Diagnostics, Antibody Testing and Vaccines: Global Outlook on Life Sciences COVID-19 Advances and Evolving Deal Trends
Thanks so much, Emmanuelle. My name is my Mike Ryan, I’m a partner in McDermott’s DC office. Joined today by my colleagues, Dr. Paul Gerrard from McDermott + Consulting, as well as Jana Grieb, who’s an attorney in our Munich office. And as Emmanuelle teed up for us, we’re, our job for the next 20 minutes or so is to tee up some of the key regulatory and market access issues associated with the development of COVID 19 diagnostic tests and serology tests as well as vaccine development. So in terms of who’s going to cover what, I’m going to start by covering the diagnostic and FDA regulatory pieces. Paul is going to cover the market access piece from a US perspective, and Jana is going to cover them both from a new perspective. So starting off with the FDA piece, as many folks know FDA’s policies and procedures with respect to COVID 19 diagnostic testing are very much changing in real time. We saw that best illustrated earlier this week when FDA announced a revised policy with respect to serology testing. As many folks know, there have been some substantial criticism of the agency in the trade press as well as in some of broader newspapers, about the performance of some of the antibody tests that were allowed to be out in the market. Under FDA’s original policy, a serology test manufacturer, actually, could put a test on the market that had been validated without needing an emergency use authorization from the FDA, which is a little unusual. What FDA did earlier this week, in response to some of those criticisms, was actually pulled back some of that enforcement discretion with respect to serology tests, specifically with respect to those serology tests offered by commercial test kit manufacturers. Now, those manufacturers have to submit an emergency use authorization within 10 business days. So by May 18th in order to stay on the market. With respect to clinical laboratories that are certified to perform high complexity testing, however, the policy actually remains the same, in that an emergency use authorization is not required to continue, to continue offering those tests. There are other regulatory pathways associated with COVID 19 testing, specifically with respect to molecular and other diagnostic testing, that allow laboratories and test kit manufacturers to offer those tests for a period of time even before they receive an EUA. Those pathways have been in place, pretty much unchanged since February. So tick through the, those quickly. Not much to discuss there, in terms of what’s new. There’s also the possibility that state clinical laboratories in certain states have approved clinical laboratories to perform testing in their specific states. We can move to the next slide.
So in terms of what’s next, coming down the pike from FDA. There’s really, sort of, two main issues that we see. First, is what we call limited access in the point of care testing arena. That’s due to a, sort of a unique interplay between FDA and CLIA regulatory requirements. Under CLIA, or I guess I should say, most point of care clinical laboratories in the United States, operate under what is called a CLIA Certificate of Waiver. And those labs, by law, are only able to run tests that are specifically designated as waived by the FDA. Tests default to high complexity, meaning they can’t be run in a CLIA waived lab unless FDA specifically down-classifies those. And it is currently FDAs position that they’re only able to do that with respect to tests that have gone through the EUA process and have met the requirements for waiver. FDA certainly is aware of the limitations of that policy and is actively working with manufacturers to get more waived test kits out on the market. There are a handful currently out there, and we know, certainly, from trade press reports that FDA is actively working with additional manufacturers to expand that capability. But in terms, until that happens, there will continue to be a point of care testing deficit. Another area where state have often addressed, expressed concern or potential opportunities for more testing are for direct to consumer testing, the testing that’s offered in the patient’s home without the intervention of a doctor, to the extent that that’s permissible under certain state laws. Certainly, FDA has authorized at least one test for at home specimen collection, however, that’s not a true direct to consumer model right now because it still requires a physician order from a telemedicine network. Certainly, there are various entities that are working with the FDA on getting a direct to consumer testing model available. But to date, we don’t have firm guidance from FDA and what their requirements for that would look like, or a template that a potential manufacturer or laboratory could use to facilitate getting and EUA for those tests. We have templates for the molecular tests, and now, after this week’s developments, for the serology tests. So there, the pathways tend to be a little clearer. For the direct to consumer test, there’s less clarity in terms of what FDA is going to require. So in terms of what to consider moving forward, as you move forward from a testing perspective, to the extent that there’s not an existing pathway, you’re not offering molecular test or a serology test the FDA has one of these templates for, is really an opportunity to engage with the agency through what we call the pre-EUA process, where you, essentially, go into the FDA, discuss what you’re trying to do, the type of test that you want to run, how you plan to validate the test. And get FDA’s feedback on that approach. Typically the fastest way to get FDA take on whether what you’re proposing are thinking of proposing is reasonable and to modify your validation plans at a point where it’s still relatively easy to do so. Another question that we’ve received prior to this from several people was questions about the validation status of several of the serology tests. To some extent, this is going to be addressed by FDA’s requirement to get an emergency use authorization from any of those tests, starting in the middle of this month. However, FDA is increasingly trying to be transparent in terms of the serology data that they have available. Both respect to those tests that have gone through the emergency use authorization process, there is a data summary that goes in the EUA summary that’s posted on FDA’s website. And as of Monday, they started posting a website, a separate, actually much easier to access website, that summarizes the relevant serology data for tests that have gone through the EUA process. That might answer a lot of stakeholder’s questions. Can you move to the next slide?
Quickly wanted to talk about vaccine development from an FDA regulatory perspective. There’s been less going on here from the, sort of, on the ground novel regulatory approach perspective. And that’s primarily because it’s harder to develop a vaccine than it is to develop a test. And if you’re developing something though, FDA’s recommendation is that you go in to talk to them. It’s part of what we call the pre-IND process, because you would need, eventually need what we’ll be calling an Investigational New Drug exemption to start clinical trials of any vaccine. And similar to what we saw with pre-EUA prop—in the pre-EUA process, you really talk to the agency in advance about what you’re planning to do, what your plans are to prove that, in this case, that the vaccine is safe and effective. Get the FDA’s feedback and sign—buy-in on that and then incorporate that feedback as you move forward. There’s some additional information on the slide who to contact at FDA. And, to date, FDA’s been extremely responsive to inquiries to that inbox. Now I’ll kick it over to Paul.
