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On the radar - upcoming pharma legislation

With a plethora of new legislation coming through for drugs and devices, at country and international level, companies must keep up to date with what the changes will mean for them and ensure that they remain compliant

On the radar - upcoming pharma legislationFor pharmaceutical companies, 2012 is the year where major blockbuster patent expirations loom on the horizon, most notably Plavix and Seroquel. Low productivity in research and development (R&D) has resulted in a lack of drugs coming through to replace the blockbusters, and large pharmaceutical companies are realising that they can no longer rely on their longstanding business model.

With this in mind, mergers and acquisitions (M&A) look set to increase in 2012 as companies look for alternative ways to maintain profits and cover loss of revenues. This means a host of commercial, legal and regulatory challenges must be faced.

Many investors have been eagerly anticipating companies diversifying their pipelines or developing replacement products to help them fill the gap caused by products coming off patent. While major structural shifts in new R&D and the way intellectual property is financed take place, the life sciences sector provides a rare bright spot in the pervading economic gloom.

Over the past ten years, there have been almost $700bn worth of deals in the pharmaceutical sector and this looks set to continue in 2012, with increased M&A activity. The pharmaceutical industry remains one of the prime industries in terms of M&A activity, along with banking.

There appears to be a fresh cycle of M&A activity in the sector, with a particular focus on emerging markets, particularly in Brazil, Russia, India, China (BRIC), south-east Europe and Turkey, where the portfolios of many pharmaceutical companies remain weak.

PE involvement
Emerging markets also continue to receive significant life sciences private equity (PE) investment, with China and India gaining the most. Historically, the risk involved in R&D has led PE firms to avoid large pharmaceutical companies and the biopharmaceutical industry in general. However, recently, some small deals have linked PE and venture capital (VC) with biotechnology, with investment in a number of diverse projects in different areas of life sciences. This growing trend is already playing out in Europe and, according to the European Private Equity and Venture Capital Association (EVCA), the total investment in life sciences in Europe increased from €3.4bn in 2009 to €5.7bn in 2010, while the total venture investment in life sciences accounted for 30 per cent of the total investment in Europe in 2010. Such funding is likely to increase as the cash-rich life sciences sector is viewed as 'recession-proof'.

Japanese activity
2011 was a busy year for Japanese pharmaceutical M&A. Across all sectors, cross-border acquisitions by Japanese companies nearly tripled compared to 2010. Liquidity among Japanese pharmaceutical companies remains strong, enabling them to enter into deals at a time of intense competition for intellectual property in the industry.

During 2011, Takeda undertook the €9.6bn (debt-free, cash-free) acquisition of Nycomed A/S and it is expected that Japanese companies in the life sciences sector will undertake more M&A activity in 2012. Factors such as the economic climate, demography and the state of R&D pipelines should see more Asian acquisitions of European patented drugs.

New legislation coming into force will also have an impact on the pharmaceutical industry in the year ahead. Whether laws on intellectual property and regulatory will help or hinder pharmaceutical companies in this challenging climate remains to be seen.

Legislation, such as that introducing supplementary protection certificates (SPCs), will play a significant role in assisting companies facing the expiry of major patent portfolios and provide more protection for companies investing heavily in R&D. EU patent offices have long been able to grant SPCs if there has been a large gap between a company filing a patent application and getting authorisation to market the drug.

However, issues surround how SPCs apply to medicines that contain more than one active ingredient. In a landmark case in November 2011, the EU Court of Justice said that once an SPC has been granted for a single active ingredient, that same SPC could be used to protect such ingredient in all marketed products, either alone or in combination with other active ingredients. This is likely to have further ramifications in battles between generic and pharmaceutical companies in 2012. Equally, in the US, the outcome of the Mayo vs Prometheus case will be watched keenly to understand how patents will be impacted across the industry.

In the UK, the government hopes new patent box legislation will give a welcome boost to R&D. When it comes into force in April 2013, patent box legislation will reduce UK Corporation Tax on patent profits to 10 per cent, encouraging R&D activity and providing incentives for companies to retain intellectual property in the UK. This will make the UK competitive with other European countries, like Ireland, Switzerland and Hungary, which have had similar systems in place for years. While the existing system of R&D tax credits has given some relief for R&D expenditure, there has, until now, been no similar incentive for businesses to retain intellectual property in the UK once it has been created.

Bribery Act impact
Issues surrounding bribery have already elicited much discussion in the early part of 2012, with Smith & Nephew plc, Europe's biggest maker of artificial hips and knees, agreeing to pay $22.2m to settle allegations by the US Justice Department and Securities and Exchange Commission that it had engaged in a scheme to pay bribes in Greece. Compliance with the Bribery Act 2010 will be high on the agenda of important considerations for the life sciences industry, especially in the due diligence process during any future cross-border pharmaceutical M&A transactions.

