to the cost and risk of the contract.
Each contract will have its own quirks, so it’s important to check all the details carefully and to seek independent advice if you feel uncertain or if the terms are unclear.
One way for business owners to mitigate their personal risk is to ensure that their business bears the risk, rather than the owners personally bear that risk of financial liability themselves.
Providing services through a limited company (or through alternative mechanisms, such as a limited liability partnership), and ensuring that the company is the contracting party in the arrangement, will help to ensure that the personal risks of an arrangement for a business owner are mitigated.
As their name suggests, ‘limited companies’ have limited exposure to financial liability, whereas individual sole traders have unlimited liability exposure. The usual starting position is that the owners and directors of a limited company have limited liability if the company becomes insolvent, and their personal assets are not at risk of being liquidated in order to pay the debts of the company (although there are particular rules in the case of insolvency and the position may change if where a director/shareholder has given a personal guarantee).
Using one of these ‘limited liability’ mechanisms will help business owners to manage their personal exposure to risk.
GL Law often helps start-ups set up their company structures in a cost-efficient way. Find out more here.
Having sufficient indemnity insurance is a further vital consideration.
Not only will insurance provide a potential avenue to recover losses if something does go wrong during a contract, but it is usually a contractual requirement that a supplier have insurance in place which has specified levels of cover, and many contracts often require that a copy of the insurance policy is annexed to the finalised agreement. This is something which is best discussed between the parties early on during the contract negotiations, so as to reduce the risk that the signing of the agreement is delayed.
It may even be worth the supplier providing the pharmaceutical company with a copy of the insurance policy at the start of the contract negotiations so that the pharmaceutical company can confirm whether or not this the cover is acceptable to them. It can take several weeks to obtain insurance quotes for specialist areas, so if there are any deficiencies in the insurance then it is best that these be addressed early on. Whilst showing the insurance certificate risks the pharmaceutical company asking that additional insurance cover be taken out, it is best to cover this point off early on rather than later during negotiations, and it is best to do so before the contract starts and certainly to make sure that sufficient cover is in place prior to an insured event occurring.
It is always very important to carefully check the wording of any insurance policies, and to make sure that any potential risks don’t fall outside of the scope of the policy. It’s worth noting that some key risks are hard to insure and will fall outside of the scope of standard insurance policies, such as cyber security incidents.
Data and Reputational Risks
Given the increasing frequency of cyber attacks, every business faces the risks of cyber security and data protection. All businesses should remain alert, especially when handling sensitive personal data such as patient medical records.
The UK National Crime Agency has seen a significant growth in cyber criminality in recent years, with increased criminal activity such as hacking, phishing, malicious software and DDoS attacks.
As well as the financial risks presented by cyber attacks, they also present clear reputational risks for those businesses who do suffer a cyber security incident.
Cyber security incidents may also lead to a breach of personal data.
The ICO, the UK’s data protection regulatory and enforcement agency, has the power to fine those organisations who don’t sufficiently protect personal data, as well as ‘naming and shaming’ them through press releases.
Pharmaceutical companies will also expect their suppliers to ensure that any patient personal data is properly protected, and their contracts will often allow them to recover from the supplier any losses which result from data or cyber breaches.
How GL Law can help
We have extensive experience of reviewing and advising on pharmaceutical contracts, and we can help in other ways such as:
- Assisting with negotiations and negotiation strategy – we have assisted a wide variety of clients to negotiate terms with counterparties and reaching positions which are comfortable for all parties to the contract;
- Giving access to our network of advisers – our network of independent, trusted and carefully selected professionals can help make your contract a success, such as specialist insurance brokers, overseas lawyers and other key advisers; and
- Assisting with the general aspects of running a business in the pharmaceuticals sector – our experts in specialist areas such as licensing, data protection and intellectual property all have extensive experience in the pharmaceuticals industry.
We have a wide range of experts who have extensive experience of providing clear, understandable and cost-conscious advice and support to companies in the pharmaceutical and medical sector.