Thank you. So I’m going to be talking about the coverage and market access for diagnostic tests and immunizations related to COVID 19. If anyone has been following the news, you are probably aware that a number of significant laws have been passed within the past couple of months, as well as guidance and regulatory action by the Department of Health and Human Services. And among this is a requirement that tests for COVID 19 or SARS-CoV-2 must be covered by various payers in the United States. Specifically, private health insurers are required to cover tests that are either FDA approved, cleared or authorized, or, tests that are in the process, potentially of going through the EUA process that Mike Ryan just described previously. Medicare and Medicare Advantage plans are also covering tests for COVID 19. The other piece of this has been a relaxation of the requirements on the ordering provider. So normally, Medicare requires that the provider who orders a diagnostic test be a provider who is treating the patient and, well specifically, a physician who will be treating the patient and will be using that information for the decision making. The, to promote increased access to testing, CMS has allowed any provider who is licensed under state law to order a test, to order a test for COVID 19, and Medicare will cover that test. Next slide.
So, once these tests are out there, the, the way that labs will get paid for them is by submitting a claim for one of these tests. Now, it’s important to point out that the coverage of a test and then coding and payment for the test are, sort of, separate issues. So previously, I was talking specifically about whether or not a test was covered. This talks about how the lab can submit a claim for the test and how they get paid and what they will be paid. And this has been evolving since the emergence of the public health emergency for COVID 19, with new codes steadily coming out and the guidance on how to use these codes steadily changing as new codes have come out. So the initial codes U0001 and U0002 were developed by CMS to allow labs to bill for COVID 19 tests. As you can see there, paid $36 and $51 dollars. But then the American Medical Association developed the code 87635. And, following that development, the guidance in terms of which code to use has been largely based on whether or not the test fits the description of 87635, and other codes are chosen as a matter of exclusion. So the code 87635 is an appropriate code for tests that are based on nucleic acids. If it is not appropriately described by that code, then CMS instructs labs to use U0002. Now, a new development is that CMS has also developed two specific codes to describe high throughput assays, described as assays that can perform more than 200 tests per day using automated technology. And, tests that are accurately coded this way can be paid at a significantly higher rate of around $100. Now, finally, new codes were released specifically for serology tests, and there are really two sorts of serology tests. There are single-step immunoassays, and then there are antibody tests that involve, potentially more than one step. These codes are there, but they have not yet been assigned a price. We continue to look to see what that price will be. Now, one thing to note is that prices are being assigned for these tests right now, but these prices may be transient. The clinical laboratory fee schedule meeting will happen in June of this year, on June 22nd, and all of the codes that I have shown here, except U0003 and U0004, will be discussed at that meeting. There’s also a potential that the codes U0003 and 4 can be added to that discussion as well. That means that these codes will go through the normal pricing process, the gapfill versus crosswalk process, before they go on the clinical laboratory fee schedule, potentially on January 1 of 2021. So it is unclear whether or not these codes will keep their same price, or whether or not they will take on a new price as they go through this process. And since the clinical laboratory fee schedule process has opportunities for engagement with stakeholders, that means that stakeholders are able to give input as to how these codes should be appropriately priced. Next slide.
So finally, I’ll talk very briefly about vaccine coverage. And the CARES Act specifically requires insurers to cover vaccines without cost sharing. And it defines the immunizations that are required for coverage as specifically immunizations that have a USPSTF recommendation of A or B, or immunizations that have a recommendation from the Advisory Committee on Immunization Practices. And, as I mentioned previously, Medicare and Medicaid are given separate coverage information in these laws, and the CARES Act mandates that both Medicare and Medicare Advantage plans must cover these without cost sharing as well. And with that, I will turn it over to Jana.
Thank you, Mike and Paul. We have, of course, similar activity in the EU, but it’s also a bit different. And I have to be very short to cover it all in the remaining time. Well, shortly after WHO had declared the COVID 19 outbreak world health emergency, EMA, European Drug Authority, has activated its health threat plan. This has enabled the creation of a COVID 19 task force and allows EMA to take a number of regulatory measures in the light of the pandemic. In the interest of time, I’ll stick to the most important measures under the plan. First of all, there is the option to provide rapid scientific advice to pharmaceutical companies that develop COVID 19-related candidates. Rapid scientific advice is similar to scientific advice EMA generally provides, but it is faster, less formal, and cheaper. First of all, there are no pre-specified submission deadlines. Then there is flexibility regarding the type and extent of the briefing dossier. The details are discussed on a case-by-case basis. Furthermore, the total review time from the start to the final advice letters is reduced to 20 days, which is fairly fast compared to the regular 40 to 70 days time frame. And last but not least, the rapid advice is free of charge. Another important option is the rolling data review that is already practiced at the moment with the promising candidate. Rolling data review means that EMA starts reviewing scientific data before a former marketing authorization application is filled, and before a complete dossier is submitted. Data are submitted when they become available and EMA looks at them immediately when they come in. The procedure is eligible for both new applications and indication extensions. Next slide, please.
