Rethinking Supply Chain Agreements and Other Commercial Contracts to Manage Pandemic-Driven Uncertainty
- Brad L. Schoenfeld
- January 11, 2021
Force majeure, supply chain agreements, commercial contracts and remote customer service — these are just a few of the many areas businesses are rethinking due to the COVID-19 pandemic. For life science companies, these areas take on significant and often urgent meaning as they apply to the pharmaceutical production and clinical trial space, but there are lessons to be learned for businesses across all industries.
The Supply Chain: Manufacturer and Supplier Agreements
Force majeure, or an unforeseeable circumstance that prevents a contract from being fulfilled, has become a courtroom debate in the era of COVID, particularly as it relates to disruption of supply chain management.
Across the supply chain, suppliers and manufacturers are trying to overcome pandemic-related delays, and the courts have issued varying opinions on what recourse life science companies have in these scenarios. COVID-related delays have created an unprecedented set of challenges, but businesses can take steps to mitigate risk by knowing how to enter contract negotiations, and what to look out for in specific commercial contract provisions.
For example, most GMP manufacturing agreements provide penalties if a pharmaceutical company cancels production or delays manufacturing. These agreements do not, however, provide relief to pharma companies when a manufacturer doesn’t have the capacity to fulfill its obligations because of COVID.
Feeling this pain, early reports show that more than half (56%) of life science execs are taking steps to change their global supply chain, and that number is likely much higher. It’s now a front-and-center priority to offset these risks by explicitly detailing new contract terms for all parties.
As always, leverage plays a major role and many smaller pharmaceutical companies may feel they have little recourse around what to do if a manufacturer can’t fulfill its obligations. But trying to renegotiate, or at least rework future agreements, is worth the effort.
Exceptions that were never considered before, like provisions around manufacturers being able to meet capacity and supply demands, must be worked into agreements in case the manufacturer fails to meet its requirements, too.
Exclusivity and Secondary Suppliers
The pandemic has also elevated another area of risk in supply chain agreements: exclusivity. Pharmaceutical companies – and really anyone who has a manufacturing agreement – should be considering the value of qualifying secondary suppliers and adding exception clauses to exclusivity terms; something not often done pre-pandemic.
Exclusive manufacturing agreements have been commonplace in the life science space for decades. Because FDA approval is contingent on manufacturing approval, most pharmaceutical companies go all in with one partner during the approval process – and now they may feel stuck.
Organizations can gain leverage by securing a secondary supplier or manufacturer for when unforeseen delays occur that prevent their supplier from fulfilling the terms of the contract. All of these agreements should include terms and conditions to hold their manufacturers and suppliers accountable.
As the pandemic shines a light on the value of secondary supplier agreements, it also highlights a related issue: technology transfers. Drug companies that contract with manufacturers using proprietary manufacturing technology must rely on their original manufacturer to help any secondary suppliers enable the proprietary process.
Now is the time for life science companies to get ahead of this for future programs and start getting multiple suppliers approved up front.
Changes to Clinical Trial Implementation
Avoiding stock outs that can halt vital medical service and clinical trial vitality is a key component of contract provisions. And as if manufacturing challenges weren’t enough, life science companies are also managing uncertainty in maintaining continuity with existing clinical trials. The ‘usual’ process as we knew it has been turned upside down, and CROs, institutions, investigators and others are grappling with provisions never before considered.
As a result, many of these elements are now being worked into clinical trial agreements to ensure all parties are better prepared and protected going forward.
Particularly early on in the pandemic, in-person follow up appointments were exchanged for telemedicine or in-home appointments and this continues on many levels today. Contracts must account for these conditions and companies must renegotiate when, where and how clinical trials can be conducted to fulfill trial agreement terms and maintain viable and credible trial outcomes.
As life science and other business leaders continue to navigate the changing COVID-19 environment, contract negotiations and specifically detailed clauses must account for new, unforeseen challenges.
Business leaders must protect their companies by executing commercial contracts that provide leverage and that allow them to pivot to secondary suppliers and manufacturers, offer flexibility to exclusivity agreements, and plan for changing circumstances. These are core contract negotiation and renegotiation components that must be accounted for to mitigate additional risks during these uncertain times.
Have questions about your manufacturing, supply or clinical trial agreements? Get in touch.
Brad Schoenfeld is a partner at Koenig, Oelsner, Taylor, Schoenfeld & Gaddis PC (KO), a Colorado-based law firm helps life science companies nationwide with specialized commercial contracts. KO is one of the only law firms in the nation with a dedicated commercial contracts team comprised of attorneys and contracts managers with significant bioscience and pharma experience. Reach Brad at email@example.com.