A Risk Management Philosophy

On May 10, 2023, I attended the Association for Corporate Counsel (ACC) live CLE event "2023 Life Sciences Conference: Future-Ready Resilience: Preparing to Face Challenges in the Uncertain Future." Eric Long, executive vice president at Newfront, closed the panel on "Insuring Life Sciences: Smart Strategies for Legal Leaders—From Clinical Trials to D&O Coverage to IP Infringement" by saying, "Insurance is as much a philosophy of risk as anything else."

Those words could have been the opening remarks to the panel of subject-matter experts from Newfront, who advised on country-specific insurance policies for clinical trials, management liability insurance, intellectual property risk, and best practices for managing the insurance process.

Heather Turner, CEO of Carmot Therapeutics, moderated the panel of experts, which included Long; Arturo Perez-Reyes, Cyber Lead Strategist; Eric Tausend, Senior Director of New Business Development; and Cristina Varner, SVP, National Life Science and Digital Health and Telemedicine Practice Leader.

 

Country-Specific Policies for Clinical Trials

Varner laid out key considerations when acquiring clinical trial insurance, diving into the layered nuances of why and how "Clinical trial sponsors must comply with regulatory requirements on insurance coverage when conducting human clinical trials," and then diving into the layered nuances.

"Every country has specific regulations on clinical trial insurance, but only a few companies specialize in foreign clinical trials," said Varner. Although most clinical trial sponsors have a master product liability clinical trial policy that is typically US-based, providing worldwide coverage, it will not meet the local guidelines in many countries. Most foreign countries require clinical trial insurance placed in-country with carriers specifically vetted by local authorities for clinical trials.

Varner said that finding a carrier to underwrite a policy in-country and, if required, in the local language is vital. Some carriers claim they specialize in foreign clinical trials. Still, they may have restrictions that don't meet local requirements or lack the breadth or depth of resources to underwrite the insurance in some 160 countries involved in clinical trials.

"Contract research organizations (CROs) may say they can procure insurance on a sponsor's behalf, but CROs are not licensed insurance brokers," said Varner. If the sponsor has a claim, the CRO will not advocate on your behalf. You will need your in-house legal team or outside counsel to help you manage aclaim—better to have your insurance broker procure the insurance, help with claims, and advocate on your behalf.

 

Management Liability Insurance

"Directors and Officers (D&O) liability insurance is expensive, without a lot of rhyme or reason to it," said Tausend. Still, the good news is that D&O costs are trending downward from reduced claims and litigation in the public sector and new market entrants offering the policies.

Tausend found that the total number of filings against public life sciences companies in 2022 (43 lawsuits) showed a 27.1 percent decrease from 2021 and a 51 percent decrease from the previous five years. Yet, life sciences companies remain a popular target of securities class action lawsuits, accounting for almost one in four filings.*

In 2022, US public D&O insurance premium rates trended down from a more competitive rate environment, but companies with challenging risk profiles may continue to command top premiums and retentions or deductibles. Carriers differentiate publicly traded life sciences companies by the clinical or regulatory stage, with earlier-stage companies generally viewed more favorably. "As they get further into the clinic and more pivotal trials or regulatory decisions from agencies, they are viewed as higher risk," said Tausend.

Tausend said that D&O policies are "incredibly bespoke," not off the shelf. He encouraged in-house counsel to get involved and stressed that counsel has "tremendous authority" to manage coverage.

 

Intellectual Property Risk

In today's knowledge economy, intangible assets drive value, said Perez-Reyes, including "research, knowledge, communication networks, brand, execution ability, and intellectual property (IP)." Risk management for IP assets includes identifying and quantifying the assets and protecting them from and mitigating loss.

Protect assets by safeguarding trade secrets and defending or enforcing intellectual property in copyrights, patents, and trademarks, but do nothing at your peril, said Perez-Reyes. If you do not protect or enforce property rights, you can lose the asset or market position and suffer a reduction in company valuation.

There are gaps and limits in existing insurance products for copyright and trademark. The potential losses are so severe for patents and trademarks that they require specialized insurance products that focus on IP litigation risk management, which few brokers know or can place. IP insurance comes in various flavors, including liability, abatement, invalidation, and representations and warranties. "Most products do not back indemnities," said Perez-Reyes, but you should add the coverage to protect your customers.

 

Top 10 Best Practices Insurance Management Processes

Long said some best practices in managing the insurance process demand communication and proactive approaches with brokers. For example, schedule regular risk and insurance reviews with brokers; engage your broker in strategic plans, such as IPO and M&A, when possible and within securities laws; make available indemnification and insurance provisions in all contracts for your broker's review; and launch early renewal updates with your broker and have pre-renewal strategies in place. And, harkening back to Varner, work with your broker to create an informed plan around the local insurance requirements for a global clinical trial.

---

*Dechert survey, Developments in Securities Fraud Class Actions Against US Life Sciences Companies, 2022 Edition.