McDermott Will & Schulte, a global law firm

The European Union Medical Device Regulation (EU MDR) was first enacted in 2017. At the time, the implementation periods looked ambitious but achievable. The new law was intended to apply in the United Kingdom, and the UK regulators had played a key role in the drafting of the EU MDR.

In practice, implementation in both the European Union and United Kingdom was severely affected by a number of converging factors, including Brexit, COVID-19, supply chain issues, and a lack of designated notified bodies to certify devices. These issues reached a head in 2022.

In July 2022, Medtech Europe, the European trade association for medical technology reported that, based on a survey it had taken of the industry, EU MDR certificates had not been issued for more than 85% of devices previously certified under the old law, and more than 50% of survey respondents indicated that portfolio reductions were planned. Towards the end of 2022, there were multiple calls for an extension to the implementation timetable. In December 2022, the European Commission announced that changes
would be made to the implementation transition of the EU MDR. The formal proposal for the regulation was issued on 6 January 2023 (the Commission Proposal).

As a result of Brexit, UK law was changed to allow a transitional period for the placing of EU marked devices in the Great Britain market and to introduce a new certification for medical devices in the market by 2023, known as the UK Conformity Assessed (UKCA) mark. In June 2022, the UK government issued proposals to change the UK medical device legislation (the New UK MDR). These proposals were broadly similar to the changes in the EU MDR and were expected to be published in Autumn 2022. The publication of the draft New UK MDR was delayed, and the implementation of the UKCA mark has been affected by a shortage of approval bodies. These cumulative challenges led to calls by the industry for an extension to the current transition period and a delay to the new law.

In late 2022, the UK Government announced delays to the transition period and a new timeline for the New UK MDR. The delays have not yet been formalised in law, but it has been proposed that The new law will not come into force until July 2024, so there will be a longer transitional period in which EU marked devices (under both the old EU and new EU law) will continue to be allowed to be placed on the Great Britain market.

The Proposed New EU Transition Periods

The 6 January Commission Proposal points out that, despite considerable progress over the past years, the overall capacity of notified bodies remains insufficient to carry out the tasks required in the conformity assessment procedures. In addition, many manufacturers are not adequately prepared to meet the strengthened requirements of the EU MDR by the end of the current transition periods. The Commission concludes that these circumstances threaten the availability of medical devices on the EU market.

The Commission Proposal aims to resolve these issues. It provides, inter alia, extensions to the transition periods stipulated in Article 120.3 of the EU MDR. In particular, the Commission Proposal contains the following suggested amendments to the EU MDR and In Vitro Diagnostics Regulation (IVDR):

• Longer transition periods that vary based on the respective device’s risk classification:

High risk devices (Class III and Class IIb) will be required to conform to the EU MDR by 2027 at the latest.
Medium and low risk devices (Class IIa and Class I) will be required to conform to the MDR by 2028 at the latest.

• To benefit from the extended transition periods, the manufacturer must have commenced the steps necessary for the device’s compliance with the EU MDR before the relevant deadline.
• Certain limitations with regard to the benefit from the transitional periods provided in the EU MDR will continue to apply. In particular, a device may not benefit from the transition period if it has undergone significant changes in design or intended purpose, or if it presents an unacceptable risk to health or safety.
• By 26 May 2024, manufacturers must have put in place a quality management system in accordance with Article 10, paragraph 9 of the EU MDR. This condition aims to ensure that manufacturers gradually move towards full compliance with the EU MDR requirements.
• The extension of the transition period is complemented by an extension of the validity of certificates issued under the previous Council Directives 90/385/EEC and 93/42/EEC.
• Subject to certain conditions, the validity of certificates that have already expired since 26 May 2021 shall be extended.
• The sell-off date currently provided for in Article 120, paragraph 4 of the EU MDR shall be removed altogether. As a result, devices previously placed on the European Economic Area (EEA) market on the basis of CE certificates issued under the former regime may in theory remain on the EEA market indefinitely.
• The same applies to in vitro diagnostics: the current sell-off dates in Article 110, paragraph 4 of the IVDR—25 May 2025 to 26 May 2028—are supposed to be deleted. As a result, devices placed on the market before the end of the transition period laid down in Article 110, paragraph 3 of the IVDR can be made available on the market without time restrictions.

