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Insurance for biotech companies: what cover do businesses need?

26th May 2021

Biotech companies face a variety of exposures throughout the life cycle of their business – from their research and development (R&D) phase, through to the clinical trials stage, and finally to the manufacture and sale of their products. Christine Lee, Senior Account Executive at insurance broker Gallagher, explores why effective and efficient management of intellectual property, products, and assets is essential for biotech companies to thrive.

No matter what stage of their growth journey they are at, all biotech companies face a certain degree of risk– including potential equipment faults; spoilages; the possibility of having to recall products; or successful challenges to patents and other forms of intellectual property – all of which have the potential to undermine a firm’s reputation and threaten their bottom line.

As well as being aware of the evolving risks facing them as they move through the life sciences growth cycle, it is important for biotech businesses to ensure they have robust measures in place to mitigate them.

This is where insurance comes in – providing biotech companies with the peace of mind that any risks facing them can be managed appropriately and efficiently, their assets can be protected and their growth can be maintained, so that they can stay on the cutting edge of modern technology and science.

The clinical trial phase can be one of the most important steps in the life of a biotech company. The Medicines for Human Use (Clinical Trials) Regulations 2004 state that a clinical trial may be undertaken only if provision has been made for ‘insurance or indemnity’ to cover the liability of the researchers in relation to the clinical trial. Therefore, the relevant approving bodies will always insist on clinical trials insurance cover before approval is given.

Whether a biotech company is running mass clinical trials, small studies or just beginning their recruitment process, clinical trial liability insurance is designed to offer financial protection for those conducting the trials, as well as providing suitable compensation to the volunteers should they suffer harm as a result.

A specialist policy will offer protection for both negligent harm – covering legal costs, expenses and compensation awarded to the trial’s participants as a result of negligence or a lack of due diligence – as well as non-negligent harm, in circumstances where no specific causative factor relating to the harm of a participant during a clinical trial has been identified, but harm is likely, on the balance of probabilities, to have arisen from the patient taking part in the research.

Employers’ liability (EL) insurance is the only other cover legally required by biotech companies, and must be put in place once businesses take on their first employee, as stipulated by the Employers’ Liability (Compulsory Insurance) Act 1969. This type of cover is designed to protect business owners and operators against illness and injury that occurs on business premises, or as a direct result of the individual’s working practices, and covers the cost of compensation including medical costs, legal costs, and loss of income, as well as any other relevant damages.

If a company does not have EL insurance, it can be fined at a rate of £2,500 for every day the company has traded without it. They may also be fined £1,000 if they not display their EL certificate or refuse to make it available if asked by Health and Safety Executive (HSE) inspectors.

Public liability insurance covers a biotech business’s compensation or legal costs if members of the public or customers claim they have experienced personal injury or damage to their property as a result of the company’s work. Product liability insurance usually forms part of a biotech company’s public liability insurance policy, and covers the cost of personal injuries caused by a faulty product; loss of or damage to property caused by a faulty product; and unforeseeable circumstances such as product faults that a business’s quality control system could not identify.

According to the UK Government’s latest Cyber Security Breaches Survey[i], almost half of all UK life sciences businesses (46%) have suffered a cyber breach or attack within the past year, with one in three (32%) experiencing them at least once a week. Cyber insurance includes protection against damages following an unintentional breach of confidential information, including costs incurred should a business unintentionally reveal personal data or suffer a financial loss should systems be compromised.

For the biotech company involved — cover typically includes the cost of investigating the attack; any costs involved in recovering data lost in a security breach and the restoration of computer systems; loss of income incurred by a business shutdown, reputation management; extortion payments demanded by hackers; and notification costs, in the case they are required to notify third parties affected. The cost of damages and settlements is usually covered, and any legal fees involved in a business legally defending themselves against claims of a GDPR breach.

As owners of intellectual property (IP), including patents, companies in the biotech industry is particularly susceptible to others infringing their patent rights, as well others charging them with IP infringement for the products they are developing. IP insurance helps businesses defend themselves against claims of IP infringement, and covers companies for the legal costs associated with pursuing infringement or theft of IP, as well as legal defence costs for policyholders accused of IP infringement or theft.

As well as safeguarding their proprietary technology, it is important for biotech companies to also consider protecting their physical property. Commercial property insurance protects a company’s lab facilities and contents — from office equipment to expensive, delicate machinery — in the event of fire, weather events, theft, vandalism and other covered perils.

Commercial property policies usually include business interruption (BI) coverage, which protects a business’s earnings if they are unable to operate because of damage caused by some type of covered disruption (including fire, hail, wind, equipment breakdown), or if a business is forced to close their doors or relocate for a period of time in order to make repairs – covering rent, employee salaries, lost income and relocation fees.

As part of the policy, coverage can also usually be included for breakdowns in utility services, including water and electricity, which may force a business to temporarily close their doors, or equipment breakdown coverage, if machinery suffers a mechanical fault. Additionally, spoilage coverage offers financial protection for the cost of cells or other biological materials that are damaged on-site due to a utility interruption.

Cover is also available for committed costs – such as those incurred in GMP manufacturing by third parties, or at a clinical trial location, should trials be delayed or cancelled, or even for any milestone payments being impacted by a loss at the premises.

Directors & Officers (D&O) insurance is designed to help protect businesses from litigation that could arise out of their decisions. D&O cover not only protects companies against claims, it also safeguards the assets of individual directors and officers who can be held personally liable for their decisions by regulators, investors and shareholders, which may have led to clinical drug failures, erroneous accounting or other events that impact a company’s stock price.

Typically, the insuring clause of a D&O policy provides for the payment of any loss resulting from the wrongful act of an officer or director, including but is not limited to, damages, judgments, settlements, costs, and the defence of legal actions, claims, and proceedings.

The safety of products is central to the long-term success of any biotech company, but products can be unintentionally compromised. Product recall insurance covers costs arising from critical errors made during production, or where a government authority has ordered or suggests a product be recalled from market. It typically covers all product removal, disposal, and replacement costs, regardless of whether or not a business has been negligent. This coverage will also be able to take care of legal fees, possible settlements, and judgments, and even public relations costs to help the company re-establish a positive public image after a recall.

From small biotech startups to multinational corporations, putting a comprehensive insurance and risk management programme in place is vital for businesses of all sizes in the life sciences arena. With complex work comes complex risk, which is why engaging the support of a specialist life sciences insurance broker is advisable, who is familiar with the industry and can arrange suitable coverage at a competitive premium, tailored to a biotech company’s unique needs.

 

[i] Cyber Security Breaches Survey 2020 – GOV.UK (www.gov.uk)

Written by: Gallagher

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