Practice Tip: Keys to Successful Negotiation of Clinical Trial Agreements

Clinical (human) trials are essential to pharmaceutical companies that develop and market new drugs. They are required by the United States Food & Drug Administration (“FDA”) both prior to approval of the drug for marketing, and during post-approval marketing, as a means of evaluating the drug's safety and efficacy. Without clinical trials, a drug will not reach the market. Clinical trial agreement (“CTA”) negotiation has become the most common cause of delay in studies. Because the cost of bringing a new drug to market is astronomical, pharmaceutical companies typically lose millions of dollars per week as a result of any delay in the process.

In order to conduct a clinical trial, a pharmaceutical company (the “Sponsor” of the trial) typically contracts with hospitals and universities (the clinical trial “Sites” or “Institutions”) and at times physicians (“Investigators”) to conduct research. The resulting clinical trial agreement can cover many topics, including, but not limited to, each party's duties, payment terms, payment amounts, confidentiality, ownership of intellectual property, publication rights and financial responsibility for any injuries caused. As is true with many contracts, huge financial gains and losses can result based on the wording.

Drafting the CTA

Given the significance of clinical trials to the marketing of a drug, it is important both to drug companies and the institution performing the clinical trial to make sure CTAs are drafted adequately. At times, the process of negotiating certain terms of a CTA can require a delicate balance for both parties to the agreement. This article explores the four most contentious provisions when negotiating a CTA: 1) confidentiality; 2) publication; 3) indemnification; and 4) intellectual property. It also provides practical advice to aid in negotiations.

Confidentiality

All CTAs should clearly address the information that the parties consider confidential, as well as each party's obligation to maintain confidentiality. Typically, a Sponsor wants the existence of the clinical trial ' and the results thereof ' to remain confidential. This desire stems from the Sponsor's desire to prevent competitors from learning of its research. In contrast, the Institution and Principal Investigator (the individual at the Institution responsible for the clinical trial) seek to maintain an open academic environment. Additionally, at public institutions, there often is a legal requirement of open public disclosure.

These competing interests regarding the degree of confidentiality surrounding the trial are further complicated by the law. For example, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), 42 U.S.C. ” 1320d et seq., and the accompanying federal regulations, 45 C.F.R. Parts 160, 162, 164, require the Institution, as a health care provider, to keep certain patient health information confidential. Meanwhile, the Food and Drug Administration Modernization Act of November 1997 required that the Department of Health and Human Services, through the National Institute of Health, establish a registry of clinical trials for both federally and privately funded trials “of experimental treatments for serious or life-threatening diseases or conditions.” See 42 U.S.C. ' 282. As such, by operation of law, the mere existence of a clinical trial can never be confidential.

As a practical matter, to balance all competing interests with regard to confidentiality, it is important to define clearly in the CTA what the parties mean by “confidential information.” Given the substantial amount of potentially confidential information, the parties will more likely reach compromise if they divide the term into distinct subparts. Examples of different categories of potentially confidential information may include: 1) the provisions of the CTA itself; 2) information pre-dating the clinical trial provided to the Site from the Sponsor; 3) raw data; and 4) results and conclusions. Typically, Institutions are more likely to be willing to keep confidential information that does not impact academic freedom, such as the provisions of the CTA and the pre-clinical information provided by the sponsor. Moreover, the Institution's concerns about keeping confidential raw data, which often contains patient health information protected by HIPAA, may be addressed by the Sponsor agreeing to be contractually bound by HIPAA. In addition, parties may be able to compromise regarding the confidentiality of data, results and conclusions by agreeing that the Institution and the Investigator will not publish case reports or present early results at medical meetings, but are allowed publication of the ultimate conclusions and findings, with certain caveats. (See below.)

Publication

On a related note, another CTA provision that the parties should clearly address at the outset concerns publication of data and results. Similar to negotiating the confidentiality provision, there exists inherent tension between the parties, some of which is prompted by their separate legal responsibilities. For example, the Sponsor often wants the right of prior consent to publication of findings and conclusions by the Investigator and/or Institution, typically to protect proprietary information. Institutions, however, often resist this check on academic freedom. Also as in the case of confidentiality, public and non-profit institutions cannot let the Sponsor consent because of a legal obligation to publish for educational and/or research purposes.