There are also a number of measures to make treatments and vaccines available as quickly as possible. Although there is no overall emergency use authorization in the EU, there are a couple of mechanisms that enable the use of unapproved drugs and that facilitate and accelerate marketing authorization. These mechanisms have to some extent be modified by the emergency plan, but they are also used outside this context. Unapproved drugs can basically be used in three scenarios. In clinical trials, in compassionate use programs, or in individual treatment attempts under the sole responsibility of a doctor. All of these options are currently used in the EU. However, this use is restricted to certain conditions, and both compassionate use and treatment attempts are instruments under Member State National Law, so there is no harmonized legal regime on that. A broad production and use of treatment and vaccine can only be expected once a product is actually approved for the market. As marketing authorization procedures for innovative drugs normally take a long time, it’s better for procedures of particular relevance in the light of the pandemic. The actual procedures that facilitate marketing approval in, on EU level, the PRIME scheme and the conditioner marketing approval. Under the PRIME Scheme, candidates can basically benefit from scientific advice and accelerated assessment of the application. The conditional marketing approval allows for a drug to be authorized, although part of the clinical data are not available yet. This means that not all phases of clinical trials have been completed. The conditional approval is valid for one year, then it has to be renewed. Once all phases of the clinical trials have been completed, the conditional approval can be transposed into a regular approval. So far, no conditional approval has been granted for COVID 19 treatment or vaccine. But it may be hope that it takes place, at least with regard to treatment in the next few months. In general, marketing approval applications in COVID 19 indications are now prioritized over other drugs, drug candidates. Next slide, please.
Diagnostics is a bit off a different regulatory field in the EU. Both a virus test and antibody tests are considered individual medical devices under EU law. Medical devices are not regulated by EMA and are authorized for the market, basically by way of self-certification. Self-certification is not a simple as it may sound. Manufacturers have to collect significant data on the IVD and conduct tests for performance evaluation. In addition, some IVD are not authorized by mere self-certification, but require a certificate from a notified body, which can take several months. A notified body certificate is always required for self-testing IVD. While, so far, all virus detecting tests, elect tests, there are antibody tests on the market that may be used for self-testing. Those can only be offered on the market with a certificate from a notified body. In the COVID 19 situation, member states have relaxed some of the requirements for IVD and have established procedures to temporarily permit the marketing of medical devices and IVD that have not undergone the regular procedure for CE marking. And one last topic I would like to briefly mention that reimbursement, the problem is that so far there is no harmonization of reimbursement in the EU. We have 28 different healthcare systems and they all have different rules on how tests are reimbursed. But, basically, most countries have not introduced mechanisms to ensure that COVID 19 tests are reimbursed by public and private payers, even if people get tested without having symptoms. That’s it from my end. I’ll hand it over, back to Mike.
Thanks, Jana. Did we—I think Paul, there may have been one question directed to you. Did you see that? If not, we can follow, we could certainly follow up with them.
I did not yet see it.
I think it was related to the use of U002 to serology testing and whether that would be an appropriate use of that code.
Whether you U002 would be appropriate for serology testing, so, the current guidance is that that would not be an appropriate code for a serology test.
Thank you. I’m not seeing any other questions. I think, pass it off to Stephan and his next panel. Thanks, everybody.
Hello. My name’s Stephan Rau. I’m a health and life science M&A partner based in Munich in Germany. In the next 25 minutes, we’re going to cover trends, interests, actions. Transactional trends, basically, obviously, refers to the market is down. We don’t need to discuss that very much. But, being lawyers, we want to look at the measures that governments in the US and Europe have taken to either facilitate transactions or to obstruct them. Before we start doing that, I would like to remind you that everyone can always ask questions. Please feel free to use the Q&A feature, that seems to be better than the chat feature. I will try to look at the questions and ask them to the panelists. On the panel, I’m joined by Sarah Colombia, a senior IP lawyer in Boston who started an abundance of international transactions. There were times when I think Sarah was more often in Munich than in her local Boston. And Byron Kalogerou, also a senior partner based in Boston. That is obviously by accident that we have that many Boston people here. He has worked for Tyco and … in house, also in Europe, in Luxembourg, and he is obviously very experienced, also, and has seen other financial crisis. Therefore, I would, I would assume that he will be quite relaxed. Thereafter we’ll look to Europe. We want to show that, despite the increasing tensions that there seem to be between the US and Europe, this does not apply to our firm. We want to give you an integrated advice, both from the US and European perspective, how we can do your transactions. And with that, I hand over to Byron.
Good morning, good evening, good afternoon. Thanks, Stephan for the introduction. Great pleasure to be able to share some insights. Stephan is correct, when you’re a senior you’ve lived through a number of crises, and I think that we want to offer some thoughts on where the industry stands, where the opportunities are, and speak specifically to deal terms, approaches to deals and diligence. I’ll start with the bad news, which, again, everybody knows where we are. But I want to make the distinction between, sort of, general industry and life sciences. Huge number of deals have crashed since the declaration of the, the pandemic by the World Health Organization. Some megadeals, in particular. The $34 billion acquisition by Xerox of HP. The Softbank tender, $3 billion tender of the shares of WeWork. A couple of Boeing suppliers called off their $6.4 billion deal. Some deals that are in litigation as well, including the Bed Bath and Beyond sale of one of its divisions to 1-800 Flowers in connection with a MAC clause, and we’ll talk about MAC and MAE clauses here in a bit. Of the transactions, again, limited sample. This is from the, the declaration on March 11th through April 8th, some 66 deals have terminated, not all occasioned by my MAC terminations, but a number of them that were, and a number of them that were mutual in termination. Again, most of the targets in Asia Pacific, a third in North America, and, interestingly, 12% of deals in the, in the pharma space. That said again, the, we recognize that the IPO markets are effectively closed at this point, that the finance market is in some significant disarray, but there’s still optimism. And, in terms of what’s happened in the life sciences space, when you look back at our last two financial crises, again, the impact on life sciences has been less, and we think there’s actually opportunities and enhanced opportunities in the life sciences. Next slide, please.
