Business Development & Licensing Journal For the Pharmaceutical Licensing Groups

Issue 17 | April 2012 www.plg-uk.com

Biotech partnering: time for a new model

Court rulings alter SPC landscape

The implications of France’s health reforms

Germany tightens regulations on innovative products

Business Development & Licensing Journal is published by the Pharmaceutical Licensing Group (PLG) LtdThe Red HouseKingswood ParkBonsor DriveKingswoodSurrey, KT20 6AY

Tel: +44 (0)1737 356 391Email: admin@plg-uk.comWeb: www.plg-uk.com

Editorial boardSharon FinchEditor

Neil L BrownSpePharm, France

Riccardo Carbucicchio Switzerland

Joan ChypyhaAlto Pharma, Canada

Roger CoxPlexus Ventures, Benelux

Jonathan FreemanMerck Serono, Switzerland

Jürgen LanghärigBavarian Nordic A/S, Denmark

Leslie PryceNew Business Horizons, Japan

Irina Staatz GranzerStaatz Business Development & Strategy, Germany

Enric TurmoEsteve, Spain

AdvertisingAdam CollinsTel: +44 (0)1737 224 344Email: admin@plg-uk.com

Publishing services Provided by Grist www.gristonline.com

This issue of the Business Development & Licensing

Journal makes for rather sober reading, especially

amid the current changes to our industry and

lingering uncertainty.

We always aim to keep our articles topical, with

content relevant to the current concerns of business

development executives. The partnering environment

is fairly tough right now: while in the article from

Evotec, we see concerns expressed that early stage

deals may not deliver the maximum value, with

pressure to partner for cash flow and scientific credibility, it is difficult

to ignore an offer on the table.

Our European focus in this issue offers valuable analysis of the burning issue

– pricing and reimbursement, and how this impacts on our day-to-day deal

making. Changes to already complex healthcare systems in France and Germany

may further muddy the waters for pharma companies but dwindling state

budgets mean governments are more likely than ever to apply the rules rigidly in

a bid to keep costs down. In such an environment, a clear understanding of the

requirements is vital.

Equally, a flurry of court decisions on Supplementary Protection Certificates

(SPCs) is altering the nature of this important IP protection. The emerging

picture will lead to new opportunities for some companies (both innovators

and generics) and challenges for others.

Despite economic difficulties all around, deals are still happening, although

possibly not at the prime values anticipated by the original investors. While

the current period will be demanding, those who survive will be all the better

prepared to thrive over the longer term. From crisis can come opportunity.

WelcomeNews & developmentsSwiss PLG celebrates its first decade in style;

UK AGM sees high achievers rewarded.

Biotech partnering:time for a new modelKlaus Maleck and Jonathan Savidge, Evotec

It is time for a fundamental rethink on how to run a biotech company,

starting with the crucial, symbiotic relationship with pharma.

Master the detail to getthe most from SPCs Mike Snodin, Potter Clarkson LLP

A flurry of court decisions in 2011 on Supplementary Protection

Certificates issued has profoundly altered the nature of this important

protection for intellectual property.

New rules for innovativepharmaceuticals in FranceAlexander Natz and Marie-Geneviève Campion, European

Confederation of Pharmaceutical Entrepreneurs

France ranks second only to the US in terms of healthcare spending.

But cost-cutting measures and safety provisions under recent health

reforms are affecting pharmaceutical pricing and reimbursement.

Germany tightens benefitscrutiny of new productsClaus Burgardt, Sträter Rechtsanwälte

The law governing reimbursement of drugs in Germany, AMNOG,

came into force in January 2011, bringing in assessment of the added

benefits of new products similar to that used by NICE in the UK.

Deal watchBridget Lacey, Medius Associates

A look at recent major deals, including a surprising recent move from

Vernalis that may offer a new business model for biotech companies.

Contents4

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Publisher’s note The views expressed in Business Development & Licensing Journal are those of the authors alone and not necessarily those of PLG. No responsibility for loss occasioned to any person acting or refraining from action as a result of the material in this publication can be accepted by the Publisher. While every effort has been made to ensure that the information, advice and commentary is correct at the time of publication, the Publisher does not accept responsibility for any errors or omissions. The right of the author of each article to be identified as the author of the work has been asserted by the author in accordance with the Copyright, Designs and Patents Act 1988.

Sharon FinchEditor, Business Development & Licensing Journal

The Business Development & Licensing Journal is free to PLG members. If you

would like to join the PLG please visit the website at www.plgeurope.com

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www.plg-uk.com Issue 17 | April 2012 3

PLG-UK held its AGM and

awards night dinner this year

at Ironmongers’ Hall in the City

of London. The meeting attracted a

record number of delegates.

Professor Trevor Jones CBE returned

to offer his thoughts on the current

state of the pharmaceutical industry.

The meeting also included workshops

from Huw Jones of Daffodil Consulting

offering advice on starting a new

biopharma business. Thomas Mehrling

from Mundipharma gave valuable

insights into how to build an oncology

franchise from scratch.

The two annual awards, the first

sponsored by AstraZeneca for the

Business Development Executive of

the Year and the second from PLG

recognising the Business Development

Best Newcomer, were announced at

the event. The awards were presented

by Geoff Collett, Regional Business

Development Director for AstraZeneca.

Barry Kenny from Heptares, who

closed three deals (with AZ, Shire and

Takeda) in only six weeks, was voted

runner up for the AstraZeneca Award,

which is based not just on deal value

but also on the significance of the

deal and the performance of the deal

facilitator. But the winner was Dan

Thomas from Alliance Pharmaceuticals,

who made three acquisition deals in

2011 with a combined sales value of

£4.7 million. He received his award in

person with an impromptu Oscars-

style winner’s speech, which was well

received by the audience.

The PLG Business Development

Best Newcomer award went to Ashley

Cox, from Glenmark Generics. Ashley

demonstrated an excellent attitude

towards business development and

showed creativity in assisting with

the structure of several business

development deals.

The evening closed with a short

presentation from Dean Palmer,

the winner of the 2011 Dawson

Scholarship, an annual prize to

encourage young professionals within

the industry.

Dan Thomas from Alliance Pharmaceuticals received the AstraZeneca award with an improptu Oscars-style speech.

about the establishment of the group, its

early days and the steep learning curves it

has negotiated in its unswerving mission

to stage meetings that deliver quality

content and courses that offer pertinent

education, as well as valuable networking

opportunities for all members.

The retrospective was intermingled over

two and a half days with presentations,

talks and round table discussions hosted

by a range of industry, academic and

consulting experts. The key topics

occupying the minds of the industry today

were addressed. They included the search

for new pharma business models, the ever

growing influence of payers, emerging

markets as growth havens and many more.

A week may be a long time

in politics but ten years is a

generation in pharmaceuticals.

The celebrations marking the tenth

anniversary of the Swiss Pharma Licensing

Group (Swiss PLG) this January were

suitably memorable, held at the Waldhaus

Hotel in the beautiful winter resort of Flims.

Nostalgia for easier times was

accompanied by forward-looking, combative

stoicism as around 100 delegates from the

Swiss Pharma industry met to look back on

the paths trodden together and to discuss

the emerging challenges they face.

The two past Swiss PLG Presidents,

Thomas Toth and Ivan Csendes, and the

incumbent, Rachid Ben Hamza, reminisced

Swiss PLG celebrates its first decade in style

UK AGM sees high achievers rewarded

News & developments

The Swiss PLG put on a memorable event for its tenth anniversary

Rahul Garella accepting the PLG Best BD Newcomer award from Campbell Wilson on behalf of Ashley Cox

Dan Thomas with his AZ BD Executive of the Year award alongside Campbell Wilson and Sharon Finch from the PLG

Naturally, though, the anniversary

celebrations weren’t all about work.

As always, networking and entertainment

were an integral and valued part of the

experience – and Swiss PLG pushed out the

boat for the tenth anniversary. Highlights

included operatic renditions, magicians,

fireworks, jazz and the occasional retreat to

the fireside bar.

What the next decade will hold for

pharma is anyone’s guess. But the industry

is without doubt a more thoughtful,

interactive and happier place thanks to

the camaraderie engendered through the

sincere exchanges fostered over the past

ten years by the Swiss PLG. The Swiss PLG

hopes this continues for years to come.

4 Business Development & Licensing Journal www.plg-uk.com www.plg-uk.com Issue 17 | April 2012 5

Foundations, public capital markets and

venture capitalists are pouring money

into biotech, attracted by the hope

of curing sickness and by the possibility of

attractive return on investment (ROI). Yet the

biotech industry’s prime product, innovation

in healthcare, is urgently needed and much

sought after.

The majority of biotech companies that do

not have their own commercial infrastructure

are dependent on pharma companies, and

are thus faced with the same pressure to

improve ROI from R&D investment as their

bigger counterparts.

Pharma faces significant hurdles in the

coming years – not only with extensive patent

expiry but also different national healthcare

cost cutting exercises, such as mandatory

rebates, reference pricing and tender

businesses. Further obstacles will come

from increased demands from regulatory

authorities to prove safety and superior

efficacy, paired with uncertainty about the

approval process. Put simply, greater risk of

reduced future revenues due to price pressure

results in lower net present value (NPV)

calculations for in-licensed projects at any

development stage. The valuation of licensing

deals faces further pressure from R&D budget

cuts made by pharma companies trying to

mitigate their reduced earnings prospects.

