This article is written by Anoushka Rawat and pursuing a 6-Month Growth Camp: Preparation for LLM Abroad.  This article has been edited by Prashant (Associate, Lawsikho). 

This article has been published by Sneha Mahawar.

Introduction

The Pharmaceutical Industry develops, manufactures, distributes, and markets pharmaceuticals or drugs that are approved for use as medications. Drug companies are licensed to trade in generic or potential brand-name medications and clinical devices. They are based on a variety of regulations and rules covering patent protection, testing, and ensuring the safety and viability of pharmaceuticals, as well as their marketing.

A contract for products and services is a legally binding agreement between a customer and a provider for a specific period of time. In the public sector, the customer is usually the government, whereas the provider could be a private enterprise entity. 

Contracts are a major source of cash, but poorly handled contracts may become your largest liability. To deal with the increasing complexities, pharmaceutical businesses want technologies that will streamline their contracting process and improve operational efficiency. Because of the rigorous restrictions and consequent increased contract risks, investing in innovative contract management systems is no longer a luxury but a requirement.

Types of contracts

Quality agreements 

Quality agreements are signed by parties participating in contract medicine manufacturing. They define how each party will comply with CGMPs. CGMPs are the Current Good Manufacturing Practice regulations enforced by the FDA. Supplier and vendor quality agreements provide the terms governing the quality of materials or services given to a drug manufacturing plant.

The FDA encourages parties engaged in contract manufacturing to implement quality management practices. This guidance builds upon the quality risk management principles and recommendations outlined in the ICH guidance to illustrate key points in developing and executing quality agreements that describe and support contract manufacturing arrangements.

License agreements 

License agreements are agreements is between two parties, usually a drug company and a pharmaceutical laboratory. The laboratory produces new drugs and seeks a patent for the same. The laboratory then grants the license to produce these drugs to a drug company. 

This is very often seen in a marketplace where the laboratory does not have the resources to produce drugs on a large scale, and so it grants a license to the big drug companies that have adequate resources for the same. 

Product supply agreements 

The product supply agreement is a contract signed by a supplier and a buyer to supply and acquire medication or other pharmaceutical items. The contract specifies the parties’ agreed-upon terms and conditions, as well as the repercussions of violating the agreement.

R&D agreements 

R&D Agreements, pharmaceutical businesses enter into collaborative R&D partnership agreements in which the contracting parties commit to collaborate on medication research and development and later commercialization.

Contracts for technology 

Contracts for Technology, pharma businesses enter into collaboration arrangements with CROs and other scientific technology suppliers, such as biochemical factories. They supply the equipment that these firms require in their laboratories in order to conduct research or produce pharmaceuticals.

Challenges faced while drafting such contracts

Poor Regulatory Compliance

Pharmaceutical and biotech companies must continue to pursue research and development. Contract managers frequently lack the time or scientific equipment to verify the scope to which parties are complying with ever-changing worldwide standards, presenting legal compliance for each location or nation, and so on, making management and budgeting for drug clinical trials difficult.

Inefficiencies in operations

The lack of automated technologies frequently results in missing expiry dates. In the sector, sending the wrong documentation for approval, signing the wrong paperwork, or failing to get all signatures are all fairly typical inefficiencies. Contracts or associated papers are frequently lost as a result of failed links, file restructuring, or inappropriate filing. This is due to the inefficient decentralized approach of document storage used in traditional contract administration.

General clauses which are mentioned under the contract

Recitals

This clause, which is rarely acknowledged or appreciated, is the backbone of the whole contract. This clause serves to establish the tone for the entire contract even before the real details of what is to be written out in the contract. This phrase plainly explains in unambiguous words which parties are to be considered in the construction of the contract, as well as acknowledges and specifies the purpose or intention of the parties in forming the contract. It actually enlightens the reader as to why the contract is being established and between whom it is being formed. The parties specified in this section are commonly referred to as contract signatories. If a dispute emerges as a result of the contract, it is the signatories who are obligated by the contract, not any third party.

Scope and purpose of the agreement 

This is the most significant section in the entire agreement since it specifies the complete scope of work as well as the goal or aim of the parties in entering into this agreement. Qualification, calibration, and maintenance of analytical instruments and manufacturing equipment; validation of computer systems, analytical procedures, and manufacturing processes; specifications used to pass or fail analytical tests; supply handling, storage, and preparation; receipt, analysis, and reporting of samples; collection and management of laboratory records; and deviation logging should all be covered by the clause.