So again, using this, you’ve heard the term there is plenty of dry powder up there. A number of new funds are being formed, a number of them that are focused on distressed opportunities. Huge government stimulus and focus in this space. The cash injections, the, the really, a lowering the cost of capital in terms of doing deals. And the government supportive, accelerated research and development in this space is unprecedented in terms of regulatory approvals, and the focus is, is dramatic. And that’s, I think, one of the catalysts of the opportunities. There are obviously opportunities in the in the in the early stage. A lot of early stage companies whose, whose platforms and paradigms were, were, were based on clinical, clinical trials are feeling the burn. The other feel the burn. And, and that’s where I think you’ll see some opportunities and, and the number of discussions taking place in the early stage. One side note, again, especially in an election year, Big Pharma. We’ve gone from evil to indispensable, and I think there’s a lot of support in this space in terms of doing deals. And there’s a lot of new deals that have been triggered by, by COVID. A lot of those are, sort of, quickly formed commercial partnership, whole host, whole host of those that we think often will result in, in potential M&A transactions. And then you’ve got a number of new players, even, even the likes of GM suddenly repurposing itself to make ventilators. But a lot of companies coming into the space liking the margins, they see, and we think a lot of those will result in, in M&A in the future. Of course, again, there are, companies deal with a lot of strategic that are, that are in cash conservation mode, that are sort of slow walking deals that they’ve been, in which they’ve been involved. And in a lot of the disruption, again, through postponed trials, low enrollment trials, supply chain disruptions, and clearly workforce chall—workforce challenges. But the supply chain, I think in particular, will create, as we reexamine what, where our supply chain is today, create significant opportunities going forward. Next slide, please.
So in terms of, again, if you’re out doing deals, I think this is two opportunity, or an opportunity both to look at your approach to doing deals, a bit of a checklist to think about from a diligence as well as, we’ll talk about deal terms that you should be thinking about. Clearly, logistical challenges. The importance of face to face is always paramount, I think, especially at the early stage, where trust and rapport between investor and company is important. That is, needless to say, thwarted by our current environment. But the other day, Roche/Arakis therapeutics company based over here in Waltham, they touted the fact that they did a deal. Announced just a couple of days ago. $190 million upfront payment in the R&A space. And the discussion started before COVID, but most of the final discussions took place, took place by video. On a substantive perspective, the, lot of areas to look into now with, with that have been COVID triggered. Obviously supply chain disruption, material contracts and impacts of force majeure, clinical trials, as we’ve talked about. Government relations in particular, triggered, by much of what you see under the CARES Act. The, the so much has been focused on PPP, eligibility for PPP, on and much to luck at there. The other one that I don’t mention here is the FDA has a Coronavirus Treatment Acceleration Program. When I spoke to the, again, the catalyst is the government pushing things along. Well, that’s great for those that are in the space. It may have some impact on those that are outside of the space. So a lot of diligence. We’re actually, we’ll be posting, preparing and posting a life science COVID due diligence checklist in the coming days. We’ll make sure that gets to all the attendees on the call. And we’ll posted it on our, our resource center. Purchase price, valuations. The seller strength is beginning to wane in our current environment, and buyers are getting more power. That creates plenty of opportunities for disagreements on valuation. We are beginning to see more creativity with respect to earnouts beyond revenue, clinical, and regulatory milestones. Now you’re seeing sort of ordinary course milestones, again, more difficult to, to define. But, in terms of keeping deals, that have been in process, looking at new deals, sort of, normalcy guidelines, ordinary course guidelines are becoming, are becoming creative ways of making deals go forward. Next slide, please.
Again, interim covenants, for all the in-house counsel and counsel in the room, the virtual room, some of these, again, were people had considered to be boilerplate. Interim covenants, covenants entered into and in purchase agreements between signing and closing. Much more focus on those now, now to think of because of the, the impact of time on doing deals. We’ll, we’ll talk a little bit about that. Need to think about changes to the workforce that may take place, considering rolling lockdowns that may be part of the future. Obviously, governmental orders, regulatory actions. Seeing a company consider an interim covenant action plan so that it’s important to think through what, what the impact of these, of COVID on those, on those covenants. Great to have seller flexibility in those governance. But I’ve seen the counter where a buyer says, hey, this is your, the flexibility that the seller needs to address COVID issues needs to give me a greater ability to walk. A lot of, a lot of talk about MAC clauses and Material Adverse Effect clauses. Again, those are no longer boilerplate of those terminated transactions. The 66 that I showed earlier, very few of those suggested pandemic governmental orders as included in their exceptions to, to MAC. So again, you see sellers seeking COVID 19 as an exception, versus buyers, including the impact of COVID as an MAC event. Finally, government in third-party consents. Antitrust, first. The FTC, back on March 13th, suggested that it was not going to be issuing early terminations under Hart-Scott-Rodino. 17 days later then he said, now we’ll get back to doing that, but the anecdotal evidence coming out of those that have submitted HSRs that the process is moving much more deliberately. CFIUS. You’ll hear more about that today. But the, there is a lot of talk about the higher scrutiny of life science assets. Beyond the changes that have come out recently, there will be a heightened emphasis on life science assets, and this ties to the to the supply chain. Finally, third-party logistical changes. We had a deal with a Japanese acquirer, a multitude of shareholders, a medical device company on, and just trying to get shareholder signatures. People hid out, hidden out in their various homes, your boats, or wherever they were. It’s difficult. You have to consider the logistical challenges of getting documents signed up. That was part of the reason that the HP Xerox deal fell apart because they couldn’t get shareholders to, conduct a shareholder agreement was one of the reasons they paused it. Finally, again, another boilerplate that’s sitting in your purchase agreements, the Drop-Dead clause, which was typically a period of time beyond the projected closing date by which you could get the deal done. Now you need to think about the delay as occasioned by COVID. Consider extension mechanisms, so that deal going forward can automatically extend for periods of time so long as there are extension mechanisms. Automatic extension mechanisms. With that let me, let me turn over to, to my partner, Sarah Colombia. Thank you.