The proposal still needs to move through the EU legislative procedure, during which it may still be amended. In particular, the EU Parliament and Council of Ministers must approve the changes. Given the urgency, this is proposed to be undertaken under an accelerated procedure to ensure that the proposed adjustments eliminate any risk of shortages in the short term and ensure access for patients most in need of these products.

The New UK Transition Periods

The current UK medical device legislation transitional provisions, which were adopted at the time of Brexit, allow for the recognition in Great Britain of CE marked devices and certificates issued by EU-recognised Notified Bodies until June 2023. From 1 July 2023, the law states that all medical devices placed on the GB market must have a UKCA mark. This position is still reflected in the current Medicines and Healthcare products Regulatory Agency (MHRA) website guidance. In October 2022, the MHRA proposed delays to the June 2023 deadline, but, at the time of going to press, the Agency has not yet updated the guidance on its website.

The October 2022 proposals need to be read alongside the UK Government’s consultation on the New UK MDR, which was initially meant to come into force on 1 July 2023. The New UK MDR proposed transition periods that would permit EU originating, CE marked devices to continue to be placed on the Great Britain market.

According to the MHRA’s October 2022 proposals:

• CE marks will continue to be accepted in GB market until July 2024.
• The requirement to obtain a UKCA mark will be delayed until July 2024.
• The New UK MDR is expected to be published in Spring 2023, and come into effect from July 2024.

Assuming the New UK MDR is now enacted in line with these proposals, it appears that the original, already generous transition periods will be extended by a further year.

UK Transition Arrangements

The original transition timelines for the New UK MDR allow for the following transitional arrangements.

For UKCA marked devices, at a minimum, products can be placed on the market until either the relevant certificate expires, or for three years (in the case of general medical devices) or five years (in the case of in vitro diagnostics or IVDs), whichever is sooner.

In relation to CE marked devices (under the EU MDR or EU IVDR), products can continue to be placed on the market until either the certificate expires or for five years after the new regulations take effect, whichever is sooner.

If the MHRA consultation proposals are implemented in the New UK MDR (due to be confirmed in the coming months) and the October 2022 proposals are enacted, depending on the device’s certificate date and basis, the latest dates by which legacy devices may be placed on the Great Britain market are as follows:

• June 2027 for UKCA devices (previously June 2026)
• June 2027 for EU MDD devices (previously June 2026)
• June 2029 for EU IVDD devices (previously June 2028)
• June 2029 for EU IVDR and MDR devices (previously June 2028)

The dates in parentheses also show the initial transition periods proposed under the UK MDR.

There are a lot of “ifs and buts” in these timelines. The new law has not yet been issued in draft form and, somewhat confusingly, at the time of going to press the MHRA guidance continues to reflect the current law, still specifying June 2023 as the deadline for transition. It is also unclear how the October 2022 proposals will affect the transition time lines. The draft of the New UK MDR is due to be published in early 2023 and will be eagerly awaited by the medical device market.

Many questions therefore remain unanswered and manufacturers looking to certify new devices before June 2023 have several options to consider.

There is, however, one piece of good news for manufacturers who place their devices on the EU market. It appears that these certificates will continue to be accepted in the United Kingdom for a longer time period and that this will apply for certificates that are extended under the Commission Proposal. Given that many EU certificates under the old EU law were due to expire in 2024, if the October 2022 proposals are enacted, this may be welcome relief for manufacturers. This means that manufacturers with legacy devices under the old EU law may benefit from certification under the current UK law, with a UKCA mark, given this regime remains the same as the old EU law.

Good News in Great Britain for International Manufacturers

In a statement issued on 16 December 2022, the UK Government signalled its intention to publish new proposals on international recognition routes and routes for innovation and system capacity in February 2023. These announcements are likely to set out proposals on e-labelling and the recognition of other jurisdictions, such as the United States.

