Describing the pharma industry as ‘a maze’ of regulation, here Kornelia Nagy Koppany, Managing Partner at KNP Law, a Hungarian law firm, talks LM through the structure and challenges faced in the Hungarian life sciences segment, remarks on the potential legal changes that would be welcomed by the firm, and briefs us on the complexities involved in distribution agreements, privately and with government bodies both on a domestic and international basis.
You work predominantly in advising on negotiations, agreements and M&A; how complex can these scenarios become in the Hungarian and European life sciences sector?
Our primary objective is to assure perfect compliance with Hungarian laws. EU and US pharmaceutical laws have different approaches and most of our pharma and life sciences companies are multinationals headquartered in the UK, Switzerland and the US. Parent companies have Master Agreements, which have to be adapted to local jurisdiction, but the trick is to follow the approaches of the parent companies and bigger markets and comply with local laws.
The pharma/life sciences sector is highly regulated; international, regional and local rules apply. These rules are mostly mandatory, and there is no room for individual solutions and interpretations. In addition, Hungary has a strict and (over)regulated legal environment. It is a relatively small market, and innovations coming from a small market are not always welcome. Templates and models already implemented and working elsewhere are expected to be followed in Hungary, which is not always the case.
What key risks do pharma businesses have to consider in distribution agreements? How do you help in this matter?
Distribution agreements must comply with competition law provisions, both EU and national, and it requires a separate set of thorough analyses. Another issue is the limited number of market participants with national coverage. For new ventures, entering the market is not easy and requires substantial capital investment. Solvency of small distributors is always a risk, which needs to be limited to the highest possible extent.
Exclusivity is another issue. Distributors prefer exclusivity when pharma companies need more market coverage, and leverage and compliance with competition laws.
Payment delays are the norm and payments from government bodies, including the Sick Fund and hospitals, are always late. When we draft distribution agreements we try to incorporate as many guarantees as possible to protect the interest of our clients, which include receiving payments on time.
What complexities arise in pharma agreements when government bodies are involved?
Government approved pharma budgets are always limited, and the need for medicinal products (including new, innovative products) always exceeds the appropriated central budget.
Pharma companies are rarely ‘equal’ with government bodies, they are not treated as equal parties, but pure suppliers. Pharma companies want to introduce new innovative products, and their largest consumer is the government, especially when it is about inclusion into the social reimbursement system. A recurring problem is that there is no room for effective legal challenge or successful litigation when the outcome is unfavourable to the manufacturer/distributor.
Another issue in Hungary is the constant reorganization of the health administrative organization, which includes regular personal changes, and overall results in dealing with a “faceless” organization.
As a leader in this niche, what have you found to be the biggest legislative impediment to progress in the life sciences sector over the past few years?
Legal provisions can be ambiguous and not well structured, while changes, other than they will certainly happen, are unpredictable. Government bodies have broad interpretation of legal provisions and set compliance requests that are stricter than the prevailing legal provisions. Public procurement laws are also subject to regular modifications, but in favour of the manufacturers and distributors. It would be nice to see at least an interaction between the market and the law, and regulators willing to listen to the market players.
As a thought leader, if you could incite legislative developments or change the law to facilitate your work in Hungary, what would you change?
Simplification in general would be welcomed. In Hungary specifically: clarify and provide consistent product promotion rules; simplify admission of new products into the social reimbursement system; avoid last minute changes that may affect the operation and budget of pharma manufacturers and distributors; set the national pharma budget in an amount that would meet the steadily increasing needs of an aging population; apply consistently public procurement rules; and set deadlines that the authorities must comply with.
How do you believe your past experiences help you as a thought leader in today’s life sciences industry?
You can compare pharma regulations to a maze. You know where to enter but you may never know where to find the exit. Our role is to understand the objective of our clients and assist them in many ways, including alternative solutions if plan A fails. It requires perseverance, and impeccable knowledge of all the regulations that apply and the government bodies we deal with.