Great, thanks, Byron. That’s a super, super efficient summary of a lot of activity over the last several weeks and months. My name is Sarah Columbia, I’m a partner, as Stefan mentioned, resident in our Boston office and focused on intellectual property issues. I thought what I would do today is just highlight for this group some of the issues that our clients and that we are paying attention to on the intellectual property front, on the assumption that we have some people on the meeting who are very much in the COVID 19 space, and probably many more who are really not in the COVID 19 space but are wondering how all of this is going to impact their transactions going forward from an intellectual property standpoint. The first thing that we’re seeing and advising, frankly, is we always have in any deal, the risk that there could be an insolvency or a bankruptcy. If we’re licensing in technology, for example, or if we’re considering an acquisition of a company that’s dependent on technology that has been licensed in. So all of us know, I’m sure everybody on the on the call knows, that’s an important issue that we always look out for. I think there’s a heightened risk right now that, that the technology, whether that’s patents or other types of technology, if it’s licensed in does face some risk of the license or running into an insolvency situation. In the US, there’s really quite a strong protection if that, if that intellectual property is patents or copyrights. It’s a little bit more tenuous if its trademarks. And the protection outside the US, other than in really Canada and Japan, is quite mixed. So, it’s not a new issue. We’ve all been looking at it in our deals. It’s something that everybody, sort of, checks a box about. But I think in today’s environment, where, especially with smaller companies that are licensors, who perhaps have needed to license out their technology because they don’t have the robust infrastructure to develop it. You know, we’re just looking harder at that issue as we look at deals and look at licenses and look at the value of the assets in light of those potential risks. Then, we’re looking, obviously, we’re tracking what’s going on at the patent office, the Patent and Trademark Office. There was an interesting, exciting, not sure where it’s going to go development on Monday. The patent office announced something called Patents 4 Partnerships. Literally like patents, and then the number 4, partnerships. It’s a new thing. It’s sort of a patent office place, where patent holders who think they have technology that could be valuable for the COVID crisis can, essentially, it’s sort of like a, you know, an online transactional space. Patent holders who have patents or patent applications that they believe have potential value for COVID, whether that be drug value or other medical device diagnostics, whatever, have an opportunity to consolidate that in the patent office, so that companies or others who are interested in a one stop shop for that, that resource can both see that, see the innovation. I mean, the patent office is very much promoting it as a way for companies to get access to innovation. Of course, the innovation will come with a patent or a patent application that presumably, the, the inventor or whoever is the owner of the patent will be interested in licensing. So that’s brand new. It, it came up on Monday. As a practical matter, if you’re in a company, that’s, I would say the most practical implication of it is if you’re in a company that’s in the COVID space, whether that’s directly through therapy or diagnostics or indirectly through, you know, healthcare monitoring, tracing, etcetera. It does, from a practical standpoint, make the freedom to operate search a lot easier, because I think there’s going to be a real incentive for people to put their patents up there. So, stay tuned on that one. The other news at the patent office is, as probably most people who are in the IP part of this, this world know, the patent office has extended several of its deadlines, assuming you can certify that you can’t meet the deadlines because of COVID related problems. And I think that’s a pretty soft certification. So I would think that’s not going to be difficult. The one thing to keep in mind, depending on where you are in your process, is that does not apply to new applications. So, if, if you’re otherwise up against your one-year bar date etcetera, in the United States, you do not get any relief on that from, from the patent office. The last thing I want to raise is, and I think this is going to be important from a deal standpoint, there’s going to be a longer-term potential, more, much more strategic impact, and we don’t know exactly where it’s going to go. But, if you’re interfacing with your intellectual property teams, I think you want to be really looking at how this overall event is going to impact the value of your patents or the patents your licensing in or the patents you’re acquiring or the patents you want to, to license out or have someone else acquire. I think there are going to be real impacts on, what we call patent term extension, which is a concept that applies to, to extend the life of a patent if it, if the technology is caught up in FDA review. We’re seeing a lot of, especially in the non, well, not especially, in the non-COVID space, one of the impacts of COVID is clinical trials are being interrupted, canceled, suspended, whatever you call it. But I think we all know when a clinical trial is interrupted, it’s, it’s a real, you know, that’s a very expensive, and very long-term proposition. That is going to have an impact on the life of the patent protection for that technology. We, we don’t exactly know how it’s going to play out yet. The formula for calculating patent term based on FDA delay is extremely complex, and we don’t know yet whether there’s going to be any relief for these particular types of delay. But typically, at this stage, if you had a, a medical device or a drug that was in clinical trial, you would already have very well-choreographed your patent strategy and timing with your FDA strategy and timing. And the FDA strategy and timing for non-COVID drugs and medical devices has been thrown a real curveball, because many of those clinical trials have been suspended. So that’s going to have an impact on the value of those patent assets. And, you know, I wish I could tell you exactly what that’s going to be, but I can’t, other than to tell you it will have an impact. The other one is more administrative. We are going to see patent office delays. That, maybe that’s good news or bad news when you measure it up with the patent term extension point. We’re going to see more patent office delays, I’m sure. That does result in, what we call, patent term adjustment. And so, that will maybe counterbalance a little bit. But there will be some real impact on the value of these assets. So all things to think about in the IP world, especially for those of us who were not in the COVID, COVID space. And with that, I will turn it over to Dennis, who is going to take up the next part of the presentation.