Despite the urgent need to fill the pharma

pipeline, these factors cause downward

pressure on the deal terms that can be

commanded by biotech companies. This

As a relatively mature industry, biotech might be expected to have achieved self-sufficiency. But such stability is proving elusive – the sector remains dependent on external cash injections. It is time for a fundamental rethink on how to run a biotech company, starting with the crucial, symbiotic relationship with pharma.

By Klaus Maleck, Executive Vice President, Corporate Development, and Jonathan Savidge, Vice President, Business Development, Evotec

leads to a shift in preferential deal timepoints.

Pharma will always look out for the ‘quick

fix’ late stage programme – at Phase 3 or

approval – where the risk of failure is limited

and, more importantly, the time to market is

short. Of course, the availability of such late

stage programmes is limited and they can

command a high price. Nonetheless, there

is still intense scrutiny of their commercial

potential, with several examples of late stage

assets remaining unpartnered.

Traditionally, the value inflection point for

most biotech programmes was after proof of

concept (Phase 2a) but pharma is increasingly

hunting programmes earlier in the discovery

stage to get access to innovation as early as

possible. This drive for early securing of rights

reflects high competition on novel or ‘hot’

targets and, potentially, a lack of confidence

that biotech companies’ development process

will result in the smooth arrival of a drug to

market for the targeted indication.

These early deals may not allow biotech

companies to squeeze the best value out of

their innovation engine unless partnering

allows for a common R&D phase, during

which the project value increase is split

between the parties.

Biotech’s strengthWhy are biotech companies partnering assets

very early, thereby giving up a huge chunk

of possible profits? Regardless of day-to-day

cash needs, a macroeconomic view of the

industry shows that the highly fragmented

Biotech partnering: time for a new model

biotech company landscape clearly cannot

cope with high development costs. The

consolidation that would be expected in a

maturing industry has yet to take place.

Today, biotech R&D is almost entirely

financed by capital markets: $25 billion was

invested from external sources in 2010,

although capital available for innovation fell

by 20% in 2010, according to the Ernst &

Young (E&Y) global biotech report 2011.

This may suggest a young and growing

industry, or a failing industry, given the quite

long history of these ailing investments in

an industry-wide assessment. Returns to

investors have been mixed at best and the

lack of capital is a logical consequence of this.

High risk, low return investments are difficult

to finance.

Clearly, it is time to push the biotech

industry towards a sustainable business

model. This would entail a greater focus on

its customers’ – pharma companies – needs:

• Focus on early assets with high level of

innovation that is not replicated in big

pharma, for example, specialty know-how

on diseases, and technologies improving

the R&D process (cheaper, faster, less risk).

• Deal making that recognises pharma’s need

to share research risks.

• Offer access to proprietary technology and

know-how through discovery collaborations

(at variable costs for pharma companies).

The trend in deal making indicates an

increasing risk share with pharma. While the

total (bio-dollar) deal terms have remained

stable in the past five years, the E&Y report

says tangible upfront payments were cut

from $110 million to $45 million. The

number of deals with upfront payments

greater than $75 million declined by half,

from 16 in 2009 to only 8 in 2010. Of

course, it could be argued that these figures

suggest pharma is shifting a much larger

proportion of the risk on to biotech since

reduced upfronts should be compensated

by increased later stage payments, and thus

increased total deal value, when development

milestones are achieved.

A helping handTo break free of its current constraints, the

biotech industry will have to take the initiative

and monetise on its own assets to finance

research efforts. This is not only a question

of rigorously prioritising the portfolio for

allocation of R&D investments, but also of

getting the best value out of existing assets.

Partnering early and transferring all the risk

is unlikely to achieve the best value because,

assuming it is even possible to do such a deal,

the price achieved will be severely reduced

to take into consideration the increased risk.

Therefore, rather than handing over an early

project, it is better to combine the respective

strengths of the partners and drive the project

forward together, aligning the interests of

both parties in the success of the project.

To strike a useful deal, a biotech company

should ensure:

• Project governance allows for decision

Clearly, it is time to push the biotech industry towards a sustainable business model. This entails a greater focus on its customers’ needs.

>>

6 Business Development & Licensing Journal www.plg-uk.com www.plg-uk.com Issue 17 | April 2012 7

>> sharing with the biotech, for example, a

joint steering committee).

• Reward reflects risk taking and overall

economic value added is higher than in

classic out-licensing deals.

• Research phase and development

responsibilities are allocated based on

the strengths and focus of each partner.

Partnering strategy should align with

company strategy, and with investor

expectations, for example, recognising the

level of risk being taken and the impact

of potential failure.

Even where all of the above points are met,

each deal must be considered on its merits,

with factors to be considered including

financial needs, the project status and the

partners’ priorities.

Rethink neededPharma needs a strong biotech industry. For

pharma simply to use its negotiating power

in the current environment to pass its cost

pressures entirely on to biotech would be

counterproductive in the longer term; it is in

the industry’s interest that biotech continues

to supply innovation.

On the other hand, the industry’s current

set-up is not conducive to satisfying the

needs of the pharma companies at the same

time as allowing biotechs to improve value

generation for their investors.

A fundamental rethink of how best to run

a biotech company, starting from customer

needs, is therefore essential. Smart deal

making is a key element of maintaining

sustainable industry. Recent data from

Deloitte Recap LLC suggest that the average

upfront payment for licensing deals signed

at the pre-clinical stage has been steadily

growing since 2002 and remained high

in 2011. Clearly, there is yet hope for

investors.

Evotec’s strategyEvotec, with its leading discovery

platform, is in an ideal position to share

the development path with its partners,

bringing cutting edge research capabilities

and targeted know-how to a deal.

Therefore, when looking at the biggest

German biotech deals in the past two years,

it is unsurprising to see that Evotec, through

its subsidiary DeveloGen, has signed three

of the five major deals.2

Interestingly, all five deals were option

deals, involving a cooperation phase. This

again reflects the pharma companies’ desire

for true partnerships to tap into biotech

know-how. These partnerships give biotech

the value needed to build a sustainable

business but also allow both partners to

learn from each other.

The agreement between Evotec and

Roche on the development of the NMDA

receptor antagonist programme is a good

example of an option deal. Roche secured

access to the program by paying a $10

million upfront fee and financed the future

development of critical studies (mainly a

Phase 2 study). The programme was run

within Evotec, which had an option to

participate in future value increases after

Phase 2 (with a fee of $65 million), in

addition to further milestones and royalties.

Since Evotec retained all rights to the

About the authorDr Klaus Maleck is a member of the executive

board at Evotec, responsible for corporate

development and strategy. Over the past 15

years he has had extensive experience of deal

making at early and late stages, and of M&A.

He was previously at Novartis, McKinsey

and the start-up BioGeneriX, before joining

Evotec as CFO.

T: +49 (0)40 560 810

E: info@evotec.com

Fig 1: Impact on project NPVs of external market forces affecting the pharmaceutical industry

Marketing

NPV

TimeExternal factors force pharma to seek more capital efficiency

Discovery Preclinical/phase I Phase III/MAAPhase II

• Capital constraints

• Higher risks• Less drug

development• Lower project

valuation• Lower deal

terms on in-licensed products

Selective portfolio decisions

Safety concerns

Altered approval

Lower reimbursement

Fig 2: The five biggest German biotech deals in 2009 and 2010

PharmaBiotech

GSKCellzome

Value Year Agreement

€508m 2010 Drug development against four enzyme

targets using Epishere

SanofiPieris €270m 2010 Two development candidates based

on Anticalin technology

MedImmune/

AstraZeneca

DeveloGen/

Evotec

€259m 2010 Research collaboration in the field

of beta cell regeneration

Boehringer

Ingelheim

DeveloGen €244m 2009 License and research cooperation

in the field of metabolics

RocheEvotec €170m 2009 Clinical development in TRD

All deals include a collaboration phaseThree out of top five deals involve Evotec

Fig 3: Advantages of option deals outweigh caveats

PharmaBiotech

• Pharma brings validation and capital• Early positive communication• Know-how transfer (markets, clinical

development)• Better participation in value increase

• Lower upfront• Higher risk participation

• Cheap and early access to innovation• Partial risk sharing• Outsourcing/externalisation of research• Validation first, big ticket later

• Potentially higher milestones/participation

1 E&Y global biotech report2 E&Y German biotech report 2010

References:

For pharma to use its negotiating power to pass cost pressures on to biotech would be counterproductive; it is in the industry’s interest that biotech continues to supply innovations.

programme, it is now free to partner the

programme with another interested party

following Roche’s strategic decision not to

exercise its option.

The collaboration between Evotec and

Medimmune on beta cell regeneration

factors was signed very early in

development, with the interest in the

programme from pharma being driven by

the real ‘breakthrough’ potential of this

disease modifying approach.

Evotec’s expertise in regenerative

medicine research in the diabetes area was

seen as a particular strength that could help

fully realise the potential of this project.

Therefore, a research collaboration was

agreed between the parties in addition

to an upfront payment for an exclusive

license. The milestones, potentially totalling

€254 million, and the royalty rates, exceed

the normal deal terms for such an early

deal because Evotec is sharing the path of

development to a certain extent.