As the Covid-19 pandemic recedes, we have seen healthcare fraud investigations by the US Department of Justice and other regulators in the healthcare and life sciences space surge, and there is no sign of this trend abating.

The False Claims Act (FCA) is the primary civil enforcement mechanism to police violations of laws and regulations applicable to healthcare and life sciences companies. Cases can be brought by the Government directly, or by whistleblowers (“relators” under the FCA), and damages and penalties for violations can be staggering.

Broadly speaking, the FCA prohibits submitting false claims to Government payors (e.g., Medicare) or, as is particularly relevant to manufacturers that do not directly bill government payors, “causing” someone else to submit false claims. For example, if a pharmaceutical manufacturer markets a product off-label, it may be accused of causing prescribers to submit false claims for uses of a product that are not medically accepted and thus are not covered.

The Anti-Kickback Statute (AKS) is another tool frequently deployed in the life sciences space. It prohibits paying or receiving remuneration in exchange for referrals of business reimbursed by federal healthcare programmes, and can be pursued criminally, civilly as a predicate for an FCA claim, or administratively. A “classic” AKS allegation is that a pharmaceutical or device manufacturer paid kickbacks to doctors in exchange for prescribing their products, but the AKS also gives rise to more nuanced theories of liability.

New areas of focus have emerged in the heightened enforcement atmosphere post-COVID, including COVID-19 treatments, rare diseases, genetic testing arrangements, private equity investments in healthcare and life sciences, and clinical trial fraud. These join the fields in which the Government has routinely been interested, such as speaker programmes, off-label marketing, patient assistance, expensive pharmaceuticals, and commission-based arrangements with independent contractors.

It is no surprise that effective compliance programmes are critical to detect and prevent fraud, and that the health of a compliance programme will be scrutinised by the Government in any investigation or enforcement action. Most sophisticated life sciences companies are well-versed in the nuts and bolts of good compliance hygiene, but now is a good time to evaluate an organisation’s compliance programme with fresh eyes, because that is what the Government will be doing. Companies should ask themselves if their programme is both well-designed and implemented:

• Does it work in practice to prevent and detect violations?
• Are adequate internal resources devoted to compliance?
• Have recent changes in operations and/or growth been accounted for?

These and other questions should routinely be a subject of self-reflection for any company, but given the current enforcement environment, now is a particularly good time for healthcare and life sciences companies to take stock.

Life sciences projects tend to give rise to collaborative, complex, and long-term relationships, often involving multiple jurisdictions that require a large number of contractual arrangements to govern disparate sets of commercial agreements. These cross-border partnerships are often highly technical and, at their heart, will have valuable intellectual property (IP) rights. Although parties will start out their relationship with a common goal, their expectations and circumstances may diverge and change over time, providing fertile ground for disputes to arise.

When that happens, arbitration can be an attractive and preferred option for resolving disputes, reflecting both the increasingly cross-border nature of transactions being done in the industry, and the desire to keep valuable IP and commercial contracts confidential.

What is Arbitration?

Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to a sole arbitrator or an arbitral tribunal, who will make a final and binding decision, known as an “award”.

Although the procedure is adversarial, it has marked differences from litigation. In choosing arbitration, for example, the parties opt for a private dispute resolution procedure instead of commencing proceedings in the respective parties’ courts. Most notably, however, arbitration awards are not appealable except on very limited procedural grounds, such as lack of jurisdiction or a violation of due process. This not only reduces the scope for prolonged proceedings through appeals, but also provides the parties with certainty.

Importantly for businesses that operate on a cross-border basis in the Life Sciences sector, arbitration awards are easier than court judgments to enforce globally owing to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). The New York Convention, through its 168 signatories worldwide who have agreed to enforce awards in its jurisdiction, provides a uniform and effective system for successful parties to enforce awards issued by Tribunals based in another signatory state. Notably, at the time of writing, there is no equivalent widely adopted international treaty for the enforcement of court judgments. In order for a court judgment to be enforced cross-border, the judgment creditor must first register the foreign judgment before enforcement steps are taken.