All right, I’m shortly going to interrupt. Thank you, Sarah, Sarah and Byron. Two questions came up, which, which actually are good to transfer to Europe because they’re relevant for the US as they are for us. And one was, when will the IPO market be up again, as it was before the crisis? I think no one will know. But maybe Byron can add later. And, the second is about supply chain disruption. Do you see opportunities for manufacturing your onshore to the US? I assume that is the same—I assume the question, the answer would be yes, and the same would apply to Europe. Byron, do you want to comment? Or shall we transfer to, hand over to Dennis?
Sure, very quickly.
Very quickly, please.
Oh, sorry. Yeah. Oh, sorry. There will be a very significant focus on bringing back onshore to the states. Critical elements of the supply chain. A lot of companies are dealing with component and product supplies issues, especially from China. And I think there’s going to be a huge insourcing of various components in the, in the space, in the next, in the coming years.
What about production in Europe?
I would imagine similar. I think that again.
I mean, for the US market.
I mean production in Europe for the US market.
I think that there’s going to be, I would imagine that the focus is going to be more on insourcing in the states rather than, rather than from Europe, rather than from China. I think it’s going to be a, that’s going to be the America first effect.
Okay, so I’m very, very pleased to hand over to Dennis. Dennis is a … in Munich, he’s a senior regulatory lawyer in the life science area. Tremendous experience. Dennis, sorry you don’t have much time, but maybe you give us a short overview of what regulatory measures the government has, government and governments in Europe, as you know, this is complicated, in the audience, have taken to facilitate or obstruct transactions.
Well, thank you, Stephan, Byron, and Sarah. I think I have five minutes to cover the EU topics, and I will try to be very brief with that. I will start with what Byron mentioned already, that the pandemic clearly has been a wakeup call for the life sciences industry to join forces and cooperate in order to successfully combat COVID 19. And also in the EU, of course we observe a number of research collaborations between pharmaceutical, and in particular, biotech companies. The question in each case is, how can such close corporation which we observe, be set up and implemented in accordance with the antitrust law? And I would like to simply provide some key messages on the current legal situation in the EU on that. First and foremost, the antitrust law continues to be applicable during the crisis. So, in particular, hardcore cartels continue to be prohibited. So despite close cooperation, companies are not allowed to exchange prices, volumes and other sensitive commercial information. The supervisory authorities, that is, in particular, the European Commission at EU level, but also the national cartel authorities, they currently may not have the time or the capacities to pursue cartels effectively. However, they have pointed out that competitors must not misuse the exceptional situation to commit serious antitrust violations. So most likely after the pandemic, the authorities will see their contribution to economic recovery primarily in ensuring the function of, functioning of effective competition. In other words, it is likely that they will review the present conduct in the market at a later time. Nevertheless, and that is the second key message, the commission and the other competition authorities expressly acknowledge that the Corona crisis requires a facilitated antitrust framework for cooperation in the health industry. This basically means that certain forms of cooperation between competitors, which were previously prohibited, may now be allowed. If and to the extent, and that is the important point, they are required to prevent or mitigate the negative effects off the Corona crisis. This includes, in particular, cooperation agreements, which we observe many of them at the moment, that enable the participating companies to guarantee the supply of indispensable health products and services. Most importantly drugs, medical devices, but also PPE, food, hygiene products. Competitors active in these areas may be able to exchange information and even coordinate their actions. Specific measure is required to prevent or mitigate the negative effect of the Corona crisis, and to the extent to which these measures are permissible under EU antitrust law, must be assessed separately in each individual case. One remark on the antitrust side. In the interest of legal certainty, the companies have now the opportunity to obtain, so called, comfort letters from the commission, confirming that they act in compliance with antitrust law. So in a nutshell, there are substantial facilitations which allow the life science companies to cooperate, cooperate in relation to the combating of COVID 19 at the moment.
Let’s come to obstructions now. We heard about CFIUS earlier. What about foreign investment role in Europe?
Very brief on the foreign investment control side, we’ve seen over the past years, a general trend of increased scrutiny over foreign investments in the EU life sciences and health markets. The European Commission has, in the course of the COVID 19 crisis, published guidelines for the control of foreign investments into the EU life sciences sector in March. And according to the commission, there is currently an increased risk that foreign investors will focus on health infrastructures that are essential for public order or security. You may have heard rumors that US companies and also the government expressed their interest in certain EU based biotech companies for the purposes of combating COVID, COVID 19 in the US. So, member states in the EU, based on the guideline of the commission, are called upon to take a particularly critical look at such acquisitions and to preserve assets in the European Union that are essential for the community. But what’s that, what does that mean for the investors? It does not mean that foreign investments are generally, were generally prohibited or difficult to close. It always depends on the individual case. And, the general guidelines still is that, of course, investments into the European economy are welcome, to the extent they benefit the national economies. So it’s always an assessment of the individual case that has to be made. And today, it’s even stricter than before. This was very, very quick, but I hope I could provide an overview of the most important questions.
Thank you. Thank you. Sarah. Thank you, Byron. Thank you, Dennis. I think we have come to the end or have to come to the end. And before that, I hand over to Stephen, or do we have a poll?
Yeah, I think Stephan you can, I’ll pick up the ball here and go to the emerging digital pieces. I think that probably makes sense. And I’m Steve Bernstein. I am the co-head of our digital health practice, and I’m joined by two wonderful colleagues also in our digital health practice. Jennifer Geetter, in our Washington DC office and Sharon Lamb in our London office. And there’s plenty of emerging digital solutions tied the life sciences and med device. No way we can cover it here in the short time that we have. I would refer you to an April 17th webinar that we held on this, where, you heard our colleague Sarah Columbia talking about the impact on clinical trials amidst COVID. I would refer you to the April 17th program where we did talk about, pretty extensively, about clinical trials migrating both to digital and what’s going to happen with the delay. So look at that. We’ve had plenty of other webinars on telehealth, remote monitoring and other aspects, and I thought for today in the brief time we have, we’d migrate a little bit to contact tracing, and you can see that slide up there. And really where life sciences place in that, that element, which I think is pretty unique. And so before we get too deep into it, I would, I would turn over to Sharon and Jen to give us just a brief explanation of what contact tracing actually is. Because there’s a lot about it in the news. There’s different ways it can be done, and I think we should just, sort of, do a quick table setting before we go much further. So, Sharon, you want to start with it?
