March 31, 2020

Collaboration, License and other Commercial Agreements: Key Considerations for Life Sciences Companies in the Age of COVID-19

The COVID-19 pandemic is continuing to cause major global disruption to the activities of development stage and other life sciences companies due to, among other factors, limited or no access to clinical trial sites, reduced supply levels for active pharmaceutical ingredients or other key materials needed to make drug candidates or medical devices, and the inability of personnel to access laboratory and other specialized work spaces.

Life sciences companies that are dependent on collaboration, licensing or other commercial partners are especially impacted by the pandemic.  To address and minimize these impacts, life sciences companies need to review and properly manage each of their existing key third party relationships.  Essential to this strategy is for life sciences companies to consider carefully the following issues:

  • Review Mitigating Steps. Anticipate issues that might arise under existing collaboration, license and commercial agreements.For example, in connection with ongoing clinical trials being performed under a collaboration arrangement, consider reviewing with collaboration partners existing and novel technologies to find virtual ways to continue to focus on and advance clinical development activities.

  • Review Existing Agreements. Review with counsel existing agreements to understand force majeure clauses or commercially reasonable efforts standards that might excuse the life sciences company or its partner’s obligations or if there might be a need to propose new contracts or amendments to address the current pandemic.

  • Impossibility versus Force Majeure. Understand the difference between impossibility and force majeure concepts in existing contracts, since each can potentially excuse or delay performance, recognizing that the application of these standards is very fact specific and depend on the contract’s language and governing law.

    • Impossibility is a common law doctrine, which exists at law and does not need to be specifically drafted into a contract to make the contract voidable if it is physically or legally impossible to perform, whereas force majeure is a contractual concept that allows parties to suspend or delay performance but depends on how the provision was drafted.
    • Impossibility is limited to the subject of the commercial agreement or by law, with an act of God / natural disaster as the most common cause of impossibility.
    • Force Majeure is usually narrowly interpreted and in order to be invoked likely needs to include specific references to pandemics and epidemics, with causation also needed to be shown in a number of jurisdictions, i.e., the party invoking the clause will need to prove the pandemic or epidemic affected performance.
    • Government orders such as the prohibiting of movement of non-essential infrastructure workers may trigger force majeure clauses, but additional expense or economic hardships alone are unlikely to trigger such clauses.

  • Review CRE Provisions and Document Communications. Disputes related to commercially reasonable efforts (CRE) clauses and related standards agreed to by life sciences companies in their collaboration agreements should be reviewed carefully, as these provisions vary substantially from agreement to agreement and it is often difficult to prove breaches in normal times. Anticipating that collaboration partners may claim the pandemic is affecting their CRE obligations, carefully document and record all communications with partners to demonstrate flexibility on how CRE-related activities might still be performed.

    • The pandemic may be used by collaboration and commercial partners to shift priorities whether it is related to the pandemic or not, so expect it will be increasingly difficult to use the CRE clause as a lever to get a counterparty to act.

  • Arbitrations and Courts. Access to courts and arbitrations has never been more limited, with courts limiting hearings and some subject to executive orders that bar all but emergency filings.Delaware is still accepting electronic filings but courthouses are closing.Expect additional delays and difficulties in moving matters through courts and arbitration panels, with the change in negotiating leverage that this will entail.

  • The Law Evolves in Extreme Times. Courtrooms are going to be severely overloaded for an extended period even after the pandemic passes.Extreme times such as these, which have also arisen in the past around 9/11 and the 2008/9 financial crisis for example, often lead to significant changes in the law.The enormous inventory of cases that courts will have to deal with – many contractual disputes of the type highlighted above and others related to the pandemic – might mean that some currently common legal doctrines could change or adapt in the future. Predicting future results based on past outcomes becomes more problematic in times of crisis.

Few companies will emerge from the current crisis unaffected.  Life sciences companies in particular need to review their existing business partnerships to ensure minimal disruption so that they can continue to advance during the crisis and grow once it is over.  Life sciences companies must both manage risk to their employees and business relationships.  How best to manage these issues requires a clear understanding of existing contractual relationships and obligations, as well as a realistic view as to how the courts and other arbitrators of commercial relationships are currently limited in their ability to help with interpretations or disputes.  Goodwin attorneys are ready to assist life sciences companies review their existing key collaboration, license and other commercial relationships to ensure proper steps and measures are taken to minimize the long term impact of the pandemic on their businesses and operations.

* * *

Please visit Goodwin’s Coronavirus Knowledge Center, where firm lawyers from across the globe are issuing new guidance and insights to help clients fully understand and assess the ramifications of COVID-19 and navigate the potential effects of the outbreak on their businesses.