In any case, a portfolio of deals is

required to allow the solid construction of

a company based on research deals, given

the inherently high likelihood of failure of

pharmaceutical developments.

8 Business Development & Licensing Journal www.plg-uk.com www.plg-uk.com Issue 17 | April 2012 9

Supplementary Protection Certificates

(SPCs) are highly valuable European

intellectual property (IP) rights that

provide an additional monopoly period for

use in authorised indications of previously

patented active substances. For many

innovative medicinal products, 80% or more

of total sales will occur during the extended

period of protection. Thus, the importance of

SPCs cannot be overstated.

SPCs have been around for almost two

decades but some fundamental aspects of

how the legislation operates are only now

beginning to be clarified by the courts.

BackgroundFor human and veterinary medicinal products,

SPCs are Europe’s answer to patent term

extensions (PTEs) under the 1984 Hatch-

Waxman Act in the US. Although the

two share some features, such as being

dependent on the patent and regulatory

systems, SPCs are unique. An SPC does not

extend patent term, it is a distinct right that

comes into force immediately on expiry of the

patent on which it is based.

Also, the scope of protection provided by

an SPC is usually much narrower than that

of the original patent. In essence, an SPC

only protects the innovative active ingredient,

or combination of ingredients, present in a

newly authorised medicinal product. Even

then, it only applies to authorised indications.

However, the protection offered is still

highly valuable as it covers essentially

everything of interest to a generic competitor.

A flurry of decisions on Supplementary Protection Certificates issued in 2011 has profoundly altered the nature of this important protection for intellectual property. An understanding of these legal changes is crucial since the emerging picture will lead to opportunities for some companies while presenting challenges for others.

By Mike Snodin, Potter Clarkson LLP

Key provisionsLegislators have tried to set up a balanced

system that provides adequate protection

for innovators but prevents ‘evergreening’ of

protection arising from minor modifications

of existing medicines.

For this reason, there is a distinction

between:

• A ‘medicinal product’, which is essentially

the complete formulation taken by patients.

• A ‘product’, which is an active ingredient or

combination of active ingredients.

For human and veterinary medicinal

products, this is put into effect by Article 3 of

European Parliament Regulation 469/2009,

which states that an SPC will be granted if

the following criteria are satisfied at the time

the application is made:

(a) The product is protected by a basic patent

in force in the member state.

(b) A valid authorisation to place the product

on the market has been granted in

accordance with a relevant EU Directive.

(c) An SPC for the product has not already

been granted in the member state.

(d) The authorisation referred to above is the

first to place the product on the market as

a medicinal product.

The first two criteria above primarily function

to tie SPCs to both the patent and regulatory

systems; the latter two are designed to

prevent evergreening of protection.

Recent developmentsDuring the 19 years that SPC legislation

has been in force, the national courts of

About the authorMike Snodin is a Partner at Potter

Clarkson LLP. He specialises in advising

on pharmaceutical-related matters,

particularly patent drafting and prosecution,

Supplementary Protection Certificates, IP

strategy, product lifecycle management, due

diligence and contentious matters.

T: +44 (0)115 9552211

E: mike.snodin@potterclarkson.com

Master the detail to get the most from SPCs

various member states have regularly sought

clarification of its provisions from the EU

Court of Justice (ECJ). However, 2011

saw a particularly high number of such

rulings, including in relation to fundamental

provisions such as Article 3(a) and 3(b).

From the recent ECJ rulings, the following

has become clear:

1 It is not possible to obtain an SPC for a

product that was on sale in the EU as a

medicament before being subjected to

clinical trials under modern standards (for

example, under Directive 65/65/EEC or its

successor, 2001/83/EC).1

2 The product defined in the SPC application

must be “specified (or ‘identified’) in

the wording of the claims of the basic

patent relied on”.2 This interpretation

by the court of Article 3(a) means, for

example, that a basic patent containing

only claims directed to active ingredient

A cannot be used to obtain an SPC for a

product defined as combination of active

ingredients A + B.

3 The product defined in an SPC application

may be one or more (but not necessarily

all) of the active ingredients present in the

medicinal product whose authorisation is

relied on.3 This interpretation of Article 3(b)

means, for example, that an authorisation

for a medicinal product containing active

ingredients A + B can support an SPC to A

alone or B alone, subject to the provisions

of Article 3(a), 3(c) and 3(d) also being

met.

4 It is possible to obtain an SPC that has a

non-positive (i.e. zero or negative) term.4

This is in order to provide full effect for

the six-month term extension that can be

obtained if clinical trials are completed in

the paediatric population.5

However, the rulings have left open the

following questions:

(I) Does an SPC of a product defined as

a single active ingredient (A) protect

the (medical uses) of all medicaments

containing A that are authorised during the

lifetime of the SPC?

(II) What is entailed by the requirement for a

product to be “specified in the wording

of the claims”? That is, what level of

specificity is required?

The protection offered by an SPC is highly valuable as it covers essentially everything of interest to a generic competitor.

Box 1: SPCs – the basicsSPCs are governed by Regulations of the European Commission. As such, the law is supposed to be interpreted

in a harmonious manner across the whole of the European Union.

SPCs are national rights and must be applied for on a country-by-country basis. They are available in all

EU member states. They are also available in Norway, Iceland, Liechtenstein and Switzerland, although the

legislation in these territories is not always identical to that in the EU.

An SPC is applied for and granted to the holder of a patent that ‘protects’ a newly authorised

active ingredient or combination of active ingredients.

An SPC application must be applied for while the patent that it is based on is still in force and within six months

of the patent grant and issuance of the marketing authorisation (MA) on which the SPC application is based.

The term of an SPC after the patent expiry is x – 5 years, where x is the period from patent filing to MA issuance.

However, the term of a normal SPC is capped at a maximum of five years.

A six-month extension of SPC term is possible where clinical trials (on the active ingredient(s) of the SPC) have

been completed in accordance with a Paediatric Investigation Plan agreed with the European Medicines Agency.

This is to encourage firms to conduct trials in the paediatric population.

>>

10 Business Development & Licensing Journal www.plg-uk.com www.plg-uk.com Issue 17 | April 2012 11

1 Synthon v Merz (C-195/09) and Generics (UK) v Synaptech (C-427/09).2 C-322/10 (Medeva), C-422/10 (Georgetown University et al), C-518/10 (Yeda Research and Development Company Ltd, Aventis Holdings Inc), C-630/10 (University of Queensland, CSL Ltd) and C-6/11 (Daiichi Sankyo Co Ltd).3 C-322/10 (Medeva), C-422/10 (Georgetown University et al) and C-630/10 (University of Queensland, CSL Ltd).4 C-125/10 (Merck & Co) and the analysis of that ruling in Snodin M, “European Court Ruling on SPCs brings relief to industry”, Scrip Regulatory Affairs, January 2012, 7-8.5 This concept was first proposed in Snodin M and Miles J, “Making the Most of Paediatric SPC Extensions”, The Regulatory Affairs Journal – Pharma, 2007, 18(7), 459-4636 C-442/11 (Novartis AG v Actavis UK Ltd.)7 C-431/04, where the Court of Justice decided that a substance that does not have therapeutic effect on its own and which is used to obtain a certain pharmaceutical form of the medicinal product is not covered by the

concept of ‘active ingredient’, which in turn is used to define the term ‘product’.8 An SPC to escitalopram has already been held invalid by the Belgian District Court, in view of the decision in MIT and Lundbeck’s submission to regulatory authorities that the R-enantiomer in the prior-authorised racemate (citalopram) “does not contribute significantly to the pharmacological effect”.9 C-202/05, where the Court of Justice ruled that the medical use of an active ingredient cannot form an integral part of the definition of the product.10 C-31/03, where the Court of Justice ruled that a prior veterinary authorisation for a product prejudices the grant of an SPC based on the first human authorisation for the same product.11 This point is argued in Snodin M, “Every day counts: why pharmaceutical companies in the EU need to make sure that they get the right SPC term”, Scrip Regulatory Affairs, October 2011, 6-7.

References

(III) Is it possible to obtain more than one SPC

per basic patent (for example, when that

patent protects more than one product)?

Given the logic employed by the ECJ in its

interpretation of Article 3(b), it is hard to see

how the answer to question (I) above can be

anything other than ‘yes’. However, we must

await the ruling in a further case6 before this

can be formally confirmed.

Question (II) will no doubt soon be

addressed by national courts. Question (III)

arises from unclear language used by the

ECJ. There are numerous examples of single

patents that are associated with multiple

SPCs, so this issue is also likely to be subject

to consideration by one or more national

courts in the near future.

Where are we now?The ECJ rulings set out above will have

surprised some national intellectual property

offices. This is because, before the recent

rulings, some national offices will have

routinely granted or refused SPC applications

on the basis of standards that differ from

those set out in the ECJ decisions.

As a result, there are now likely to be many

granted SPCs that are of questionable validity,

especially in view of points 1 and 2 above

– and also question (III) , if that is eventually

answered in the negative.

On the other hand, points (3) and (4)

above provide opportunities for more SPC

protection than was previously thought

possible (especially if question (I) above is

answered in the positive).

