A wave of mergers across the pharmaceutical field has led to the creation of a crop of new global giants.
December’s global merger of SmithKline Beecham and Glaxo Wellcome created the world’s largest healthcare group, worth more than £100bn. Germany’s Sandoz and Switzerland’s Ciba-Geigy led the merger trend in 1996 with what was then the biggest deal in corporate history. The two formed Novartis, with a market value of £42bn. In 1999, the UK’s Zeneca got together with its Swedish rival Astra in a £40bn deal and the same year Germany’s Hoechst and France’s Rhone Poulenc combined to form Aventis.
Corporate counsel in these companies played a major role in the mergers, which invariably had major implications for their legal departments.
AstraZeneca general counsel Graeme Musker, former general counsel at Zeneca, says the merger made savings where the legal team was concerned. “After the merger our legal team stayed the same in terms of numbers,” he explains. “I was closely involved in putting the merger together. We were two fast-growing companies. As the old Zeneca, we would have expected to grow, so would the Astra team.”
Following the merger, the legal teams are now split geographically. Eighteen lawyers operate in the UK, 10 in Sweden and 30 in the US. The company also has some lawyers on the continent. The departments work, mainly in research and development and key commercial business, but has also been involved during the past two years in the merger of its agricultural business to form Syngenta.
“It is a huge piece of work that we have just completed,” says Musker. Although the company’s major merger took only four months to complete, the Syngenta one was much more complicated, he says, adding that because it created the largest agrochemical company in the world, it needed anti-trust approval.
US companies operating worldwide have also joined the mania. Pfizer is changing structure after the merger last year with Warner-Lambert. Karolyn Fletcher is its UK-based legal director. “The merger is global and was run from the US, where the parent companies are based. Although some Warner-Lambert lawyers chose to leave, there were not many changes. Now, lots of appointments in the combined group have meant losing staff. For example, one went to Australia and my senior legal adviser is leaving to take up a new post in Brussels,” she says.
Fletcher’s team has six lawyers and deals mainly with the UK and Ireland. Although on matters such as clinical trials it will also handle areas such as South Africa and Australia, where there is no local representation, she says.
Outsourcing is generally determined by the need for expertise or by the workloads of the departments, but is inevitable in companies of this size.
Former general counsel Europe-Africa of Monsanto, David Cox, now a partner at DLA, claims it can be a way of cutting costs if properly handled. “If most of the work can be done by competent assistants, rather than by partners charged out at £300-£500 per hour, this can be achieved,” he says. “Partners should direct the efforts and be involved in the big issues, but not doing the leg work. This should be done by using a combination of assistants with four to five years’ experience, typically charged at £150-£200 per hour and trainees with one to two years’ experience at around £100 an hour.”
AstraZeneca’s Musker says his legal department would be looking at what it could do in-house. “When it comes to using external lawyers, there are certain things we try to do in-house. In some areas of expertise, for example where issues are particularly complex, or where we need more manpower, we will bring in more people. We do not handle litigation or conveyancing.”
Cost is important, particularly for routine work such as litigation. “We are embarking on an exercise reviewing external firms. We want to make sure of what we are getting, he says, adding that the company wants law firms that can provide “access to precedent banks, favourable charging arrangements and secondments. We are big enough and nasty enough to call the tune with the law firms we like to deal with.”
At Pfizer, Fletcher’s criteria are similar. “When new issues come along, we try to handle them in-house. To deal with the data protection act we got a very good lawyer here up to speed – he is as good as anyone in the City. We expect to be up to speed on freedom of information too. We work with one local law firm that we have used for a long time – but the relationship tends to be with individuals, not the firm. If that individual went, we would be likely to go with them, although it does depend on the matter and the firm.”
The company outsources where it is more efficient to do so – such as when the legal department lacks the relevant expertise, or on “big, urgent, self-contained deals, or where we need independent advice,” she says.
“We use different firms for different sorts of work. Property work tends to be handled by the local firm (Girlings, Canterbury), pure pharmaceutical issues by CMS Cameron McKenna, but we also use other firms for other matters.”
In terms of individuals who have impressed Fletcher, “number one in the pharmaceutical sector has to be CMS Cameron McKenna. Ian Dodd-Smith, in particular, is exceptional. He works terrifically hard, is supremely competent and absolutely charming. In fact the whole Camerons’ team (including Kathleen Fadden and Amanda Wearing) are a real pleasure to work with.”
For intellectual property cases, Fletcher says that good outside counsel is needed to keep lawyers up to date. It means you have to have a good network that you can trust. “I find outside lawyers through personal recommendation and knowledge. We also have beauty parades, but this can be an expensive process,” she says.
It is an issue that smaller companies in the pharmaceuticals sector are also having to deal with. Many are growing rapidly, particularly those operating in niche areas such as biotechnology.
Diane Mellett, in-house lawyer at Cambridge Antibody Technology, says, “We have grown a lot in the past three years. We had 100 staff three years ago, now there are 200, which will probably expand to 250. We have been through a period of organic growth. A small start-up in this sector does not really want lawyers, to be most effective it needs scientists. But now I am so swamped, I need more help,” she adds.
