Affirmative recovery litigation programs have the potential to transform legal departments from cost centers to revenue generators.are most commonly formal efforts by an in-house legal department to reduce costs and enhance liquidity through meritorious plaintiff-side litigation.
According to Burford’s forthcoming research, affirmative recovery programs are increasingly prevalent, with two of three GCs, heads of litigation and other senior in-house lawyers saying that their companies have an affirmative recovery program. Still, few top legal officers say their companies have robust affirmative recovery programs.
Operating one step ahead of other industries, the pharmaceutical industry has a particularly notable track record of asserting affirmative litigation and winning big. In the pharmaceutical industry, patent enforcement through litigation is a necessary (and budgeted-for) part of business, though it’s also expensive and challenging. Still, companies can’t pick and choose between research and development on the one hand and protecting the resulting IP on the other—both are necessary to remain competitive. To help balance competing business needs, pharmaceutical companies have been protecting their IP assets through sophisticated affirmative recovery litigation programs—programs which may utilize external legal finance to preserve liquidity for other business priorities.
The pharmaceutical industry is known for big affirmative recoveries and also big risk
In recent years, disputes concerning generic drugs have driven litigation activity, and can exemplify the scale of risk and reward in pursuing affirmative recoveries. For example, in August 2021, GSK’s $235 million win against Teva Pharmaceuticals was upheld for the second time in a 2-1 split on appeal—a big win for GSK, but one that illustrates not only the duration risk (time to resolution) of such litigation but its merits risk as well.
Given the costs and typical length of drug discovery and development in pharma, it’s unsurprising that finance professionals in the industry report more extensive affirmative recovery programs compared to other industries, according to Burford’s 2021 Legal Asset Report. The ability to shift upfront legal costs to a third party and eliminate the risk of loss is extremely attractive to in-house legal departments, regardless of the existence, size or scale of a pharmaceutical company’s affirmative recovery program.
What other industries can learn from Big Pharma
Big Pharma’s approach to affirmative recoveries can serve as a blueprint for companies in other industries. Pharma companies recognize that their IP rights have value and should be treated as assets. To protect their rights, pharma companies have developed strong affirmative recovery programs to monetize these assets, effectively turning their legal departments into profit-drivers—a strategy applicable to all companies with IP and patents. In observing Big Pharma’s effectiveness in affirmatively pursuing meritorious litigation when they have suffered harm, other companies and industries can implement similar efforts to make themselves whole, whether due to an infringement of IP, a breach of contract or anticompetitive behavior by their suppliers.
While the blueprint is available and success proven, three of five in-house lawyers say that their companies have neglected to pursue meritorious recoveries in the prior year, with the cost of pursuing claims, judgments and awards a deciding factor, as reported in Burford’s forthcoming research. The financial deterrent suggests that many companies would benefit from pursuing recoveries with a risk-sharing partner. Legal finance experts can help in-house legal departments at any stage in the recovery process, whether that be financing the cost of the litigation, revamping or helping to establish an affirmative recovery program. Companies less familiar with affirmative litigation can lean on the expertise and experience of a legal finance partner that has access to key data and insights that would otherwise be unavailable.
Acquisitions present opportunities with unvalued and undervalued assets
While Big Pharma certainly has a proven track record of asserting affirmative IP and patent litigation to protect assets there is still room for further sophistication, particularly in the context of acquisitions. Mergers and acquisitions of clinical-stage and commercial-stage companies are common in the pharma industry to support growth and innovation. In 2022, we continue to see pharma companies performing due diligence on various entrants and potential targets with promising product pipelines. Recent acquisitions include:
- In December 2021, Pfizer entered into a $6.7 billion proposed pharma acquisition deal with Arena Pharmaceuticals
- In October 2021, Merck entered into an $11.5 billion pharma acquisition deal with biotechnology company Acceleron Pharma
- In August 2021, Pfizer recently entered into a $2.26-billion pharma acquisition deal with clinical-stage immuno-oncology company, Trillium
As is true of acquisitions in many industries, the buyer may go into the deal for a particular product or franchise of products. But the acquirer may be overlooking, or undervaluing, extensive unrelated IP assets of the acquired company. With pharmaceutical acquisitions commanding hundreds of millions to billions of dollars, the acquiring group should investigate the full value of purchased IP portfolio, not just the specific product, talent, IP or facilities that drove the sale. And if the acquiring group is considering talent changes post-acquisition, it’s important not to overlook the intelligence and resources needed to explain the value of the acquired IP. The acquiring group should also be aware that if a company knows it’s being acquired, the target may forgo affirmative litigation so as to not disrupt or complicate the buy-out with perceived litigation risk. The bottom line: Mergers and acquisitions are unique opportunities for Big Pharma companies to look at the broader patent portfolio of their acquired companies and potentially discover undervalued assets.
There is value to be unlocked in affirmative recovery programs, and Big Pharma has shown that IP and patents are valuable assets that can be monetized. When companies undertake mergers or acquisitions, patent portfolios should be assessed thoroughly. An experienced legal finance provider like Burford with a specialized IP and patent team can help companies at any stage in the affirmative recovery process, whether evaluating a patent portfolio of a recently acquired company, evaluating potential affirmative claims or pursuing affirmative litigation.