Thus, likely consequences in the short to

medium term include:

challenges under Article 3(d) of Regulation

469/2009 against SPCs for products that

are single enantiomer forms of previously

authorised racemates. Such challenges are

likely to be based on the following questions

based on point 3 above and on the 2006

decision of the ECJ in the MIT case7:

• Does the prior authorisation of the

racemate count as the first authorisation for

each of the enantiomeric forms present in

the racemic mixture?

• If only one of the enantiomeric forms has

pharmacological activity, does the prior

authorisation of the racemate count as

the first authorisation for that (active)

enantiomer?8

The ruling in the MIT case may also be

revisited in relation to ingredients where it is

unclear that they have a therapeutic effect on

their own. The most likely technical area for

this issue to arise is in connection with novel

vaccine adjuvants.

Other ECJ rulings are certain to be

revisited, including Yissum9 and Pharmacia

Italia10, because of the Neurim case that

is pending before the court, in which an

attempt is being made to distinguish the

previously decided cases by arguing that

certain prior authorisations are not relevant to

the assessment under Article 3(d). Although

those arguments look likely to fail, they have

certainly attracted sympathy from various

parties, including the UK judge that referred

the case to the ECJ.

Finally, there is a discrepancy regarding

how different national offices assess the date

of a ‘centralised’ (European Commission/

European Medicines Agency) authorisation. It

>> may be that many offices are basing the term

of an SPC on the wrong date, and this could

lead to some SPC proprietors being entitled

to a few additional days.11

ConclusionAlthough several questions remain

unanswered at this point, it is clear that

recent and likely developments present

challenges and opportunities for companies

with an interest in SPCs. Whatever happens,

the chances of withstanding challenges and

taking advantage of opportunities will be

improved by understanding the intricacies of

this niche and complex area of the law.

• In view of point 1 above, invalidity of SPCs

to certain ‘old’ active agents. Products

already affected by this point include

memantine (Ebixa) and galantamine

(Reminyl) but there could well be others.

• Invalidity of certain SPCs to combination

products – those not granted in accordance

with the standard at point 2 above.

• In view of point 3 and question (I) above:

generic versions of combination products

will be delayed from entering the market

until at least the time when SPC protection

for all of the individual actives has expired;

and there will be more applications for

SPCs directed towards one or more, but

not all, of the active ingredients present in

authorised medicinal products.

• There will be more applications for SPCs

that, when granted, will initially have a

negative term (i.e. where the authorisation

relied on was issued between four and a

half and five years after the filing date of

the basic patent relied on). However, this

will only be in respect of human medicinal

products where clinical trials in the paediatric

population have been (or will be) completed.

Where are we going?It is reasonable to predict that the answer to

question (I) above will be ‘yes’. However, a

great deal of uncertainty remains in relation

to questions (II) and (III). The eventual answers

will directly affect the validity of many

granted SPCs. In the meantime, there will

be much collective holding of breath in the

pharmaceutical industry.

Regardless of what happens on those

points, the next few years are likely to see

Some national offices will have routinely granted or refused SPC applications on the basis of standards that differ from those in the ECJ decisions.

12 Business Development & Licensing Journal www.plg-uk.com www.plg-uk.com Issue 17 | April 2012 13

the general framework for sales growth

pricing and promotion of medicinal products.

Pricing procedureThe law stipulates that pharmaceuticals

without an ASMR rating or implying no

savings on medical treatment costs are not

reimbursed by health insurance funds. Their

price can be set freely but reimbursement by

health insurance funds is prohibited.

The pricing process begins with

pharmaceutical companies submitting their

applications simultaneously to CEPS and the

Transparency Commission. The ex-factory

price set by the CEPS is based on the ASMR

rating granted by the commission, the

expected sales of the product and the prices

of pharmaceuticals in other EU member

states (informal external reference pricing),

as well as the price of possible alternative

therapies in France. ASMR ratings are

grouped in five main classes:

• ASMR I for medicinal products bringing a

major therapeutic value.

• ASMR II for medicinal products representing

a significant improvement in terms of

efficacy and/or reduction of adverse effects

compared to existing alternatives.

• ASMR III for a modest improvement.

• ASMR IV for a minimum improvement.

• ASMR V for medicinal products without

any therapeutic value but still being

recommended to be registered on the

positive list for reimbursement with a price

criterion that does not lead to any non-

justified expenses.

The law says new products that cannot show an improvement in medical benefit to patients are not reimbursed by health funds.

Innovation in pharmaceuticals in France

has long been subject to price control

and cost containment measures. France

initiated evaluation of medical benefit by cost

containment bodies and mandatory price

negotiations in 2004, even as Germany was

abandoning the concept of price negotiation.

The French system for pricing and

reimbursement for innovation has influenced

the new German system of Early Benefit

Assessment.1 But while Germany copied part

of the French price negotiation, it has not

enacted any direct restriction on the volume

of sales in its AMNOG reforms (see page 22).

Pharmaceuticals represented around 19%

of the budget of health insurance funds in

2009.2 Total health expenditure in France

as a share of GDP was 11.2% in 2008.3

Markets are divided between hospital and

pharmacy markets and special rules apply

to innovative pharmaceuticals in both

sectors. In this regard, the 1.3% growth in

spending on pharmaceuticals expressed in

manufacturer’s price in 2010 was mainly

driven by hospital medicines purchases

(+6%). At the same time, the manufacturer’s

price of reimbursable pharmaceuticals sold

in pharmacies increased by 0.5% compared

with 2009.4

Aims of the reformsCost containment measures implemented by

the government over the past few years have

led to drastic price cuts. New paradigms and

healthcare models are emerging and health

technology assessments are increasingly

France ranks second only to the US in terms of healthcare spending. But cost-cutting measures and safety provisions under recent health reforms will significantly affect pharmaceutical pricing and reimbursement

By Marie-Geneviève Campion and Alexander Natz, European Confederation of Pharmaceutical Entrepreneurs

taken into consideration. The Debré-Even

report5 following the Mediator controversy

– in which the French authorities failed to

restrict the use of the anti-diabetic drug

and slimming pill, despite its known lethal

side-effects – and the consultation process

on medicinal products (so-called Assises du

Médicament) were the basis for extensive

reforms aimed at fostering safety reporting

on medicinal products and medical devices.

The reforms consist of three key aspects:

• The prevention of conflicts of interests and

the transparency of decisions.

• The regulation of off-label use.

• The promotion of better trained and

informed health professionals.

The key stakeholdersBefore examining the effects of healthcare

reform, it is instructive to run through the

structure of the main stakeholders.

Among the changes brought by the

reforms, which came into force in December

2011, the French Health Products Safety

Agency, one of the main institutional

stakeholders, responsible for marketing

authorisations and vigilance of authorised

pharmaceuticals and inspections, has had its

name changed to the National Agency for

Medicines Safety (ANSM).

In addition to the Healthcare Products

Pricing Committee (CEPS), which is in

charge of pricing pharmaceuticals and

negotiating a Framework Agreement with

the pharmaceutical industry in line with

ministerial policy, two new institutions were

About the authorsMarie-Geneviève Campion is Economic

Adviser at the European Confederation of

Pharmaceutical Entrepreneurs (EUCOPE)

(www.eucope.org). After graduating in

Economics at the Universities of Paris I

Panthéon-Sorbonne (France) and Mainz

(Germany) and in European Law and Economic

Analysis at the College of Europe in Bruges

(Belgium), she gained experience in European

competition and healthcare matters at the

French Pharmaceutical Association in Paris,

the Directorate General for Competition of

the European Commission and the German

Pharmaceutical Association in Brussels.

T: +32 (0)2282 0475

E: campion@eucope.org

Dr Alexander Natz is Secretary General of the

European Confederation of EUCOPE. He is also

heads the Brussels Office of Bundesverband

der Pharmazeutischen Industrie. Previously, he

worked at the Sträter Rechtsanwälte law firm.

His background is in the field of competition

law with the European Commission. As a

research assistant at Duke University (US), he

dealt with international pharmaceutical law.

T: +32 (0)2282 0475

E: natz@eucope.org

New rules for innovative pharmaceuticals in France

>>

created by the healthcare insurance reforms

of 2004.

The French National Authority for Health

(HAS) is an independent public body, with

responsibilities ranging from providing

regulatory authorities with the scientific

expertise on which to base price setting, to

encouraging good practice and the proper

use of pharmaceuticals. In this regard,

HAS cooperates on a regular basis with its

counterparts, the IQWIG in Germany and

NICE in the UK.

Within HAS, the Transparency

Commission assesses the medical benefit of

pharmaceuticals (SMR) and the innovation

level by quantifying the improvement of

the medical benefit (ASMR) compared to

alternative products.

The National Union of Health Insurers

(UNCAM), the other institution created in

the 2004 reforms, unites the main health

insurance funds. UNCAM is also in charge

of reimbursement policy and determines

the products to be reimbursed and their

reimbursement rates.

The 2009 Hospital, Health, Patients and

Territories healthcare reform of the Health

Regional Agencies (ARS) sought to steer and

implement national policies at regional level.

