How to build a successful digital health collaboration
Those unable to forge successful collaborations or M&A transactions will become increasingly marginalised in the digital health era.
How can you make sure your digital health collaboration delivers?
In our experience, successful digital health collaborations and investments share common characteristics. Firstly, co-parties are not solely focused on their own motivations; they also spend time developing a shared vision and believe they will have a better chance of achieving their objectives if they work together. They are also well prepared, with a clear understanding of commercial, legal and regulatory risks. And finally, they create the right governance arrangements to ensure long-term success.
Drawing on these insights, we have developed a digital health collaboration framework, which sets out the eight areas you need to think about before diving in.
An organisation’s appetite to execute a collaboration or investment often depends on the clarity of its digital health objectives, and the internal pressures it faces to realise them. As such, it is important to be clear from the outset what your organisation wants to achieve from its digital health strategy and the extent to which it will need to work with others to make this happen. It is also good practice to establish a roadmap for how you will collaborate or invest. Which technologies, data or clinical insights will best complement your knowledge base? And what are the parameters you want to work within – for example, what are you willing to give, what is off the table, and what outputs do you need? A clear focus will make it easier to find partners and investors that fit your goals, and to weed out those that do not.
- Do you have a business-wide digital strategy that sets out your objectives? And have you developed a roadmap for the types of collaborations and investments that will help you reach your goals?
- Is your organisation clear about what it is willing to contribute to a collaboration, as well as what it is not?
- Have you considered cross-sector consortia opportunities? There is a wide range of public funding available to support collaborations between multiple stakeholders.
- Are you ready to engage with collaborators and investors? Are you able to efficiently share the information that they will need?
It is important to tread carefully when developing your digital health project, and when identifying technology partners to work with. We often see organisations focusing on the capabilities of the technology itself rather than demonstrating how the initiative will add value to healthcare systems. It is also important to recognise that different stakeholders have different ideas about what success looks like. For this reason, it is critical you consult all relevant stakeholders when developing your product or service. This will give you the best chance of developing innovations that not only work, but are also adopted and reimbursed.
- Does your product or service have a clear business case that demonstrates how it will add genuine value to existing healthcare systems? And does it have a clear metric of success?
- Can you demonstrate the efficacy of your digital health product or service in a real-time clinical setting? The UK plans to introduce a healthtech regulatory sandbox, as well as offering innovation test beds and increased collaboration with NHS trusts. These kinds of initiatives may help you gain traction in an increasingly crowded market.
- Will you consult all relevant stakeholders when developing your digital health project, including technology experts, scientific experts, healthcare decision makers, payors, clinicians and patients?
It is never going to be easy for multiple organisations, each with their own culture, to work together. Cross-sector collaboration parties rarely have the same appetite for risk, innovation or agility. The key is to identify and manage differences from the start. In our study, 64% of organisations say cultural differences can be overcome with sufficient planning. Make sure you: establish a shared vision early on; take steps to understand your co-parties’ values and culture; recognise their limitations as well as your own; and accept there will need to be compromises from both sides.
- Do you have a shared vision that all parties will pursue?
- Do all parties understand and respect each other’s values, risk appetites and operating models?
- Do the contractual arrangements underpinning your collaboration clearly establish the rights and responsibilities of each party and of managers? This will be critical in managing expectations throughout the relationship, as well as resolving any potential disputes or conflicts.
Under current rules in most key jurisdictions, digital health products and services that qualify as medical devices are subject to stricter regulatory requirements than those that function purely as wellness products or services. This trend will increase once the first set of EU legislation on medical devices comes into force in May 2020. For this reason, it is critical that you understand from the outset how you will position your product or service and what might influence your product’s qualification. This will allow you to work out how it will be regulated, as well as the likely compliance requirements. Remember that you stand the best chance of attracting investors and collaboration partners if you can demonstrate a strong grasp of the applicable regulatory regimes, not by exploiting legal loopholes.
- How will your digital health proposition be qualified from a regulatory perspective? For example, will it be a medical device or purely a wellness product or service? If it falls into the former category, the regulatory requirements that apply will depend on how it is classified.
- Could changes to the functionality, presentation or advertising of your innovation – before or after launch – alter its qualification and/or classification? This has material importance for how your product or service is regulated, and for ensuring market access and distribution.
- Do all parties understand their ongoing regulatory obligations in the pre-marketing phase and once products are on the market? Do your contractual arrangements set out each party’s compliance responsibilities and liabilities? How will you and your counterparties comply with your respective regulatory obligations?
- Are all parties aware of anti-trust and competition regulations in the jurisdictions you operate in, and what processes are needed to ensure compliance?
Further consideration on Regulatory issues
Simon Graindorge, Partner, Life Sciences, IP Group.
Deliberately avoiding regulations because you think it is hard is unlikely to be a good decision. Talk to multiple people, understand what the advice is, engage with the right parties and do the right thing.