Arbitration will not always be appropriate where IP is involved. By their very nature, IP rights are local—there is no blanket worldwide registry—so in order to gain protection globally, companies must register a trademark in every region of the world. Where the validity or ownership of IP is at issue, arbitration will not provide the proper forum for dispute resolution, as generally only local courts are empowered to determine these questions.

However, in the right type of case, arbitration may certainly be very advantageous.

Advantages

International Enforceability of Awards

International arbitration awards tend, overall, to be easier to enforce internationally than court judgments. This is a critical advantage in multi-jurisdictional disputes, avoiding the risk of non-recognition by one jurisdiction’s court of a judgment rendered by the courts of another country.

Confidentiality

Arbitrations are generally confidential, a major advantage in the life sciences industry where commercially sensitive IP may be involved. Court proceedings generally take place in public and, in some cases, generate extensive media attention.

Expert Arbitrators

Parties are free to select, by agreement, the arbitrator(s) to preside over the dispute. Given the technical subject matter that is associated with life sciences work, the parties can select an individual or tribunal with the requisite industry knowledge and experience, which may provide greater certainty of outcome.

This expertise cannot be guaranteed in national court proceedings, where judges are often allocated cases suited to the court’s list of cases to be heard, and may have little or no understanding of the technical issues.

Neutrality

Along with the election of the arbitrator(s), the parties will often agree for the dispute to be seated in a neutral venue to ensure there is no risk of any bias towards either party from a national court.

Tailored Procedure

Given that commercial life sciences disputes vary appreciably, no one procedural approach can always appropriately address them all. Arbitration gives the parties considerable flexibility and control about how the dispute should be run. Unlike in the courts, where there are rigid procedural rules that govern disputes, the nature of arbitration allows the parties and tribunal to adjust the procedure to the requirements of their specific dispute.

Time and Cost Efficiency

Arbitration can be more time and cost efficient than litigation thanks to the option to tailor the procedure to the needs of the dispute. Increasingly, arbitral institutions are offering expedited proceedings for smaller value disputes, with requirements that an award to be issued in a matter of months. Arbitral awards are generally final and binding, and not subject to appeal on the merits of the dispute, thus minimising the risk of costly appellate stages.

Effective Arbitration Clause

In order for parties to be able to refer their dispute to arbitration, they will need to agree an effective arbitration clause when drawing up the initial contracts to a deal. No one dispute is the same and, although the main arbitral bodies provide model clauses to incorporate, these will need to be adapted to the specific requirements of the parties and the transaction in question.

Key points that should be agreed in an arbitration clause include:

• The venue of the arbitration (also known as the “seat”), the arbitral institution, and the governing law
• The language to be used in the proceedings
• Any selection procedure for the arbitrator(s), including any experience requirements if desirableAny bespoke procedural requirements deemed necessary e.g., confidentiality, rules around disclosure/discovery, and time limits for exchanges of pleadings or for the delivery of an award
• The ability for the parties to consolidate related disputes if multiple parties are involved
• Tiered/escalating procedures that may require parties to negotiate or mediate before going to arbitration.

Given that the circumstances of each deal will differ, it is always sensible to seek specialist advice when drafting an arbitration clause in order to avoid common pitfalls. At best, a defective arbitration clause may delay the commencement of the arbitration. At worst, it may prevent the parties from being able to arbitrate their dispute at all, condemning them to using national courts in order to resolve the dispute, which is the very thing that they were seeking to avoid by agreeing to arbitrate.

*Adam Abbott also contributed to this article.

Dr Stephan Rau, head of the Firm’s Health Law Practice Group in Europe, and Dr Nadine Hartung, Partner, chaired a discussion on Healthcare Investing at McDermott’s Health and Private Equity (HPE) Europe 2022.