Pharmaceutical companies, which

are represented by the pharmaceutical

companies’ trade association in France

(LEEM), as well as physicians and pharmacists

grouped in professional organisations, are

also important in the legislative process. For

example, LEEM and CEPS together set out

14 Business Development & Licensing Journal www.plg-uk.com www.plg-uk.com Issue 17 | April 2012 15

After the CEPS has made a decision on

price, it formulates a proposal which is

then negotiated with the pharmaceutical

company. Special timelines exist for products

granted an ASMR rating of at least level

IV. The ex-factory price is set by a four-

year contract between the CEPS and the

company.

For innovative pharmaceuticals with an

ASMR IV and I to III rating, Article 4 of the

CEPS Framework Agreement guarantees

that the price will not be lower than in

Germany, Italy, Spain and the UK for five

years. Medicines granted an extension of

indication with an ASMR rating from I to III

and paediatric medicines subject to studies

based on a paediatric investigation plan

benefit from an extension of one year.

Fast tracking innovationA special fast track procedure of notification

for innovative pharmaceuticals has been

enshrined in law since 2003 to facilitate

pricing and reimbursement. Under the

Framework Agreement, products with an

ASMR I to III and IV rating are considered

innovative, with strict conditions.6 Under this

procedure, immediately after the granting

of the ASMR, the manufacturer proposes

a price that is accepted if the CEPS does

not object within two working weeks.

Otherwise, the normal application procedure

applies.

This price should be in line with the

existing price in Italy, Germany, Spain and

the UK. However, this procedure applies

to a narrow definition of innovative

pharmaceuticals. In 2010, two orphan drugs

applied for the price notification and both

clauses’, ensures that the volumes of

the pharmaceutical sold stay in line with

assumptions relating to the established

target patient group.

The Contract for the Improvement of

Individual Practices (CAPI), introduced in the

LFSS 2008 and developed by the UNCAM7,

is a voluntary incentive scheme that forms

part of the framework to monitor physicians’

prescription behaviour.8

Hospital pricingThe regulation of hospitals is mainly set out

in the LFSS law of 20049 and the framework

of the Plan Hôpital 2007. Modalities for the

price setting for innovative medicines and

hospital outpatient pharmaceuticals were

defined in the hospital medicines Framework

Agreement, which merged with the general

Framework Agreement in September 2008.

The price of hospital medicines is set freely

between the hospital and pharmaceutical

company. Funding for hospitals and

reimbursement for hospital pharmaceuticals

is an activity-based payment (T2A) by means

of diagnosis related inpatient groups (GHS).10

Three main categories of hospital

pharmaceuticals exist with a special price

and reimbursement framework:

• Hospital outpatient medicinal products

– Before being delivered to outpatients,

hospital pharmaceuticals must be registered

on the retrocession list.11 Pharmaceutical

firms must submit the ex-factory price

to the CEPS, which may object to this

submitted price. Reimbursement of

hospital outpatient pharmaceuticals is

based on the public final price.

• Innovative medicines reimbursable on

top of the T2A – With certain innovative

pharmaceuticals, especially orphan and

paediatric drugs, pharmaceutical firms

must declare the price to the CEPS. Full

reimbursement is granted on the basis

of the public price, provided the hospital

legal representative signed a Contract of

Fair Usage’ (CBU) with the Health Regional

Agencies.

• Medicines with an authorisation of

temporary usage – Authorisation of

Temporary Usage (ATU) is an exceptional

and temporary measure granted by the

National Agency for Medical Safety for

the treatment of serious or rare diseases

in the absence of a suitable therapeutic

alternative with a marketing authorisation

available in France when a positive benefit/

risk ratio is assumed. An ATU can be

intended for a single, named patient or it

can concern a group of patients, treated

and monitored according to a protocol for

therapeutic use and information collection

(cohort ATU).

In both cases, the maximum price of

pharmaceuticals with an ATU must be

submitted by the pharmaceutical company

to the CEPS, which makes these declarations

public. For medicines with an ATU that are

intended for hospital use only, hospitals

receive compensation through special

endowments. Products with an ATU that are

sold to outpatients are fully reimbursed on

the basis of their final price.

Benefit assessmentThe SMR rating is used to determine

reimbursement level. This takes into account

the efficacy of the product, its side-effects,

were refused.

The registration of pharmaceuticals on

the positive list of reimbursable products

is decided by UNCAM, based on the SMR

rating. The registration is valid for five years.

Four reimbursement rates – 100%,

65%, 30% and 15% – correspond to SMR

ratings. Full reimbursement is granted for

pharmaceuticals identified as irreplaceable

and for patients having a medical treatment

for a disease that is fully reimbursed.

While the final price of products sold in

pharmacies includes the fixed margin of the

wholesalers and of the pharmacists, as well

as a reduced VAT rate of 2.1%, the price set

by CEPS also varies due to clawbacks, price

review clauses and contractual agreements.

ClawbacksThe Framework Agreement provides annual

adjustments if sales of pharmaceuticals

exceed National Objectives on Healthcare

Spending (ONDAM) defined each year in the

Social Security Financing Law (LFSS), the so-

called ‘safeguard clause’.

Quantitative clawbacks consist of payments

per pharmacotherapeutic class grouping and

payments based on the turnover of the firm.

Specific provisions are provided for innovative

pharmaceuticals. Products granted an ASMR I

and II rating are exempted from clawback for

36 and 24 months respectively. ASMR III and

IV rating have 50% and 25% exemptions,

respectively, for 24 months.

Two main price review clause categories

exist. The first, ‘daily treatment clauses’,

covers situations where time and usage do

not confirm the assumptions made when

setting the price. The second, ‘volume

The price of hospital medicines is set freely between the hospital and pharmaceutical company.

>>

>>

A special fast track procedure of notification for innovative pharmaceuticals has been enshrined in law since 2003 to facilitate pricing and reimbursement.

16 Business Development & Licensing Journal www.plg-uk.com www.plg-uk.com Issue 17 | April 2012 17

EU member states must not adopt a fragmented approach on the relative effectiveness of pharmaceuticals but ensure that innovation is properly and consistently taken into account.

the characteristics of the disease it is

indicated for, the existence of alternative

therapies, the role of the product within the

overall therapeutic strategy and the impact

on public health. After five years, the SMR of

a pharmaceutical is re-evaluated using any

new data that have been gathered.

The ASMR of a pharmaceutical is the

primary consideration for price setting.

Unlike the SMR, the ASMR rating compares

the therapeutic value of a pharmaceutical

to the existing alternatives in the same

therapeutic class and assesses the associated

improvement.

CEPS recently gave a clear signal for

a price-stop for certain pharmaceuticals.

In fact, in this respect, Article 10bis of

the Framework Agreement already

provides CEPS with the power to oblige a

pharmaceutical company that is marketing

an orphan drug with annual costs per

patient of more than €50,000 to treat all

patients entitled to the treatment without

any restriction for a fixed total turnover,

in return for a price that is internationally

coherent.

New economic paradigmHealth regulatory authorities send signals

to pharmaceutical companies about the

products they want to encourage, and

the disease areas they want to prioritise12

through different incentives frameworks. The

LFSS 2011 provides that medicines treating

rare diseases with a turnover exclusive

of tax of more than €30 million are no

longer exempted from the wholesalers’ tax,

safeguard clause tax and promotion tax.

The Mediator controversy, which led to

the publication of the Debré-Even report5,

the starting point for extensive safety-

based reforms, has had an impact on the

price and reimbursement framework of

innovative medicines in France.

Impact on the ATU systemWith regard to the ATU system, the

healthcare reforms now stipulate that

an ATU application be accompanied by

a simultaneous demand for a marketing

authorisation, or by an application for a

cohort ATU, or by clinical studies with the

medicine for the same indication in France.

ATUs are granted for a limited period but

can be renewed.

Exemptions from these requirements

are possible, particularly in cases where,

under the current state of the therapeutic

options available, serious consequences for

the patients are highly likely, or where the

medicinal product is no longer marketed for

a specific indication and there is a strong

presumption that the product is efficient

and safe for a different indication.

The healthcare reforms also introduce

mandatory systematic monitoring of

patients with regard to tolerance and

efficacy of the product.

Off-label useThe reforms strengthen regulation of

off-label use, which should be subject to

the approval of the health authorities.

Off-label prescription is authorised in

the absence of other alternatives, which

means no marketing authorisation or ATU

available, under the conditions that either

a Recommendation of Temporary Usage

>>

1Under § 35a SGB V and for the new mandatory price negotiation for all innovative pharmaceuticals under paragraph 130b of the Sozialgesetzbuch V (SGB V)2 CNAMTS (Caisse Nationale d’Assurance Maladie des Travailleurs Salarie), Data 2009 3 OECD (2010), Health at a Glance: Europe 2010 4 Comité Economique des Produits de Santé Annual Report 2010, July 2011 5 Rapport de la mission sur la refonte du système français de contrôle de l’efficacité et de la sécurité des médicaments6 Article 7c) of the Framework Agreement, providing that pharmaceuticals with an ASMR IV rating are eligible for this fast-track procedure under two additional conditions: that a comparative pharmaceutical exists and that the price notified is lower than or equal to the price of the comparative product; and that the pharmaceutical does not replace a generic product or a product that is going to be made generic. 7 See decision of UNCAM regarding the creation of a standard contract aiming to improve the practices of contracted physicians, 9 March, 20098 In December 2010, around 15,000 physicians signed a CAPI. Modifications of the scheme were brought by the Article 39 in the LFSS 2010.