As innovators, HLS and TMT companies have long understood the need to protect their IP. Yet the combination of different technologies (eg software and biochemistry) and increasing adoption of AI may challenge long-held views about how to approach IP negotiations. You must understand at the outset how each party’s technologies will interact and work together to generate new technology. A failure to do this can create a risk-averse mindset that causes parties to limit what they contribute, thereby undermining results. Or it can lead to a party’s technology being used in a way they had not expected. A firm grip on these issues will also help you perform appropriate freedom to operate checks.
Further consideration on IP issues
- Do you understand the functionality of each party’s contributing technology and how it will interact with your own IP? Are you comfortable that appropriate restrictions are in place to prevent your IP from being misused?
- Will the contribution of your existing technology in this collaboration prevent you from using it in other digital health collaborations?
- Will parties perform periodic freedom to operate searches to check whether resulting products infringe third-party rights? What actions will you take if it is difficult to perform these searches? And how will parties address any blocking patents or other IP rights?
Digital health collaborations create a complex web of data security and cybersecurity risks that all parties must work together to control. The stakes are high for getting it right. Data security is a top priority for today’s patients, buyers and regulators. Those that fail to protect personal data will face significant reputational and financial consequences. When collaborating, not only do you need to ensure your own organisation complies with relevant regulatory requirements around data protection, but also that your collaboration partners have proper controls in place.
Further consideration on Data issues
- Are all parties aware of their obligations under local and regional data protection and cybersecurity rules? This includes everything from primary legislation to voluntary codes of conduct.
- Have you mapped the data flows across your collaboration? Are robust data centre arrangements in place to store, maintain and back up your data? And have you set clear rules for how data is transferred between co-parties and third parties, including in different jurisdictions?
- Have all parties put in place the necessary controls to keep data safe, such as appropriate software, encryption and other defences, as well as policies, incident plans, simulation exercises and staff education programmes?
- Do contractual arrangements set out each party’s data security and cybersecurity obligations? Do clauses make clear that parties will need to seek the same assurances from organisations across their supply chain, including outsourcing companies, suppliers and clients?
- Product Liability
In recent years, the product liability landscape has become increasingly complicated and with this it has become ever more difficult for collaborators to agree lines of accountability. Problems often arise because product liability issues are only considered towards the end of collaboration negotiations. This is too late. To stand the best chance of success, product liability issues must be discussed from the outset. This helps each party understand their technical and regulatory contribution to the digital health project. Crucially, it also ensures that product liability requirements inform the design of the software or products created by the collaboration.
- Have you established each party’s technical responsibilities? Do your contractual arrangements set out the role each party plays in the collaboration, including what components they provide and how these components relate to overall digital health innovation?
- Have you carried out validation checks to make sure your digital health innovation complies with relevant regulatory requirements in each jurisdiction the collaboration operates in? Has the supporting documentation been retained? Remember to define who is responsible for complying with the requirements for each system component and for carrying out suitable tests.
- Do your contractual arrangements clearly define each party’s responsibilities to secure product liability insurance, and what this will cover? Do your contractual arrangements apportion liability between the parties via indemnification?
Organs on chips
Liability for erroneous AI: who is to blame when things go wrong?
- Structuring and governance
Collaborations and investments require careful legal structuring. A key component of this is setting an effective governance framework. You therefore need to establish clear objectives, aligned legal duties, an appropriate degree of transparency and adequate reporting arrangements. Beyond this, the exact governance framework you adopt in a collaboration will depend on its structure. Setting up a separate legal entity – such as a joint venture company or, in some jurisdictions, a limited liability partnership – can help align objectives, duties and culture. If you choose instead to rely on contractual arrangements, it is important to replicate this alignment, or clearly establish at the start the outcomes that each party will need to achieve to secure collective success. Remember that the structure and governance arrangements you adopt can have a significant impact on your competition law analysis as well as the mitigation of other legal and commercial risks.
- What does success look like? Have all parties agreed clear objectives and set out how progress will be measured? What will happen when the objectives have been met? Have the parties planned for an eventual exit?
- On what basis will the collaborators (or any new legal entity they create) share information and progress updates? Is this supported by the right legal arrangements, such as non-disclosure obligations, information covenants or suitably tailored warranties?
- Are decisions being made at the right level and by the right people? Which decisions can be left to a board or steering group, and which need to be delegated to appropriate committees or reserved for the parties or shareholders?
- Is your governance framework flexible enough to allow new parties or investors to enter the collaboration or to co-invest?
- Will competition law or merger control considerations influence or determine the structure of your collaboration or investment? Remember that more formal structures can often provide more regulatory certainty in this respect.
Raza Rizvi, Partner, Simmons & Simmons, UAE
Some state-led initiatives in the Gulf are aggressively driving the digital health collaboration agenda, particularly where emerging technologies like AI and the IoMT are harnessed across sectors and government services lines. These initiatives offer clear guidelines on how to articulate problem statements and how to identify use cases. This often provides invaluable direction to participating organisations.
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This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.