At HPE New York in October 2021, the focus was on Private Equity (PE) funds needing to move fast to “get a slice of the action and not be left empty handed.” In contrast, HPE Europe 2022 also looked at the landscape from the perspective of businesses wanting to attract funding in what has, in some sectors, become a buyer’s market, and what those businesses and their investors can do to help them thrive.

Significant Concerns

Across the panel, there was a consensus that the two major challenges were a labour shortage exacerbated by wage inflation; and increased costs and issues in the supply chain, all overshadowed by the Russian invasion into Ukraine. These are not new problems. The healthcare sector has always struggled with wage inflation and a shortage of staff: the workforce is generally the sector’s biggest operational stress. The additional challenge comes from the macroeconomic problems resulting in urgent demands from the workforce for more money, and generally all costs rising faster than businesses’ ability to respond. The system is developed to handle steady inflation; rapid inflation is not something that can be prepared for.

On the positive side, there has never been a better time to renegotiate prices with customers, who have a higher tolerance than usual for passed-on costs as they know them to be genuine increases. Providers can adjust their prices over the next year, but a year is a long time and the operational stress caused by wages is a major concern.

The panel agreed that, notwithstanding these challenges, for this sector more than for any other, it is vital that patient safety and quality of care don’t suffer, and that empathy for the patient is always a priority. And if healthcare providers do their job well, there will always be enough patients and providers will survive the current crisis.

So how can providers be enabled to deliver first class, empathetic care, while solving their staffing emergency?

Technology

COVID-19 prompted a great leap forward in digitalisation and the shift from inpatient/face-to-face to outpatient/remote care, and both are key to developing next-level services in the near future. Healthcare providers urgently need to invest in strong IT.

In addition to enabling patients to have increased access to services and helping with general administration, the real power of technology is how it enables the development of a level of service that cannot be delivered in a traditional model.

Doctors see far more patients than they really need to and, generally, few clinicians are operating at the top of their license—making effective use of their education, expertise, and experience—because practices are overwhelmed with patients, many of whom suffer from preventable diseases and illnesses. These could be tackled by more investment and emphasis on preventive measures implemented by someone with a different set of skills, or digitally. During the pandemic, it became clear that remote service delivery was not just viable, it was highly desirable.

Centric Health recently launched a pilot scheme for the proactive management of patients with end stage heart failure. Patients were provided with iPads and simple instructions, and a clinician would engage with them remotely three times per week. These interactions were mostly social, but they enabled the clinician to spot when a patient was deteriorating and to take remedial steps with diet and medication. This resulted in a 70% lower hospital admission rate, which has obvious advantages for both patients and hospitals, plus it provides greater engagement for clinicians.

Conversely, the starring role that technology has played in the administrative side of healthcare has had a negative impact on medical staff. The panel agreed that electronic medical records made clinicians’ lives harder as they are obligated to spend time taking histories and analysing data when what they really want and need to do is simply interpret that data in order to deliver enhanced patient care. Doctors and nurses are being told to work harder, when really there is a void where there should be a technological solution that enables them to work smarter.

In addition, there is a significant mismatch between medical education and technology. The skillsets being developed during a clinician’s training are already well behind the technology we now have, and the gap is increasing as technology develops far more rapidly than medical school programmes. This gap is one of the reasons why clinicians can find IT burdensome. In the future, this gap might be bridged by more sophisticated, effective technology.

Innovation in Staffing

Technology again has a significant role to play in ensuring best-in-class, patient-centred care. By proactively managing patient care through technology, patients can be passed down the chain of clinicians, which provides space at the doctor end of the chain for critical care, and enhanced professional development at lower levels as staff are pushed into the top end of their licences. This addresses staffing issues and remediates job satisfaction challenges.

In line with the move from face-to-face to remote care, the cost of surgery and the lack of nursing staff are creating pressure in Europe to move from a surgical inpatient to outpatient model. Although the statistics across European countries vary, in general the rate of in-hospital surgery on the continent is considerably higher than in the United States.