9 See LFSS 2004.10 Patients are classified by a Groupe Homogène de Malades (GHM). Each GHM is associated with a Groupe Homogène de Séjour (GHS) which is the basis of the reimbursement for hospitals. Further information on the Health Ministry website. 11 See Decree 2004-546 of 15 June 2004, Article L5126-4 of the Social Security Code regarding the inscription on the retrocession list, and Articles R5126-102 to R5126-110 of the Public Health Code regarding the provisions applying to hospital ambulatory medicines12 See Regulatory Affairs Journal Pharma, “The lure of orphan products”, Charlish P, September 6 2010.13 The RTU shall contain information concerning the efficacy, the actual conditions of use and the adverse effects under conditions to be specified by a future decree.14 Medicinal products with restricted medical prescription are mentioned in Article R.5121-77 of the Public Health Code.15 See Regulatory Affairs Journal Pharma, EFPIA calls for new debate on drug pricing, Sharma V, 22 June 2010.16 See Journal of Medical Marketing, “Rewarding innovation? An assessment of the factors that affect price and reimbursement status in Europe, Hutchings A, Vol. 10, 2010.

References

(RTU)13 for a period of no more than three

years has been granted by the ANSM

for the indications or the conditions of

clinical use, or where the prescriber judges

it indispensable to improve or stabilise a

patient’s condition. Modalities for the RTU

will be set later by decree.

The reforms also provide for monitoring

patients, a mandatory application for an

extension of indications or a modification

of the marketing authorisation in a given

timeline, and an obligatory statement of

off-label use on the prescription.

For reimbursement of off-label medicinal

products, when no appropriate alternative

is available, products used for the treatment

of a chronic or orphan disease subject to a

RTU are, by way of exception, reimbursed

for a limited time.

Visits by pharmaceutical repsThe reforms set limits on visits by

pharmaceutical representatives to hospitals.

For a trial period of no longer than two

years, collective visits by reps to hospitals

are allowed only if they are meeting several

healthcare professionals. The conditions

should be laid down by a convention signed

between each healthcare facility and each

pharmaceutical firm. Practical modalities for

this will be set by a decree from the Health

Minister after a favourable opinion from

HAS, which should be issued before August

2012.

Exceptions are provided for restricted

medical prescription (hospital-only

medicines, hospital prescription medicines,

medicines with initial hospital prescription

or not)14 and for medical devices. >>

18 Business Development & Licensing Journal www.plg-uk.com www.plg-uk.com Issue 17 | April 2012 19

Financial penalties for non-compliance

are expected. The pricing committee can

decide to set annual numerical targets for

the adoption of those practices, if necessary

by drug classification or for certain

pharmaceuticals.

Depending on the outcome of an

assessment report expected in January 2013

at the latest, the system of limited visits

by reps may be extended to the field of

outpatient medicines.

Evaluation of innovationIt is important that EU member states do

not adopt a fragmented approach on the

relative effectiveness of pharmaceuticals

but ensure that innovation is properly

and consistently taken into account

when establishing the value of products.

Risk sharing arrangements between the

healthcare system and pharmaceutical

companies are emerging and can help

promote the competitiveness of the

companies, while containing costs for

national budgets.

The new paradigms redefine the role

of the different stakeholders, create new

stakeholders and aim to standardise medical

practice. However, policy on price and

reimbursement should stay consistent and

reliable15 so that pharmaceutical companies

can have the confidence to make decisions

on strategy in relation to R&D and capital

investment.16

>>

www.plg-uk.com

Business Development Training Courses

European PLG events Risk sharing between the healthcare system and companies can help promote the competitiveness of the companies, while containing national budgets.

10 – 11 May Joint PLG UK & PLCF Spring Meeting www.plg-uk.com Paris, Fra nce www.plcf.org

14 – 16 May PLCD Training Seminar www.plcd.de Berlin, Germany

21 – 22 May PLG UK Masterclass www.plg-uk.com London, UK

31 May – 1 June PLCD Spring Meeting www.plcd.de Cologne, Germany

28 June PLGS Summer Dinner www.plgs-spain.com Madrid, Spain 17 – 19 September 6th European Pharmaceutical Licensing Symposium www.plgeurope.com Budapest, Hungary 4 – 5 October PLGS General Assembly www.plgs-spain.com Tarragona, Spain 17 – 19 October PLG UK Introductory Training Course www.plg-uk.com Lingfield, UK 1 – 2 November PLG UK Autumn Meeting www.plg-uk.com Cambridge, UK 22 – 23 November PLCD Autumn Meeting www.plcd.de Munich, Germany

2012

It is no longer just the patent position,

marketing authorisation and advertising

strategies that are important for the

successful marketing of medicinal products in

Germany, but also the sub-market in which

a particular product will be distributed. A

review of the German healthcare system will

help give an understanding of the changes.

Statutory health insuranceThe medicinal product market is primarily

a prescription market under the German

statutory health insurance system (GKV).

Although just under 90% of the population

is covered by full cost insurance under GKV,

the German healthcare market is more

fragmented than might be expected.

Many medicinal products are exclusively or

predominantly used in the hospital setting,

which does not have direct price regulation

and where, unlike in other countries,

invitations to tender are not common.

However, many hospitals have joined forces

to form purchasing associations, which

then centrally negotiate purchase prices for

products.

A de facto regulation of purchase prices

results from the remuneration system in

the inpatient arena. Hospitals receive a

fee per case (so-called DRG and additional

allowances) for each patient in accordance

with the main diagnosis and taking into

account other factors. The fees per case

include a material cost factor, for example the

basic medicinal product cost. The calculation

is based on real cost data, and this means

The law governing reimbursement of drugs in Germany, AMNOG, came into force in January 2011. Following a procedure similar to that of NICE in the UK, under AMNOG there is an early assessment of the added benefits offered by new and innovative drugs in comparison with established therapies.

Claus Burgardt, Sträter Rechtsanwälte

hospitals are unwilling to accept higher

purchase prices.

In some cases the cost of certain medicinal

products for doctors operating outside

hospitals is covered by the scale of doctors’

fees, where the doctors receive volume-

related flat rate fees for the medicinal

products they use. In these cases, a purchase

market exists as opposed to a prescription

market. The customer is the doctor rather

than GKV. Compliance with regulations is of

particular importance in this market segment

to avoid risks under criminal law.

There is also a broad market for medicinal

products that may be dispensed but are not

reimbursable under GKV. These are so-called

‘lifestyle’ medicinal products, for example

Viagra and OTC medicinal products that

the Federal Joint Committee (G-BA) has not

included in its OTC exceptions list. Additional

exceptions exist in the case of children and

young people. With respect to non-GKV

products, the actual customer is defined as

the end customer rather than GKV. In such

cases, barriers under competition law also

have to be considered.

Prescription marketThe prescription market is the main sales

market for medicinal products in the

outpatient setting and is where health

insurance companies are considered the

prime ‘customers’. However, it should not be

perceived as a monopolistic environment. The

market for generics is greatly influenced, for

example, by discount tenders.1

About the authorClaus Burgardt is a specialist in medical

law and has been a member of Sträter

Rechtsanwälte since 1990. He focuses

on traditional medical legislation and the

legislation regarding panel physicians according

to the German Social Security Code Section V

(SGB V). He is also active in contractual drafting

for the establishment of medical co-operations

and any disputes involved.

T: +49 (0)2289 3454-0

E: Burgardt@StraeterLawyers.de

Germany tightens benefit scrutiny of new products

There is also a wealth of control

instruments which GKV attempts to employ

to restrict spending on medicinal products.

These controls include, for example, the

setting of active substance-related reference

amounts as a maximum for reimbursement

prices.2 At a regional level, different

approaches are used to provide significant

incentives for doctors to give preference

to the prescription of certain groups of

medicinal products. The European Court of

Justice views this influence on prescription by

health insurance companies to be permissible

in principle.3

The challenge for pharmaceutical

companies is therefore to recognise the

right market sector for their product and

the controls being used. It is evident that

global marketing authorisation strategies

frequently lead to difficulties in national

markets because the formulations for

specific indications cause problems under

reimbursement law or because special risk

restrictions are difficult to implement at a

national level.

New provisionsDespite the large number of controls over the

GKV market, legislators considered that there

was a lack of regulation of new chemical

entity (NCE) medicinal products. This area had

a volume share of prescriptions of only 2.5%,

but accounted for 26% of GKV medicinal

product turnover. Legislators saw this as the

main driver of the increase in health system

costs. In principle, every new authorised

medicinal product has immediate access to

the German pharmaceutical market so it was

deemed necessary to find a solution that

balanced the interests of the pharma industry

with the financial interests of the health

insurance companies.

AMNOGThe key element of the Act for the

Restructuring of the Medicinal Products

Market (AMNOG), which came into force on

1 January 2011, was the introduction of a

benefit assessment procedure for medicinal

products with new active substances. So

the new regulatory concept consists of

two procedural sections: in the first section

G-BA undertakes a benefit assessment and

for the second section, pharmaceutical

entrepreneurs and the National Association

of Statutory Health Insurance Funds agree on

a reimbursement amount for the medicinal

product. This second assessment essentially

refers to the costs of a comparator therapy

and any added benefit. If no agreement is

reached, then an arbitration body sets the

price. The entire procedure is regulated in full.

