June 2020
Faber Daeufer & Itrato recently launched its COVID-19 webinar series with the first in a series of informative presentations. Managing Principal Joe Faber began the webinar with a brief description of the firm’s goals in providing this information. “We recognize that drafting and negotiating contracts is just a part of the process for building or restructuring a business relationship, so lawyering at its best must be about counseling,” said Faber. “Particularly with the novel challenges presented by COVID-19, we may not have answers to every question, but we support our clients and their work to address unmet medical needs with our collective knowledge and experience and with our best judgement.”
He explained that the first webinar would look at some of the strategic choices that drug development companies should make about their business relationships with manufacturers, either at the RFP stage or later when a supply chain is already in place. “We’ll explore some of the key issues that arise when considering the portability of elements of the supply chain and some of the key issues that arise when considering the redundancy of elements within the supply chain.”
Lily Vakili was the webinar’s first presenter. Helping to lead Faber’s contract manufacturing team, she works with clients nationwide and abroad. Vakili spoke about the unusual circumstances brought on by COVID-19, emphasizing that the priority is always the patients and successfully getting drugs to clinical trials.
“Most bio-pharma companies outsource their R & D and manufacturing,” she said. “For many of our clients, who are smaller and younger companies, 100% of manufacturing is outsourced. So what does that mean in an environment where the supply chain has been completely disrupted? R & D issues, staff illness, and social distancing all result in a slower timeline.”
Vakili explained that, in the age of COVID-19, these delays can create bottlenecks in areas related to import and export restrictions, delivery and transport, and regulatory oversight. She said that the Faber team has been considering what options exist for greater flexibility when confronted with bottlenecks or delays in supply or manufacturing.
One of those options is portability. “If you are a drug sponsor developing your product with a CMO, even in the best of circumstances, how portable is the process?” asked Vakili. “How quickly can you move that process from one CMO for whatever reason to another CMO or bring it in house?”
She went on to discuss some of the specific questions that sponsors can ask related to IP, termination rights, logistics, and confidentiality. She said that drug sponsors need to have conversations about IP early and often, asking such questions as “What do we own? What do we want to own? What do we need to own? Is there any CMO vendor property that is necessary for the use of your product? If so, will that CMO be providing you with an upfront, unrestricted, sublicensable, transferable worldwide, license to use that IP as you deem necessary for the further development of your product and use without additional compensation?”
In relation to termination rights, Vakili strongly encourages the right to terminate at her client’s convenience, but she also warns that this level of flexibility comes at a price in the form of cancellation fees. “Before approaching your CMO, conduct that analysis internally,” she stated. “What are the numbers you can live with? What are the numbers your board of directors can live with? What are you willing to pay to be willing to walk?”
She explained that the leverage currently rests on the CMO side of things and that probably won’t change anytime soon. “Do you have the right to terminate in a force majeure environment? Most agreements have force majeure clauses already. For agreements going forward, talk to the CMO about force majeure and specifically COVID-19.”
From the perspective of logistics, Vakili suggests that her clients consider the various delivery terms, including where the product is being delivered. “Is it overseas? We are dealing with import and export restrictions which can have a measurable impact on your supply chain and the ability to get your drug substance to the manufacturer who is going to make the final product.”
Vakili lastly spoke about confidentiality when portability becomes necessary. “You may really need the flexibility to share certain information of your manufacturers confidentially with collaborators, investors, or potential partners. We may be in an environment now where that provision is even more important. You may be looking for more partnering, which may be what you need to move your product forward under these circumstances.”
In closing she added, “These are high level issues. All of these things are qualified by the specific drug product and your priorities.”
Brian Connelly offered his knowledge and experience in the second half of the webinar. A senior lawyer who focuses on manufacturing contracting, he spoke about redundancy in contracting.
“I think of portability as having the ability to move. Redundancy is thought of more as how you would move. I think of redundancy as another way of thinking about risk mitigation or business continuity.”
Connelly, who also currently works as chief operating officer for a venture-backed, development-stage, animal health company, warned that true redundancy is only an aspiration in many respects, with a lot of small companies never truly achieving it due to high costs and barriers. “The COIVD-19 pandemic may have made clear that there is no true redundancy,” he stated. “Every CMO worldwide has been affected in some respect by the pandemic.”
With that in mind, Connelly focused on strategies for reaching some level of redundancy. He explained that the pandemic has left CMOs struggling to continue with their manufacturing schedules. He advises his clients to think broadly up and down the supply chain.
“Build up safety stock, which can be anything from raw materials for API to finished drug product to excipients and packaging, [but] safety stock isn’t going to help us if we don’t have a CMO to take it and manufacture a drug product. Having secondary suppliers for products can be cost effective, [but] it isn’t good enough if it’s going through the same distributor or same purchasing agent. You want to have a true second source. And these issues should be evaluated as part of the contract drafting process.”
When considering secondary CMOs, Connelly said that geographical diversity should be a consideration. “Qualifying second sites can be difficult and time consuming. The FDA is not currently conducting inspections, so when you can qualify a second site right now is unclear. If looking outside the US, it is unclear how the virus will affect that, but it will affect how we look at other jurisdictions in the future. The post COVID-19 world will have different import export restrictions.”
Connelly went on to describe how bringing manufacturing in-house can prove helpful but noted that many clients do not have that option. “Moving forward, people will have to get creative to create some redundancy. Costs and other considerations may make it impossible to have true redundancy, but if you’re in the clinic or headed to the clinic, having a reliable product and a quality product and certainty that the product will be available when you need it is a priority.”
The webinar concluded with questions from viewers. One inquired about increased domestic CMO options. “Canada is becoming an attractive option for working with CMOs,” replied Vakili. “I expect to see more domestic CMO activity, but it may be through a WuXi affiliate based in the US.”
Connelly added, “Time will tell. Expanding capacity for these US based facilities has a long timeline. We feel the pain of our clients and I definitely feel the pain as a COO of a company. We can sort of make CMOs out to the bad guys, but when we step back, most of the CDMOs and CMOs we work with are great companies run by great people. They largely come through for our clients and produce quality products on the timelines we need.”
He added, “One US based CMO reached out to all their clients in February, saying ‘We think there is going to be a real problem here with COVID-19. We would like to schedule time and talk about your supply chain with you.’ They offered free storage of any critical materials that need to come from China to build up safety stocks. There are a lot of good CMOs that don’t just call themselves partners but do act like it.”
Faber ended the webinar on that positive note. The firm has included a link to the entire presentation on its home page. Viewers are reminded that the information provided is not legal advice and should not be construed as such. In addition, viewing the webinar does not create an attorney client relationship with Faber Daeufer & Itrato.
Please click link to view webinar: https://player.vimeo.com/video/414921103