There has been a rise in staffing innovation, with a number of businesses hiring out medical staff and developing flexible working models for clinicians. Anest group, for example, has developed a model of providing perioperative medicine—essentially every aspect of surgery, from anaesthesiology to wound care, except for the surgery itself—that relies heavily on digitalisation of certain services. The business launched a major IT project three years ago, which included writing proprietary software, to support their staff in better serving Anest’s surgeon and patient client base.

The Role of Private Equity

Over the last 20 years, PE has tended to focus on investment in bricks and mortar service providers, such as hospitals. That focus has pivoted to investments in innovative service models that are tech-and digitally-enabled and deliver better care and improved outcomes, at a lower cost, as this is where investors are looking for value.

To find the right investments and provide the right support to their portfolio companies, PE funds are keen to understand the sector, so asset managers are actively looking to institutionalise insight. One recent example is EQT’s acquisition of Life Sciences Partners.

Although healthcare provision is undeniably local by nature, with very little synergy across jurisdictions, the investors are increasingly taking a cross-border, even global approach. This broader approach can bring efficiencies to procurement, risk management, IT, and capital allocation. The most successful investors enter a new jurisdiction with an ability to apply the best of what they have done before, while also keeping a learning mindset and a philosophy of innovation.

The Next 12 Months

When a market is buoyant, there is plenty of room for mediocre players. When you add stress to the system, the structurally weaker businesses will leave, creating room for the market leaders to thrive.

The panel agreed that the market leaders in healthcare, whether on the provider or investment side, are those that make patient care their number one priority. In this sector, uniquely, the goal is to serve patients and doctors, not maximise profits. Those who follow this philosophy should still be around when the market again favours the sellers.

At our recent European Life Sciences and Healthcare Symposium, Emmanuelle Trombe, Partner in McDermott’s Life Sciences group, and Andreas Chrysostomou, Global Industry Leader for Healthcare & Life Sciences at Kroll, moderated a panel discussion on the aftermath of the unprecedented volume of transactions the Life Sciences sector enjoyed in 2021.

Eric Falcand, Vice-President, Business Development and Licensing, Servier; Cedric Moreau, Partner, Crossover Strategy, Sofinnova; Nawal Ouzren, CEO and Director at Sensorion; Frédérik Rothenburger, Partner, Lazard; and Pascale Witz, Global Healthcare Executive, agreed that 2021 had been an outlier rather than an indication of a dramatically upward trend. The perfect storm of a pandemic-driven focus on the value of the Life Sciences sector, and a market awash with cash thanks to a global stall in deal activity, generated a global investment spree.

The picture in 2022 is very different. The panel noted that a number of factors, including geopolitical tensions, high interest rates and inflation, and the US Federal Trade Commission challenging a number of transactions have conspired to reduce the capital available.

Despite being undeniably gloomy, the situation is not, however, entirely hopeless.

Opportunities

Large pharmaceutical companies are facing a patent cliff, with no less than nine of the industry’s top 20 drugs by sales, including the top four, set to lose exclusivity over the coming years according to a report by Moody’s (Pharmaceuticals — General & Specialty – Cross Region: Late-decade patent cliff will prompt M&A, but debt capacity is high). Big pharma is therefore keen to refuel its pipeline and acquire innovative products, particularly in the biotech sector. Pharmaceutical companies also believe that innovative drugs will be protected from the US Inflation Reduction Act, new legislation that aims to reduce the price of prescription drugs and healthcare. In particular, those companies that developed vaccines against COVID-19 have the cash in hand to go on a spending spree.

Biotechs are generally keen to establish partnerships or execute non-diluting deals, such as licences for collaboration in order to validate their technology and generate finance to bridge the gap created by current market conditions, and may find this easier than raising new capital. This presents an additional line of opportunities for companies and investors that know what they are looking for and are ready to act.

As a result of these factors, pharmaceutical companies are inundated with proposals from biotech companies that want to form a partnership, enabling them to cherry pick the assets that they want. Biotechs and pharmaceutical innovators that can differentiate themselves with genuinely excellent science, robust data, and advanced products, should have little difficulty in finding investment.