The pharmaceutical seller placing a

medicinal product on the market for the

first time has to submit a benefit assessment

dossier to G-BA not later than when it is

placed on the market.4 The requirements for

this dossier are stipulated in detail in the fifth

chapter of G-BA’s procedural rules. There is a

great deal of work involved in preparing this

dossier and the costs are considerable, easily

running into hundreds of thousands of euros.

The challenge for pharmaceutical companies is to recognise the right sector for their product and the controls being used.

22 Business Development & Licensing Journal www.plg-uk.com www.plg-uk.com Issue 17 | April 2012 23

If the dossier is not submitted on time, any

added benefit is negated by the law, with

price consequences as described below.

However if the dossier is submitted on

time, the benefit assessment is conducted

within a period of six months. After the first

three months, the Institute for Quality and

Efficiency in Health Care (IQWiG) publishes

a benefit assessment where the views of the

professional groups and the seller are heard.

After a further three months, G-BA decides

on the benefit assessment.

Reimbursement negotiationThe benefit assessment phase is then

followed by the negotiation phase for

the amount of reimbursement. These

negotiations are conducted by the

pharmaceutical seller and the National

Association of Statutory Health Insurance

Funds. If no agreement is reached between

the parties, within a further three months

the reimbursement will be stipulated by the

arbitration body.

The reimbursement amount set by the

arbitration body is applied retroactively so

that it takes effect 12 months after the

placing of the NCE medicinal product on

the market for the first time. The economic

significance of this new procedure is

demonstrated by the fact that the legislators

expect to achieve savings of €2 billion from

the system.5

So pharmaceutical suppliers are still free

to set the price at which an NCE is launched

on the market. But after this initial one-year

period, a binding reimbursement amount

may be applied from a decision taken by the

arbitration body, which is a de facto state

regulated price.

A key question is whether pharmaceutical

companies can avoid this new state price

regulation system. In principle, all medicinal

products with a new active substance are

subject to this new benefit assessment

system. This system also applies to diagnostics

and orphan drugs. However, in the case of

orphan drugs it is easier to submit dossiers

as long as the GKV turnover is less than €50

million per year.

Potential exemptionG-BA has the power to exempt a

pharmaceutical supplier from the duty

to submit a dossier on application if it

is anticipated that the statutory health

insurance companies will only incur a low

level of expenditure for the medicinal

product in question.6 This would be the

case if, for example, the expected sustained

expenditure for the outpatient prescription

market within the 12-month period does not

exceed €€1 million. However, a great deal of

evidence would be required to support such

a projection. It is also made more difficult

to provide suitable evidence because the

requisite market data are frequently not

easily available.

Medicinal products with active substances

are all subject to the benefit assessment

procedure. It may be difficult to determine

whether a new active substance is used in

the product, such as in the case of biological

products, for example, plasma derivates.

Reference is also made to regulatory data

protection with respect to the ‘novelty’ of

the product. Extensive research on the earlier

use of an active substance in Germany and

throughout other EEA countries can therefore

be invaluable.

The comparator therapy is the deciding criterion for proof establishing added benefit but is also the main price reference for the reimbursement amount.

>> Expedient comparator therapyThe core of the benefit assessment procedure

is the stipulation of the expedient comparator

therapy.7 On the one hand this is the deciding

reference criterion for the establishment of

added benefit.8 But it is also the main price

reference for the later stipulation of the

reimbursement amount.

The determination of the comparator

therapy therefore has considerable influence

on the key question of whether a claim

for proof of added benefit is successful.

It is furthermore key in determining the

reimbursement amount. The comparator

therapy is ultimately selected by G-BA. While

the pharmaceutical supplier can propose a

comparator therapy in its dossier, the G-BA

is not obliged to accept the proposal. The

seller can take advice from G-BA at an early

stage and therefore anticipate the view that

will be taken by the committee. However, this

knowledge will not necessarily help a global

development strategy.

The comparator therapy must comply

with the current recognised state of scientific

knowledge for the indication in question

and must be authorised accordingly.9 If

there are several alternatives, the scientific

evidence and price will be decisive. The trend

towards selecting a comparator therapy that

is as cost effective as possible is obvious.

Marketing authorisation for the medicinal

product plays a large role in selecting the

comparator therapy, so the specific indication

formulation of the new active substance can

be very important. The indication formulation

can be altered during the course of the

marketing authorisation procedure so the

pharmaceutical supplier does have room to

exert influence.

The German price model states that a medicinal product may have only one single price for every indication.

If the supplier has selected the ‘wrong’

comparator therapy in the dossier, it may

be possible to make an indirect comparison.

If such a comparison is not possible,

then the proof of added benefit with the

corresponding price consequences is seen as

not having been given. A current example

is the active substance linagliptin, a DPP-4

inhibitor used for type II diabetes. The

pharmaceutical seller chose a different gliptin

as the comparator therapy, while G-BA chose

sulfonylurea. This accounted for a significant

difference, as the annual cost of therapy is

€€650 for the gliptin and only €70 for the

sulfonylurea. The consequences for the final

price are clearly evident.

Reimbursement amountThe benefit assessment serves to prepare

for the specification of the amount of

reimbursement10 or to assign the medicinal

product to an existing reference amount.11

If no added benefit has been proved and

if the assignment to an existing reference

amount does not come into consideration,

then the reimbursement amount may not

lead to higher annual therapy costs than

the comparator therapy. So how the costs

of the comparator therapy are assessed and

established is an important question.

The reimbursement amount must be

negotiated for medicinal products with

added benefit. According to the German

price model, a medicinal product may have

only one single price12; it cannot therefore

be priced differently depending on the

indication. This means that a different added

benefit for different patient sub-groups

cannot secure a different price – all prices for

all indications remain the same.

24 Business Development & Licensing Journal www.plg-uk.com www.plg-uk.com Issue 17 | April 2012 25

Based on the respective comparator

therapies and the different degrees of

proven added benefit, an average price must

therefore be formed in accordance with the

share of prescriptions. This shows that the

stipulation of the comparator therapy can

also be of importance to the individual sub-

group for the overall price.

Price negotiations have yet to be

completed for any new product. The

following issues are important:

• determined added benefit

• costs of the expedient comparator therapy

• costs of comparative medicinal products

• selling price in other European countries.

The pharmaceutical associations and

the National Association of Statutory

Health Insurance Funds have negotiated

a framework agreement13 on the course

of price negotiations and have essentially

achieved agreement. A recently issued

arbitration decision stipulated the contractual

content for both parties.

Once the relevant reimbursement amount

has been established, the pharmaceutical

supplier can enter into individual agreements

with health insurance companies14, which

supersede the reimbursement amount for

these health insurance companies. A cost/

benefit assessment can also be conducted,

in which additional costs may be considered

to a greater extent. The result of this cost/

benefit assessment then becomes the subject

matter of future reimbursement negotiations.

ConclusionThe new benefit assessment and

reimbursement amount procedure is aimed

at restricting the costs of medicinal products

with new active substances. Germany is in

many instances a reference price market

so the reimbursement amount may have

considerable impact on pricing in other

countries. A pharmaceutical supplier

must therefore decide whether it may be

economically more favourable under these

framework conditions to forego placing the

medicinal product on the market in Germany

so as to secure a price in another country.

The framework agreement15 allows for

this possibility. If the pharmaceutical seller

decides to refrain from distributing the

product in Germany and also does not have it

included in the medicinal product list, then no

reimbursement amount will be determined.

Germany is in many instances a reference price market so the reimbursement amount may have considerable impact on pricing in other countries.

>>

1 Section 130 a (8), Sozialgesetzbuch Fünftes Buch (SGB V)2 Section 35, SGB V3 European Court of Justice judgement, dated 22 April 2010, C-62/094 Section 35 a (1), Sentence 2, SGB V5 Bundestag printed matter 17/2413, page 386 Section 35 a (1) a, SGB V, in connection with Section 15 VerfO, fifth chapter7 Section 35 a (1), Sentence 3 No. 3, SGB V8 Section 35 a (1), Sentence 3 No. 3, SGB V9 Section 6, AM-NutzenV10 Section 130 b, SGB V11 Section 35, SGB V12 Section 78, German Medicinal Products Act - AMG13 Section 130 b (9), SGB V14 Section 130 c, SGB V15 Section 130 b (9), SGB V

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26 Business Development & Licensing Journal www.plg-uk.com

Illumina in February issued a statement

rejecting Roche’s hostile $5.7-billion bid,

saying the bid undervalues Illumina’s

industry leading position and growth

opportunities. Illumina is a technology

platform company specialising in DNA, RNA

and protein analysis, and claims to have 60%

of the next generation sequencing market.

Roche is interested in the company because

it believes it would be able to accelerate the

transition of sequencing into routine and

companion diagnostics that could be used

in personalised medicine. The offer by Roche

of $44.50 per share represented a 64%

premium over the 21 December share price

before the announcement. Illumina directors

have perhaps been influenced by the share

price premium of 89% paid by Gilead for

Pharmasset.