Yeah. Hi, Steve. And thank you and really good to be here. Yeah, I think it’s fair to say that we all know a lot more about contact tracing over the last few weeks than we did, even though it’s been a technique that’s been used in tracking, tracking diseases and epidemics in the past. The model shows, effectively, how the app is downloaded onto the phones, often of members of a single country. There, there is some analysis that contact tracing technology really only works if technology is downloaded by at least 50% of the population, so there’s a significant amount of buying that’s needed from members of the public on any contact tracing technology project in order for it to be effective. The technology is downloaded onto a person’s phone. When they come into contact with other people who have downloaded the app, the technology transfers Bluetooth signals through keys that are being continuously changed, and that’s what shown in that diagram with the drawing of the Bluetooth and the keys. If one of those people who downloaded the app, subsequently is diagnosed with COVID 19, then, then this depends on the model, which is where I’m just going to touch on some of the controversy around the apps. A message is sent to all those other people who have downloaded the app and they get a message saying that they’ve either been in contact with someone who’s been diagnosed and should take steps to protect themselves or to take a test. Now, some of the controversy relates to whether or not the contact tracing is centralized or decentralized. This is a little bit complicated, but in short, a centralized contact tracing model involves some data being shared with the central health authority. And now that could be data that relates to the person’s health. It could be relating to their condition or other symptoms, but it also is held and then transferred, possibly to other providers in respect to the person. In respect to the person that gets it, they may also then be notified under the centralized system directly by the health authority. The decentralized system works simply on an alert from phone to phone, rather than any data being held in a centralized system. I hope that’s clear.
No, that is, that was very clear. And we have the picture. And Jen, really, from your vantage point, either feel free to jump in on the digital side, but, as Sharon mentioned, this is a tool, if you will, or a process. It goes actually back years where, you know, there are phone call approaches as well. So, if you want to elaborate on either side, that’s great, please.
Sure. This, this picture depicts contact tracing from an app perspective, but the concept, of course, is more basic, which is identifying individuals who have a positive diagnosis, in this case for COVID 19, and then understanding the people they’ve interacted with during the likely infectious period, which we know for COVID in 19 is a particular challenge because you can feel fine and nonetheless, be contagious. The app is one possible way of reaching out for contact tracing, but it can also be done through phone outreach with public health authorities. Also a combination of technology and nontechnological interventions. I think what we can expect is that we’re going to be learning by doing for a little while, in what works for contract tracing, and it’s going to vary to a certain extent by jurisdiction. As Sharon mentioned, many of these contact tracing strategies, whether app based or not, involved a health authority, a centralizing body that sets a variety of parameters, including what type of exposure should prompt an alert, whether by phone or by app. Nearly passing someone on the street, might be enough to generate the Bluetooth ping, but might, really, not be actionable information, of the likelihood of that presenting risk to the passerby’s is quite low. And in the United States, the idea of the health authority has the added complexity of localized jurisdictions. So I, I sit in, in DC, and for contact tracing to work, you might need to think of a coordinated approach by and among multiple health authorities, Steve. For example, DC, Maryland, and Virginia as we’re, as we’re as likely to pass by someone from a different state, whereas in other parts of the US, it would be quite different. So how we’re actually going to deploy contract tracing, I think is still a moving target. And then the last thing I would say is, of course, it depends on, at the start, a positive test diagnosis. We don’t we don’t want to so panic. And so a critical part here is the ability to have reliable testing and prompt testing results. And that’s really what kicks off the contact tracing and its important element here.
Yeah, when I, I want to ask you about that because we got a question, actually, before the program even started, about how critical do you anticipate the digitization of, of test results, either diagnostic tests or antibody testing, given that there’s always different configurations. Is that, how would that work? And that ties to these life sciences companies because they’re going to have a role in this as this proceeds.
Right. So I’ll take a first stab and then, and Sharon layer on, please. Contact tracing in part depends on accuracy, but in part depends on speed. So the point is to slow the contagion by catching it before it continues to spread. And so, an accurate test result is critical. And we’ve, we’ve been somewhat hampered here by inadequate numbers of tests, but also the speed with which those results are generated. So if you aren’t getting your test results back for 7 to 10 days, by the time you would then initiate your contact tracing app, for example, you might already have been out and about. So, I think there is a real push for test volumes, the ability to test lots of people, and I would say, more than once. So that’s an important piece here is testing people more than once. You’re negative now, you, you could be positive later. But also there’s multiple tests to confirm negative after a positive result that you are essentially, hopefully, no longer contagious. And so I think we can imagine a real ramp up period in terms of the number of people we have to test, how often we have to test them, and how quickly we need to both get the results back, but then also make them digitally available for these various contact tracing applications. And as jurisdictions begin to explore reopening, I think the demand for reliable testing is going to be absolutely critical and a real opportunity for life science companies to participate.
Yeah, Sharon, if you can amplify on that, I’m interested in your views. And also to Jen’s last point. What are some of the tangible activities that life sciences companies and med device companies should be thinking about relative to, I’ll call it tracking as opposed to just contact tracing, because it’s certainly broader than that.