At the same time, in order to focus on innovation, companies need to prioritise. There is a resulting drive to pay more attention to specific therapeutic areas and clean out portfolios through the divestment of less profitable areas of the business. AstraZeneca financed its change process through divestment; Sanofi, for example, is divesting generics and animal health; while other companies are moving out of certain geographies. All this activity generates movement in the market.

Large investors want to ensure a reliable cash runway for their existing investments so, although there may not be money available for new companies and risk tolerance is low, once again, high quality businesses, particularly those with good scientific assets or an advanced product, should continue to be safer.

Maximising Options

The panel agreed that it was vital to keep open as many options as are available. This can lead to a somewhat multifaceted approach as Boards explore, for example, traditional finance and the potential consolidation of teams, while also focusing on cash preservation.

The highly demanding nature of this situation means the make up of the Board and investors is key— there needs to be a variety of strengths— and it’s vital to have good external advisors. On a positive note, the companies that do survive the next 12 months will be a lot stronger than before.

Private Equity Investment

In addition to the cash held by large pharmaceutical companies, the panel agreed that there was still an appetite among Private Equity (PE) investors for entering the Life Sciences sector. Apollo Global Management, for example, acquired just 20% of Sofinnova but committed to investing US$1 billion in Sofinnova’s funds. Given the preference among Life Sciences companies for an investment partner rather than simply being acquired, and the rise of PE as a viable exit option, it’s likely that PE will continue to be a major player in the sector.

The benefits of partnering with PE (and venture capital, as the panel noted that the boundaries between the two were now blurred) include more than just access to cash. PE brings with it expertise and experience, and a reasonable appetite for risk, all of which are invaluable in a challenging market. The panel was enthusiastic about working with PE and venture capital and felt strongly that funds have a significant role to play in the next year.

Like most finance vehicles, PE-driven special purpose acquisition companies (SPACs) had a record year in 2021. The panel noted that, although these continue to be an option, specifically in Europe there is less potential, as every SPAC has to de-SPAC within 18-24 months and the execution risk is significant, so it’s vital to pre-screen opportunities carefully.

The cybersecurity threat landscape continues to evolve in ways that increase operational and legal risks to life sciences organisations. At the same time, the cybersecurity insurance markets have been rapidly evolving to respond to record losses in 2020, when carriers paid out 72.5% of their premiums. In response, premiums were up 122% by the end of 2021, and up 48% more in the first half of 2022.

Carriers have looked to other ways to stem losses, such as increasing underwriting requirements and targeting new exclusions; eligibility questionnaires have become nearly as extensive as a full-on cybersecurity assessment. Companies with gaps in their security controls or their security documentation often find they are unable to renew their cyber policy, while others have had claims denied where incidents revealed that the company’s security controls were not consistent with statements made in their application. In July 2022, Travelers Property Casualty Company of America sued a policyholder in US court, seeking recission of the insurance contract. Travelers alleged that the policyholder claimed to use multifactor authentication for all privileged account access, but in reality only required multifactor authentication for remote user access. The case settled quickly, with the court issuing a judgment in Travelers’ favour in August 2022.

Insurers are also narrowing the scope of their coverages by excluding more types of cybersecurity incidents. From WannaCry to SolarWinds, many of the most significant and disruptive cybersecurity events in history have been linked to state-sponsored hackers. After years of litigating whether or not the US$10 Billion-dollar NotPetya global malware incident was an act of war committed by Russia, many carriers now expressly exclude state-backed cyberattacks. By 31 March 2023, all Lloyds of London policies that protect against physical and digital damage caused by cybersecurity incidents will have such an exclusion.

Companies should expect that insurance markets will continue to evolve as the industry responds to the dynamic cybersecurity threat landscape. Industry players are calling for increased cybersecurity talent to strengthen underwriting. They’re also looking for new, forward-looking risk models, as historical data has proven to be a less-than-perfect predictor of future losses. All of this translates into more requirements and more risk for cybersecurity insurance applicants.