In larger companies, technical people will be employed to help with the regulatory work. In smaller companies, the pattern tends to be to have a small internal law function and to outsource most work.
“We have a framework for decisions on outsourcing legal work,” says Daphne Luchtenberg, spokesperson for biotech company British Technology Group (BTG), which specialises in the transfer of technology in two markets, life sciences and technical engineering. “We are a listed company. We have a balanced portfolio, which means we are attractive to investors because we spread the risk,” she explains.
The firm identifies the technology that will result in “blockbusters”, which means there are certain functions it will not outsource. “Patenting is part of our core business and is too risky to outsource. Often we need an understanding of the technology involved, rather than good patenting expertise,” Luchtenberg says.
“Venturing agreements – joint ventures with other companies – require a different type of legal expertise. We always do this work in-house – it is at the heart of our business,” she adds.
But areas such as litigation are outsourced. “We have corporate lawyers who deal with funding for expansion and an outside firm assists with that. We choose them through personal relationships, in the same way we would choose a broker or PR firm,” Luchtenberg says.
At Cambridge Antibody Technology, similar work is outsourced. “Bigger companies manage a lot more than we do in-house,” Mellett explains. “Litigation is always outsourced. So is employment, property and tax. We tend to deal with commercial contracts internally because we know the business very well.
“We are constantly under time pressure – everyone wants everything by yesterday,” she adds. “In some cases, we can do a quicker, more effective job rather than having to bring outside counsel up to speed.”
Building relationships with external lawyers is important, Mellett believes, but so is efficiency. “Like everyone else, I am looking at giving departments an efficient provision of legal services. I am taking a strategic look at the business and how we provide the services, as well as at our relationships with outside providers.
“I want to deliver a good service – I am always looking at how to make sure everyone is well-served. I have found working with external law firms that their resources can be brilliant. We could never get some things done here that can be resourced by the big firms,” she explains.
Mellett also relies on technology to help deliver an efficient service. “The legal department has to try not to be a logjam. I am always looking at ways in which technology can help provide a better service. We are building an intranet and are able to post up documents that people can sign for themselves. Internally, people do not want to wait for the legal department to look at everything.”
IT has also sped up dealings with external firms. “When we did fundraising for the first time, the listing document was posted on the internet for me and I accessed it using a password. Since we were in Cambridge and the financial advisers were in London, it saved couriering documents.”
Case study: Vernalis Group
Vernalis Group plc was formed last year when Vanguard Medica Group acquired Cerebrus Pharmaceuticals.
The acquisition was designed to bring together two functions. Cerebrus was primarily a research-based company and Vanguard had particular skills in development, explains in-house lawyer and company secretary Richard Robinski.
The company’s main business focus is on the research and development of medicines to treat disorders of the central nervous system, ie, those that work in the brain. Its most advanced product, which is close to launch, is for the relief of migraine. Although it has several competitors, it is expected to produce a substantial income stream for the company. Other on-going projects include an anti-obesity drug that the company is developing with Roche.
The key market for the migraine drug is the US and it has appointed Elan Pharmaceuticals as licensee for the US market. The Menarini Group has been appointed as licensee for the European market and others will be sought on a country or territory basis. “Pan-European legislation may be coming, but too slowly. At the moment, we have to deal with very different jurisdictions,” Robinski says.
Trained as a scientist and lawyer, Robinski has a wide-ranging brief at the company. “I do everything a general commercial corporate lawyer would do – it is a wide umbrella. I also take on the company secretary functions. We have a legal administrator, who ensures the smooth running of the department, and we have a vacancy for a junior lawyer.”
Robinski also shares the problem common to many pharmaceutical companies – competing with private practice for new staff. “Salaries are huge in practice. US firms began that process, but City firms now compete,” he says. “Dotcom and IT companies have recruited a lot of lawyers, and taken the slack from the industry. The growth in jobs in IT has been incredible,” he adds.
But he claims that what his sector can offer over law firms “is an exciting, leading-edge, high-tech sector to work in”.
“Share options can help make up the difference in salaries, but that relies on working in a successful company. There is huge change taking place. No-one is immune to it, whether working for a big or small pharmaceutical company.”
Some work at Vernalis is outsourced, partly depending on the volume of the internal legal workload and partly depending on specialisation. “For example, patent work, property and employment are outsourced,” Robinski says. When it comes to deciding who should be used for outsourced work, like many in-house lawyers, he relies on relationships that have built up over time. “We have an historical connection with a couple of the large patent agencies. We tend to farm out property work, which is easily outsourced because it is self-contained. We have just moved from Guildford to Reading and we are now looking locally for property lawyers, to benefit from lower fee rates,” he says.
For corporate work, such as raising finance, the company goes outside. For general corporate/commercial work, Vernalis uses Mark Dighero, a partner at Allen & Overy. “He is not a pharmaceutical lawyer, but has a broad corporate/commercial practice. We are very impressed with him,” Robinski says.
He shares the view of many in-house lawyers that when good relationships have been built with individuals in outside law firms, this is more important than which firm you hire.