Other thorny legal requirements also contribute to the antagonism. For example, the Bayh-Dole Act, 35 U.S.C. ” 200-212, in practicality prohibits an organization receiving government funding from relinquishing its right to publish information relating to the organization's inventions. Additionally, the Internal Revenue Code, 26 U.S.C. '501(c)(3), mandates that certain tax-exempt organizations have an educational, charitable, religious, scientific or literary purpose to maintain their tax-exempt status. They must have the right to publish and cannot give full consent to the Sponsor.

Often, a compromise can be reached by permitting the Sponsor a specific period of time to conduct a limited review ' not a right of refusal to permit any publication ' of the findings and conclusions. Doing so can permit the Sponsor an opportunity to remove any proprietary information and/or permit the Sponsor to file for patent protection as to that proprietary information (so long as the Sponsor owns the information ' see Part 3, infra).

Intellectual Property

It also is critical to define ownership of intellectual property in a CTA. Intellectual property in the clinical trial setting typically relates to inventions (in the form of a new product or use of the existing product) or proprietary processes developed for or during the course of the study.

As previewed in the discussion regarding publication, the ownership and protection of proprietary information and intellectual property is of great importance to the Sponsor. With respect to intellectual property, the Sponsor insists upon ownership of its product as well as any inventions derived from, and propriety processes developed through use of, the Sponsor's protocol. In contrast, the Investigator and/or the Institution would like ownership of their inventions and any proprietary processes developed due to the Investigator's intellectual and practical contribution. As with the other more contentious provision of CTAs, this tension is magnified by the inherent limitations of the CTA. Here, the complicating limitation is that the Investigator, if an employee of the Institution, is often not a party to the CTA. Thus, a Sponsor may need to have the Investigator assign ownership rights of the intellectual property to the Sponsor.

Suggestions for balancing the competing interests in intellectual property may include: 1) permitting the Investigator to apply for patent protection, while allowing the Sponsor an exclusive license for commercial purposes; and 2) in the event an exclusive licensing agreement cannot be reached, permitting the Sponsor a right of first refusal if the Institution approaches a third party for commercial purposes. In those situations where the Sponsor has existing patents in the same area, the Institution may often give up any claim to intellectual property to avoid infringing the Sponsor's existing patents. A final suggestion is a complete compromise where the Institution and the Sponsor will agree to shared ownership of intellectual property. In this last case, however, it still is critical for a Sponsor to obtain an exclusive license to prevent the Institution from exercising its right to own the intellectual property through a licensing agreement with a third party.

Finally, to prevent the non-party Investigator from absconding with the intellectual property, a compromise is to have the Investigator “acknowledge and agree” to terms of the CTA between the Sponsor and Institution, including the confidentiality provision. In that same vein, all of the Institution's employees in the Investigator's laboratory may sign separate confidentiality agreements with the Institution, which contain terms at least as broad as the confidentiality provision in the CTA.

Indemnification

The final provision of a CTA that is often difficult to negotiate is indemnification of the parties. As a rule, Sponsors want the Institutions to provide indemnification if, for example, the Institution or the Investigator improperly enrolls patients or deviates from the study protocol. By the same token, Institutions want Sponsors to provide indemnification if the product being studied has a design or manufacturing defect, or if the labeling fails to warn physicians properly of side effects. Yet again, state Institutions pose an additional quandary: state-owned Institutions are prohibited by law from indemnifying a Sponsor.

Often, the easiest way to remedy this tension is for each party to bear its own tort liability. For state Institutions, state Tort Claims Acts typically provide a cap on the amount for which the Institution may be liable for its own negligence. When negotiating with a private Institution, another alternative is for each party to agree to indemnification only in the event of gross negligence or willful misconduct.

Conclusion

Although there are several aspects of CTAs that are contentious to negotiate, it is important for the parties to resolve these issues. Ignoring them can lead to delay and other problems in the future. When these issues are dealt with early and in a straightforward manner, however, the parties can avoid unnecessary delays, and a better clinical trial environment can exist.

Michelle M. Bufano, a member of this newsletter's Board of Editors, is a partner with Gibbons P.C., Newark, NJ. She devotes her practice to mass tort and complex product liability litigation, with a special focus in the areas of pharmaceuticals and medical devices. She also has experience counseling clients with respect to a variety of pharmaceutical and medical device industry issues. Natalie H. Mantell is an associate with the firm. She concentrates her practice in the areas of general products liability, pharmaceutical and medical device litigation.