To mitigate this risk, life sciences companies should not only strengthen their defences, but also prepare for a successful underwriting process. Prior to seeking insurance, they should assess whether or not their cybersecurity and privacy programme meets common industry requirements. On an ongoing basis, the required practices must be followed across the company, enforced, audited, and documented in security artifacts. Finally, the security artifacts should be safely stored so they are available if the company’s security controls were to be questioned during a coverage dispute.

Currently, European patents are granted by the European Patent Office (EPO) under a centralised procedure. This allows patent protection to be obtained in up to 39 countries, including all EU Member States, plus Switzerland, Turkey, the United Kingdom, and others, through a single application. However, current European patents result in a “bundle” of national patents that must be enforced on a country-by-country basis. Patent infringement across multiple countries results in multijurisdictional parallel litigation, which increases legal costs and may result in delayed proceedings and conflicting decisions.

For the initial 17 EU Member States that ratify the UPC Agreement, the UPC will make it possible to enforce, attack, and defend a patent before a single court.

The Unitary Patent

A Unitary Patent will also become available as a replacement for part of the “bundle” of national patents resulting from a granted European patent. After a European patent is granted, the patent proprietor will be able to request unitary effect in the participating States. The Unitary Patent can reduce the cost of obtaining and maintaining patent protection across multiple countries.

The Unified Patent Court

The UPC is expected to launch on 1 April 2023, and the initial slate of judges has been appointed. The Court will eventually become the exclusive forum for infringement and validity actions for European patents in relation to the participating States.

The UPC will consist of a court of first instance and a court of appeal. The court of first instance will include a central division, local divisions that are set up in individual Member States, and regional divisions that may be set up jointly by Member States. Central division jurisdiction will be held in Germany or France, depending on the subject matter of the patent. A third jurisdiction was to be held in the United Kingdom until the UK withdrew from the UPC; at the time of going to press, a replacement jurisdiction had not been decided. Rules of Procedure have been prepared specifically for the UPC.

UPC validity and infringement decisions will be binding in all participating States, replacing current parallel national litigation. It will be possible to opt-out European patents and pending European patent applications from the UPC system for an initial period, but it will not be possible to opt-out of being sued in the UPC for infringement.

Litigation in the UPC is expected to proceed quickly, with a final oral hearing on issues of infringement and validity occurring within a year of a proceeding being initiated. With the potential for a single, speedy decision covering multiple jurisdictions, including an injunction across those jurisdictions, the UPC is poised to be an attractive forum for enforcement of European patents.

What and How Will the UPC Decide?

The goal of the UPC is to reduce the cost and complexity associated with enforcing patents in EU Member States, and to generally improve the patent system in Europe to help support European industry. A UPC decision on infringement, validity, injunction, and damages will be enforceable in all participating States.

The UPC will be the exclusive forum for actions relating to Unitary Patents. It will also be competent for traditional European patents, unless the European patent has been proactively opted-out, and for supplementary protection certificates granted for European patents.

Opting Out

The right to opt-out European patents and pending European patent applications from the UPC’s jurisdiction will be available for an initial transitional period of seven years, which may extend to 14 years. During this period, infringement and validity actions relating to an opted-out patent will be handled by the national courts, as currently done on a country-by-country basis.

Opting-out would protect a patent from being revoked in a single court action. A key factor to consider, therefore, is whether the risk of centralised revocation outweigh the benefits of the UPC system, taking into account the speed, cost, simplicity, and potential disposition toward patent owners.

In order to be effective, a request to opt-out must be filed before an action concerning the patent is lodged at the UPC. Opt-out requests should be filed before the UPC officially opens.

The UPC provides many opportunities and potential benefits but, as a new court, it remains untested. On that basis, Life Sciences companies should seek advice on developing a cross border strategy, opting out, Unitary Patent filings, research & development and licence agreements, and patent protection and enforcement.