Although the implications of the Act came into force during 2011, they will become more apparent during 2012. The Bribery Act 2010 came into force on July 1, 2011 and has attracted much attention because of its reach and application across borders. What in one culture could be considered an accepted facilitation payment may be interpreted in the UK as a bribe. The breadth of the definition of 'commercial organisation' under the Act, combined with the concept of 'associated persons', means that UK pharmaceutical companies need to consider their activities globally carefully, whether carried out themselves, through a third-party associated person or through a subsidiary. 

EFPIA has approved the amended Code of Practice on the promotion of prescription-only medicines

A number of significant regulatory issues are also being debated in Europe. Discussions continue about the introduction of an EU directive that would require substantial changes to the regulation of clinical trials.

In March 2010, the UK's Chancellor of the Exchequer announced that the government would review the UK's implementation of the Clinical Trials Directive in order to reduce perceived gold-plating and to increase the proportionality of the system. The UK's Medicines and Healthcare products Regulatory Agency (MHRA) has stated that it intends to wait for the outcome of the European negotiations before reviewing and amending the UK legislation.

It will be interesting to watch the development of another directive which aims to improve the EU pharmacovigilance system, simplify regulatory decision-making, provide a legal basis for more proactive pharmacovigilance by both regulatory authorities and industry, and involve patients more closely in reporting adverse drug reactions. Although adopted in 2010, compliance is not compulsory until 2012. The legislation will bring about the most profound change to the legal framework since the European Medicines Agency (EMA) was set up in 1995. The European Commission, EMA and member states have been carrying out work implementing the legislation, but companies still lack clarity on many of the new obligations. It is likely that the new requirements will be introduced in phases beyond the original July 2012 implementation deadline.

Social networks
At a time when social networking continues to become part of daily routine, pharmacovigilance is particularly important. The industry must recognise that social networking and reporting is taking on rapidly increasing significance in the marketing discussion and the exchange of information concerning pharmaceuticals. There are pharmacovigilance obligations at all steps of the life cycle of a medicinal product and for the purposes of drug monitoring; the pharmacovigilance system will need to take account of this, not least because the increasing use of social media also poses interesting questions around geographical legal jurisdiction.

Devices
The medical devices regulatory system is also undergoing a major revision, producing new challenges, which have an increasing relevance and immediacy. The revision process has already been subject to wide stakeholder consultation and is expected to address high levels of patient protection. Subjects to be addressed include: adjusting the scope of the rules to include non-active tissue products, cosmetic implants and genetic tests, strengthening controls on notified bodies, timely and uniform action in vigilance and post-market surveillance, upgrading clinical evidence requirements and improving the rules for borderline products.

It is also likely that there will be a particular focus on interoperability and safety issues related to the integration of medical devices in e-Health systems, especially Personal Health Systems and mobile health systems, bearing in mind that the deployment of health ICT systems is entirely a matter of national competence. As part of the recast, the EU Commission will include a requirement for a system of Unique Device Identification (UDI). This follows the introduction of UDI in the US by the Food and Drug Administration.  An EU Commission working group has been established to progress UDI with the member states, with first proposals on the recast expected shortly.

The year 2012 may also herald significant changes to the way drugs are marketed. The European Federation of Pharmaceutical Industries and Associations (EFPIA), in particular, will be under the spotlight this year as the implications of amendments to the advertising of medicines become apparent. Currently, the advertisement for a medicine must be in line with the product's Summary of Product Characteristics (SmPC). Hence, off-label promotion is not allowed. EFPIA has approved the amended Code of Practice on the promotion of prescription-only medicines to, and interactions with, healthcare professionals.

Conclusion
For us lawyers, 2011 was a landmark year in pharmaceuticals, with deals like the aforementioned Takeda acquisition of Nycomed, and 2012 looks set to be no less transformational. There is likely to be a continuing trend towards commercial and economic power shifting eastwards, as well as increased diversification and regulatory hurdles, which will set challenges for the industry. Whether those in the industry will survive and thrive on this remains to be seen, but the structural upheaval felt as a result of life post-patent cliff is already being witnessed.


Sandra Rafferty, CMS Cameron McKennaNick Beckett, CMS Cameron McKenna
The Authors
Sandra Rafferty
is a partner at CMS Cameron McKenna and Nick Beckett heads the IP practice and life sciences industry group at CMS Cameron McKenna.

20th March 2012

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