Clinical (human) trials are essential to pharmaceutical companies that develop and market new drugs. They are required by the United States Food & Drug Administration (“FDA”) both prior to approval of the drug for marketing, and during post-approval marketing, as a means of evaluating the drug's safety and efficacy. Without clinical trials, a drug will not reach the market. Clinical trial agreement (“CTA”) negotiation has become the most common cause of delay in studies. Because the cost of bringing a new drug to market is astronomical, pharmaceutical companies typically lose millions of dollars per week as a result of any delay in the process.

In order to conduct a clinical trial, a pharmaceutical company (the “Sponsor” of the trial) typically contracts with hospitals and universities (the clinical trial “Sites” or “Institutions”) and at times physicians (“Investigators”) to conduct research. The resulting clinical trial agreement can cover many topics, including, but not limited to, each party's duties, payment terms, payment amounts, confidentiality, ownership of intellectual property, publication rights and financial responsibility for any injuries caused. As is true with many contracts, huge financial gains and losses can result based on the wording.

Drafting the CTA

Given the significance of clinical trials to the marketing of a drug, it is important both to drug companies and the institution performing the clinical trial to make sure CTAs are drafted adequately. At times, the process of negotiating certain terms of a CTA can require a delicate balance for both parties to the agreement. This article explores the four most contentious provisions when negotiating a CTA: 1) confidentiality; 2) publication; 3) indemnification; and 4) intellectual property. It also provides practical advice to aid in negotiations.

Confidentiality

All CTAs should clearly address the information that the parties consider confidential, as well as each party's obligation to maintain confidentiality. Typically, a Sponsor wants the existence of the clinical trial ' and the results thereof ' to remain confidential. This desire stems from the Sponsor's desire to prevent competitors from learning of its research. In contrast, the Institution and Principal Investigator (the individual at the Institution responsible for the clinical trial) seek to maintain an open academic environment. Additionally, at public institutions, there often is a legal requirement of open public disclosure.

These competing interests regarding the degree of confidentiality surrounding the trial are further complicated by the law. For example, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), 42 U.S.C. ” 1320d et seq., and the accompanying federal regulations, 45 C.F.R. Parts 160, 162, 164, require the Institution, as a health care provider, to keep certain patient health information confidential. Meanwhile, the Food and Drug Administration Modernization Act of November 1997 required that the Department of Health and Human Services, through the National Institute of Health, establish a registry of clinical trials for both federally and privately funded trials “of experimental treatments for serious or life-threatening diseases or conditions.” See 42 U.S.C. ' 282. As such, by operation of law, the mere existence of a clinical trial can never be confidential.

As a practical matter, to balance all competing interests with regard to confidentiality, it is important to define clearly in the CTA what the parties mean by “confidential information.” Given the substantial amount of potentially confidential information, the parties will more likely reach compromise if they divide the term into distinct subparts. Examples of different categories of potentially confidential information may include: 1) the provisions of the CTA itself; 2) information pre-dating the clinical trial provided to the Site from the Sponsor; 3) raw data; and 4) results and conclusions. Typically, Institutions are more likely to be willing to keep confidential information that does not impact academic freedom, such as the provisions of the CTA and the pre-clinical information provided by the sponsor. Moreover, the Institution's concerns about keeping confidential raw data, which often contains patient health information protected by HIPAA, may be addressed by the Sponsor agreeing to be contractually bound by HIPAA. In addition, parties may be able to compromise regarding the confidentiality of data, results and conclusions by agreeing that the Institution and the Investigator will not publish case reports or present early results at medical meetings, but are allowed publication of the ultimate conclusions and findings, with certain caveats. (See below.)

Publication

On a related note, another CTA provision that the parties should clearly address at the outset concerns publication of data and results. Similar to negotiating the confidentiality provision, there exists inherent tension between the parties, some of which is prompted by their separate legal responsibilities. For example, the Sponsor often wants the right of prior consent to publication of findings and conclusions by the Investigator and/or Institution, typically to protect proprietary information. Institutions, however, often resist this check on academic freedom. Also as in the case of confidentiality, public and non-profit institutions cannot let the Sponsor consent because of a legal obligation to publish for educational and/or research purposes.