M&A in disguiseThe other large M&A deal in the news in

February was the acquisition by Biogen of

the privately owned company Stromedix

for up to $562.5 million, consisting of an

upfront fee of $75 million with the remaining

amount paid depending on development

and approval milestones across a number

of indications. Stromedix’s lead product is

a monoclonal antibody that demonstrates

antifibrotic activity and which is about to start

Phase 2. The CEO of Stromedix led Biogen’s

research from 2000 to 2005.

The structure of the deal and the size of

the upfront fee is more akin to a licensing

deal than an acquisition. Apart from the

gaining of an R&D pipeline, the reason for

an acquisition as opposed to a licensing deal

is perhaps the historic relationship with the

Early 2012 saw some significant deals, with interest in drugs to treat rare diseases gaining further pace, investment from Western companies in Africa, Asia and Latin America, and a surprising recent deal involving Vernalis, which may offer a new business model for biotech companies. As usual, we focus on deals where financial terms are disclosed.

By Bridget Lacey, Medius Associates

CEO and investors’ desire for an exit. As

mentioned previously, there certainly seems

to be a trend towards acquisition rather than

licensing deals of small biotech companies,

particularly those that are privately owned.

For example, the acquisition of the privately

owned Neuronex, with its diazepam nasal

spray, by Acorda Therapeutics, reads like a

licensing deal: $2 million upfront; some R&D

payments; $18 million development and

$105 million sales milestones; and a “tiered

royalty-like earn-out”.

LicensingThere have been four important big pharma

deals in licensing, involving Abbott, Merck

KGaA, Novartis and GSK. The deal with

the largest potential value – $1.3 billion – is

between Galapagos, a Dutch company,

and Abbott, under which Abbott secured

global rights to a Phase 2 JAK inhibitor for

treatment of rheumatoid arthritis. Galapagos

receives an upfront payment of $150 million,

a further $200 million at the end of Phase 2

if the studies meet certain endpoints, up to

$1 billion in additional milestones and tiered

double-digit royalties. As is often the case

with biotech companies, the co-promotion

hobby horse comes into play, so Galapagos

has also retained co-promotion rights in

Benelux, not exactly a major market but

perhaps a good place to start. This deal will

be transformational for Galapagos and,

subject to a successful Phase 2, should secure

the company’s future for a number of years.

The traditional late stage licensing

deal is typified by the co-development

and commercialisation deal between the

NASDAQ-quoted company Threshold and

Deal watch

Merck KGaA for TH-302, a small molecule

hypoxia-targeted drug in Phase 3 for soft

tissue sarcoma and Phase 2 for advanced

pancreatic cancer. Threshold receives a

respectable $25 million upfront, plus

potential development milestones of $280

million and sales related milestones of $245

million, plus tiered double-digit royalties.

Threshold’s operating cash outflow during

2011 was $25 million, so with the $20 million

cash at year end plus $25 million upfront

and R&D payments from Merck, its future

seems assured, at least for the next two

years. Needless to say, as a biotech company,

Threshold has retained co-promotion rights

in the US.

February was the third consecutive month

to see a major deal relating to treatments

for hepatitis C. In December Gilead paid

$11 billion for Pharmasset and in January

BMS paid $2.5 billion for Inhibitex. Novartis

has now jumped on the bandwagon with

a $440 million licensing and collaboration

deal with the privately owned US company

Enanta Pharmaceuticals. The deal consists of

an upfront of $34 million and milestones of

up to $406 million, plus tiered double-digit

royalties. Enanta has predictably retained co-

promotion rights in the US.

Rare diseasesInterest in drugs to treat rare diseases is still

gaining pace. GSK’s foray into the market has

been further reinforced by the collaboration

with a Canadian company Angiochem

to develop drugs for lysosomal storage

disorders. The headline value of the deal is

$300 million, of which up to $31.5 million in

fees is paid to AngioChem for access to the

technology.

Licensor/partner or acquirer

Deal type Product / technology Headline ($m)

Deal watch

Illumina / Roche Acquisition by Roche Gene sequencing and assay platforms 5,700

Galapagos / Abbott Collaboration and license JAK 1 inhibitor in Phase 2for treatment of RA 1,300

Stromedix / Biogen Acquisition by Biogen MAb starting Phase 2 targeting fibrosis and R&D pipeline 563

Threshold / Merck KGaA Co-development and commercialisation Hypoxia-targeted drug in Phase 3 for soft tissue sarcoma 550

Enanta / Novartis Collaboration and license Preclinical NS5A inhibitor 440

AngioChem / GSK Collaboration and license Discovery of new compounds to treat lysosomal storage diseases 300

Neuronex / Acorda Acquisition by Acorda Diazepam nasal spray for seizures 133

AstraZeneca / Impax (a) Product acquisition Impax acquires commercial rights to Zomig 130

Nektar / Royalty Pharma Royalty monetisation Cimzia (launched) and Mircera (launched) 124

Tris / Vernalis (a) License, development Development of US Rx cough products by Tris and 83 and commercialisation commercialisation by Vernalis

Ligand / Retrophin License DARA for treatment of orphan indications of severe kidney disease 76

Auxilium / Actelion (b) Commercialisation by Actelion Xiaflex in registration for treatment of Dupuytren’s contracture 69

Litha / Paladin(c) Investment by Paladin Paladin acquires 49% of South African pharmaceutical distributor 48

Edict / Par (d) Acquisition by Par Indian company developing and manufacturing generic drugs 25

IntelGenx / Edgemont (a) Commercialisation by Edgemont High strength formulation of bupropion 29

Sandoz / NexMed (f) License and commercialisation Erectile dysfunction product 28

Sol-Gel / Undisclosed (a) Development and license Major dermatologic drug 27

Sangamo / Shire Collaboration DNA binding technology for drugs to treat haemophilia 13+ for metastatic melanoma

All deals are global except: (a) US (b) Canada, Australia, Brazil and Mexico (c) South Africa (d) India (f) Germany

>>

About the authorBridget Lacey of Medius Associates writes

Deal watch using information from various

sources, including FierceBiotech, Datamonitor

Pharmaceuticals & Healthcare Digest and

company websites.

T: +44 (0)1494 727 419

E: bridget.lacey@medius-associates.com

28 Business Development & Licensing Journal www.plg-uk.com www.plg-uk.com Issue 17 | April 2012 29

Shire and Retrophin also announced deals

in this area in February. Shire has licensed

access to its DNA-binding technology to

develop products to treat haemophilia

from the US company Sangamo for a $13

million upfront and undisclosed milestones.

The technology may also be applicable to

lysosomal storage disorders, so Shire and

GSK may end up competing in a very small

market. Speed to market may well be the key

to success here.

Retrophin’s deal with Ligand gives it access

to dual acting receptor antagonists (DARA)

of angiotension and endothelin receptors

for treatment of orphan indications of

severe kidney diseases. Ligand had acquired

DARA in 2008 as part of the acquisition

of Pharmacopeia, which had included

contingent value rights (CVR) payable by

Ligand if DARA was licensed or sold to a

third party. Conveniently for Ligand, the CVR

expired at the end of 2011 and DARA was

licensed out two months later. Retrophin is a

new privately owned biotech company and

so the financial terms of the deal are back-

loaded, with a modest upfront of $1 million,

milestones of $75 million and a 9% royalty.

Commercial deals The usual raft of commercial deals in

February included the acquisition of US rights

to migraine treatment Zomig by Impax for

$130 million, payable in 2012 plus royalties.

The fee will probably be covered by gross

profit arising from the $163 million current

sales so in effect there is no significant cash

impact on Impax. On a similar note, the drug

delivery company IntelGenx has announced

that a new company, Edgemont, has been

appointed to commercialise its buproprion

formulation in the US. As with many drug

delivery deals, the initial fee and development

milestone values are modest ($1 million and

$4 million respectively) with the majority of

the value in sales related milestones ($23.5

million) and royalties.

The continuing difficulties with biotech

company funding are reflected in a $124

million deal, where Nektar has sold its future

royalty stream on two products to reduce its

convertible debt of $215 million.

Western companies’ investment in

countries in Africa, Asia and Latin America

is continuing, with Par’s acquisition of

Edict, an Indian generic company (nine

months after the initial announcement),

Paladin’s investment in Litha, a South African

distributor, and the Swiss company Actelion’s

foray into commercialisation in Brazil and

Mexico.

Perhaps the most surprising recent deal

involves Vernalis, which is fundamentally a

biotech company developing products for

companies like Servier, GSK and Novartis.

Vernalis is paying $5 million upfront and

development milestones up to $13 million for

each product (plus royalties) for Tris Pharma

to develop at its own expense up to six new

drug applications for the US prescription

cough/cold market. Vernalis’ CEO explained

that the deal “is fundamental in transitioning

Vernalis into a diversified and self-sustaining

pharmaceutical company”. But how will a

cutting edge high-tech biotech company

fare commercialising extended release liquid

cough medicines in the highly competitive

US market? Perhaps other biotech

companies with access to funds should

adopt this business model rather than trying

to secure co-promotion rights that they may

never exercise.

The deal is fundamental in transitioning Vernalis into a diversified and self-sustaining pharmaceutical company.

>>

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