Confidentiality 

When the parties engage in a contract, they communicate information, which is frequently of a sensitive nature. Each contract includes a confidentiality provision to prohibit the other party from disclosing the information. This provision binds each one of the parties in the sense that if one of the parties discloses the information given according to the agreement, the other party can hold the disclosing party accountable before the appropriate authorities. This allows the parties to maintain tabs on each other and ensures that no confidential information is disclosed and that both the parties and their private information, is protected.  This clause ensures that they understand what information is secret and what is not. Furthermore, the scope of the Confidentiality Clause can be agreed upon between the parties, which clarifies to what extent the confidential information will be covered, i.e., will it cover everything shared during the duration and performance of the contract, or will it be limited to only a few selected items labelled as confidential by the parties.

Force Majeure 

Due to the extraordinary conditions that this COVID-19 pandemic has created across the world right now, the significance of this provision has grown even more. The phrase ‘Force Majeure’ means ‘greater force.’ As the name implies, this provision applies when a circumstance arises that is unexpected and beyond anyone’s control. When one of the parties is unable to execute its contractual obligations owing to an incident that is unanticipated and beyond anyone’s control, , the party in default is excused from performing under the Force Majeure clause. This clearly demonstrates the significance of this phrase and its application in such situations. It should be noted, however, that there is no specific legal meaning of the phrase Force Majeure, thus it is normally desirable to state in the contract itself what all conditions and occurrences can be accounted for by triggering this clause. For example- Act of God, Natural Calamities, Pandemic or etc.

Liability 

This section specifies the culpability for carelessness and purpose, and so holds the contracting/conducting parties liable. This section also mentions several contractual responsibilities that are of significant character. It allows the signed agreement to work properly. It should be emphasised that the terms of this section bind not only the contractual parties but also their representatives, agents, and subordinates. This clause is exhaustive. The provisions of this clause are subject to upcoming or uncertain events. 

Intellectual Property Rights

This clause defines the limits of the intellectual property rights owned by either of the parties. It is entirely the decision of the party that owns the IP rights to license or assign them to the other party under this contract. It can also be specified under this clause, that if a party is providing the other party the right to use their intellectual property, it does not result in the ownership of that IP by the other party. It is the sole discretion of the owner party to decide on the limits of the use of their IP.

Assignment 

Assignment clauses are legally enforceable elements in contracts that allow one party to transfer ownership or assign contractual duties and rights to another. In other words, an assignment clause allows a contract to be reassigned to a different party. An assignment clause specifies which, if any, of a party’s contractual duties and rights may be assigned or transferred to another party.

Dispute resolution 

Disputes are inescapable and are expected to arise in every contract; thus, this provision is essential for avoiding them and promoting the smooth operation of any contract. This provision, as the name implies, is intended to settle any disputes that may develop between the parties throughout the period of the contract. A well-drafted dispute settlement clause is critical since it may impact the relationship between the parties in the event of a disagreement. A quick and amicable resolution of the conflict is generally sought in commercial contracts since the parties cherish their business relationships and would rather not sever them over a minor disagreement. The dispute settlement clause is a method that the parties can adjust to their specific needs and expectations. A well-drafted provision should include an escalating form of conflict settlement, which means that the parties must first try to resolve the problem through several Alternate Dispute Resolution strategies before moving on to a severe manner of dispute resolution. However, ADR mechanisms are preferable in the current era, which includes mediation or negotiation as the first step, followed by arbitration. This growing trend in ADR mechanisms is due to their effective and efficient procedures which are less time-consuming and save large amounts of money in conflict settlement.

Termination 

The termination clause is the most significant provision in a contract, and it is usually added in the conclusion. Every contract must come to an end, whether it is at the conclusion of the contract’s term or in the middle due to a party’s default. In each of the aforementioned cases, a good departure strategy should be established, followed by an effective escape. This specific clause performs the same function by allowing the parties to pre-define particular conditions and circumstances so that the termination may be completed without difficulty. When any of the specified circumstances set forth in the notice of termination is met, the termination procedure is activated, resulting in the termination of the contract. The circumstances mentioned in the notice of termination should be clear, with no room for ambiguity. In addition, a prior notice time should be established, following which the termination will take place.

Conclusion

The drafting style of a contract varies from person to person, and there is no set standard pattern for it. Aside from the contract’s fundamental framework, the terms can be tailored by the parties to suit their needs. Any unnecessary data or clause which makes it restrictive might place the parties in a conflict, therefore a good draft should stick to just the demands of the parties. A decent clause should be well-balanced, with a draft that is neither excessively restrictive nor too lenient. To make each clause a great match for the contract, it should be given due care and importance, and only precise and essential information should be included. The clauses listed above are an essential aspect of every contract and may be found in all business contracts. It is critical to comprehend the clauses under certain contract conditions and how they might be enhanced. Before designing these clauses, one should thoroughly comprehend their purpose.

References


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