Other thorny legal requirements also contribute to the antagonism. For example, the Bayh-Dole Act, 35 U.S.C. ” 200-212, in practicality prohibits an organization receiving government funding from relinquishing its right to publish information relating to the organization's inventions. Additionally, the Internal Revenue Code, 26 U.S.C. '501(c)(3), mandates that certain tax-exempt organizations have an educational, charitable, religious, scientific or literary purpose to maintain their tax-exempt status. They must have the right to publish and cannot give full consent to the Sponsor.

Often, a compromise can be reached by permitting the Sponsor a specific period of time to conduct a limited review ' not a right of refusal to permit any publication ' of the findings and conclusions. Doing so can permit the Sponsor an opportunity to remove any proprietary information and/or permit the Sponsor to file for patent protection as to that proprietary information (so long as the Sponsor owns the information ' see Part 3, infra).

Intellectual Property

It also is critical to define ownership of intellectual property in a CTA. Intellectual property in the clinical trial setting typically relates to inventions (in the form of a new product or use of the existing product) or proprietary processes developed for or during the course of the study.

As previewed in the discussion regarding publication, the ownership and protection of proprietary information and intellectual property is of great importance to the Sponsor. With respect to intellectual property, the Sponsor insists upon ownership of its product as well as any inventions derived from, and propriety processes developed through use of, the Sponsor's protocol. In contrast, the Investigator and/or the Institution would like ownership of their inventions and any proprietary processes developed due to the Investigator's intellectual and practical contribution. As with the other more contentious provision of CTAs, this tension is magnified by the inherent limitations of the CTA. Here, the complicating limitation is that the Investigator, if an employee of the Institution, is often not a party to the CTA. Thus, a Sponsor may need to have the Investigator assign ownership rights of the intellectual property to the Sponsor.

Suggestions for balancing the competing interests in intellectual property may include: 1) permitting the Investigator to apply for patent protection, while allowing the Sponsor an exclusive license for commercial purposes; and 2) in the event an exclusive licensing agreement cannot be reached, permitting the Sponsor a right of first refusal if the Institution approaches a third party for commercial purposes. In those situations where the Sponsor has existing patents in the same area, the Institution may often give up any claim to intellectual property to avoid infringing the Sponsor's existing patents. A final suggestion is a complete compromise where the Institution and the Sponsor will agree to shared ownership of intellectual property. In this last case, however, it still is critical for a Sponsor to obtain an exclusive license to prevent the Institution from exercising its right to own the intellectual property through a licensing agreement with a third party.

Finally, to prevent the non-party Investigator from absconding with the intellectual property, a compromise is to have the Investigator “acknowledge and agree” to terms of the CTA between the Sponsor and Institution, including the confidentiality provision. In that same vein, all of the Institution's employees in the Investigator's laboratory may sign separate confidentiality agreements with the Institution, which contain terms at least as broad as the confidentiality provision in the CTA.

Indemnification

The final provision of a CTA that is often difficult to negotiate is indemnification of the parties. As a rule, Sponsors want the Institutions to provide indemnification if, for example, the Institution or the Investigator improperly enrolls patients or deviates from the study protocol. By the same token, Institutions want Sponsors to provide indemnification if the product being studied has a design or manufacturing defect, or if the labeling fails to warn physicians properly of side effects. Yet again, state Institutions pose an additional quandary: state-owned Institutions are prohibited by law from indemnifying a Sponsor.

Often, the easiest way to remedy this tension is for each party to bear its own tort liability. For state Institutions, state Tort Claims Acts typically provide a cap on the amount for which the Institution may be liable for its own negligence. When negotiating with a private Institution, another alternative is for each party to agree to indemnification only in the event of gross negligence or willful misconduct.

Conclusion

Although there are several aspects of CTAs that are contentious to negotiate, it is important for the parties to resolve these issues. Ignoring them can lead to delay and other problems in the future. When these issues are dealt with early and in a straightforward manner, however, the parties can avoid unnecessary delays, and a better clinical trial environment can exist.

Michelle M. Bufano, a member of this newsletter's Board of Editors, is a partner with Gibbons P.C., Newark, NJ. She devotes her practice to mass tort and complex product liability litigation, with a special focus in the areas of pharmaceuticals and medical devices. She also has experience counseling clients with respect to a variety of pharmaceutical and medical device industry issues. Natalie H. Mantell is an associate with the firm. She concentrates her practice in the areas of general products liability, pharmaceutical and medical device litigation.