Yeah, so let, let me first just add on to Jennifer’s point about the testing and the availability. A related point on that is a concern that when the app is downloaded, it might be hacked or used for malicious purpose and cause complete panic, so that anybody could simply just say I’ve had a positive test and then that word trigger alarm, you know, across the community. So one of the, one of the issues that is being looked at is whether or not that test needs to be verified before the person can input it into their phone. And that’s, as shown on the diagram there. But I also see we’ve had a question from the audience about whether or not the app, you know, whether it needs to have an opt in. And, in terms of making it as effective as possible, putting aside data privacy points for a minute, you can see strong arguments that, that the, kind of degree of surveillance to make this effective is likely to require an opt in of some type or another. Then turning to your question, Steve, I think some of this is going to be dependent on where the debate on privacy and use of any data, particularly held in a centralized storage facility, is able to be used on accessed for the purposes of life sciences. Now, whilst there has been a lot of concern about commercial use of the data, and in fact, some of the European opinions are that the data cannot be used for commercial use in the context of the wider loosening of use by life sciences company of data. And particularly UK, we’ve had some lifting of the restrictions on confidential information and an ability to share health data in a way that was not contemplated outside of the COVID scenarios. And that is particularly helpful for medical, medical device companies of life sciences in terms of fast track procedures for both devices and medicines. Some of this is a little up in the air, question mark. Can you use this balanced against the concerns of wider surveillance of society? And is the information being held securely?
Yeah. And there were a couple questions that came in which I’ll try to respond to. Someone was asking about absent and health authorities’ centralization. You know, what our thoughts about employer sponsored tracing? And, you know, I think in having all of us having dealt with this for the past several months, I think what we’re looking at is the greater need for collaboration among multiple parties. So there will be public, public health authorities combined with digital solutions combined with testing companies. And then I think when you add to the, on top of that, there was an emerging set of regulations pre-COVID in the US on interoperability and API aspects, which the US government, sort of, delayed that, which is a little surprising to me. I think they thought they were being nice, but I think companies are going to have to step up on that, so that the four parties that map through can communicate with each other. And then when you add the employer in the middle of that, I think that that is a place where an employer could play. But then you have the overlay of labor and employment kinds of risks. And are you going to, you know, is that a deeper focus on employee privacy, and how is that going to work? And I think that that is still an open question. I would, again, commend folks to our resource center. There’s a lot, a lot of programming done by our labor and employment group which will cover many of these kinds of employer, employee connections. So, my view of it is, is that there’s a lot more collaboration that needs to be done, and I think we’re only at the tip of the iceberg about how that works. As players continue to move forward, there will be some point where we need to connect the dots. I think in the interest of time, and Sharon and Jen, you both address privacy safeguards, I guess the last question I’ll ask you both is, even though we’re talking about contact tracing, the concept of these connections, do you see that that process being leverageable for other activities in the digital health space or otherwise? Just beyond, beyond the pandemic.
Shall I start?
Yeah, sure. Jump in.
Yeah. I think, I think that certainly the engagement with the public and patients has been, you know, heightened by COVID. There’s an appreciation that data shared collectively or donated for the purposes of life sciences or medical device development may actually contribute as it works, so a kind of public good. And that may tip the, kind of, balance here, where there have been concerns about the provision of data to life sciences companies, where people can see the tangible benefits, not only for them, but for their families. Where it’s all effect—it’s affecting them directly. That may change the dialogue that we have on the ability for life sciences companies to use that data and the willingness of people to contribute their own information.
Yeah, I completely agree with this. We know that, that privacy is important, but when you are sick, we see that people are willing to band together on disease state registries and other types of projects where privacy becomes one of, of many issues, but not necessarily the, the overwhelming one. And I think this experience has made us all have, you know, a certain type of health vulnerability and realize that the information about any one of us isn’t, isn’t that eliminating the information about us as a group can be absolutely lifesaving. And so the, an approach to, sort of, seeing data as a shared good, when handled appropriately, I think could have lasting effect. I think the other important thing here is we have tens of thousands of people who are immediately getting health care in one way or the other digitally. Maybe that’s, you know, a telehealth visit, and as Steve mentioned, we have lots of resources on that, but it could be something like a contact tracing alert. And so we have this huge influx of people who are having healthcare and computers and smartphones suddenly interact, and it’s a huge learning laboratory. So, I also think aside from contract tracing, per se, Steve, we, we can see life sciences companies having a larger market of people who see the value of remaining connected in terms of their healthcare through their everyday remote devices, which I think will also accelerate digital care and remote monitoring, even outside of infectious disease context.
Yeah, I think that’s right. I’m going to close up. But one, one closing comment that’s similar to what you, Jen, said. I saw one commentator suggesting that this COVID crisis has accelerated the use of digital activity in healthcare, across the board, by 10 years. That may make sense to me. I think it’s broken through a lot of log jams. I’m confident that we’ll see clinical trials going much more, at least the patient reporting aspects, much more digitally, having virtual trials and other database trials. I think you’re going to emerge even faster, more quickly. So thank you for your time. Thanks to the audience, I’m going to turn it over to Stephan for some forward-looking remarks on M&A and to close us out.
Thank you, Stephen. Yeah, before closing, I want to thank all of you at who are attending this webinar. I think I’ve hardly ever seen a webinar with that many attendees who stayed all the time. So thank you for that. Thank you to all my colleagues who made this possible. This was tremendous work done by people behind the scene. And I would like to take up your last remark, Stephen, about digitalization rapidly increased, you said by 10 years. I think in Europe at least, that is true for every aspect of our life. And you see that in the M&A market as well. The M&A market was obviously down. It is starting again, here at least. We have started a few transactions just after the, after Easter, basically. The lockdowns are loosened, so we think everything is going up. We obviously hopeful that nothing bad will come up again that we do not predict now. But I think we are, as you should always say, the future is bright. There will be more transactions, certainly, in the digital areas. Certainly in the life science area. And I assume many of us are active in this sector, so this is good news for everyone. Have a great day, have a great evening. Goodbye.