Interpreting a GMP manufacturing agreement

Drug development and manufacturing agreements are part of the “bread and butter” of transactional IP lawyers who work in the pharmaceutical sector. But IP Draughts doesn’t recall any reported English case in which the court has interpreted the provisions of such an agreement. That has now changed, with the publication this week of a High Court decision in the case of SciPharm SarL v Moorfields Eye Hospital NHS Foundation Trust [2023] EWHC 569 (Comm) (16 March 2023). (See https://www.bailii.org/ew/cases/EWHC/Comm/2023/569.html)

The background to this case includes:

1. Moorfields, as well as being an eye hospital of international renown, at the relevant time ran a GMP (Good Manufacturing Practice – a regulatory term) drug manufacturing facility. In passing, IP Draughts notes that Moorfields did this through its main legal entity, an NHS Trust, rather than forming a subsidiary company. As a result the NHS Trust is now liable for breach of a commercial contract.
2. SciPharm contracted with Moorfields for the latter to manufacture quantities of a drug called Treprostinil, for the treatment of lung disease. These quantities, described in the judgment as “12 clinical study batches”, were to be used in clinical trials. There is a regulatory requirement that such a drug must be manufactured in a GMP facility.
3. It seems that this part of the contract was complied with.
4. The dispute related, in part, to whether Moorfields was also required to supply validation batches of the drug. In the words of the judge in this case, “validation batches of the drug are produced whereby specific data is collected on the manufacturer’s processes and this information is submitted to the market regulator.”
5. Before Moorfields could manufacture validation batches, whistleblowers caused the regulatory authorities to inspect Moorfield’s GMP facility, and Moorfields shut down the facility.
6. It seems that the parties had intended that Moorfields would manufacture the drug for commercial use, under a separate supply agreement, but no supply agreement was signed.

The key points in dispute were whether the development agreement was more than a simple “fill-finish” contract for the 12 clinical study batches, and also included obligations on Moorfields (a) (as mentioned above) to supply the validation batches and (b) to continue to maintain its GMP status for as long as was required to enable SciPharm to obtain regulatory approval. The agreement wasn’t clear on these points.

In a judgment that looked in close detail at the wording of the contract, Deputy High Court Judge Andrew Hochhauser KC decided that Moorfields did have these obligations, was in breach of them, and that breach had caused SciPharm certain recoverable losses. The claim was for €1.8 million, but the level of recoverable damages is not yet clear. The judge went through various heads of damage and said yes or no to each of them, then asked counsel to agree on the level of damages that would result from his decisions. If they can’t agree, the matter will come back to the court.

The judge indicated that he was interpreting the express terms of the contract, rather than implying terms, though it looks like implying terms to IP Draughts. A key part of the judge’s reasoning was that he accepted the view of the claimant’s expert witness that a reference in the contract to “process validation” meant that Moorfields was required to manufacture additional batches for this purpose. The witness advised that:

the heading “6.0 Design Inputs: Quality Target Product Profile” in the Detailed Development Plan is “a specific regulatory term which refers to the development of generic products for marketing authorisations”, and the reference to “Regulatory and statutory requirements of the intended markets” within that heading has to be read in that context.

In IP Draughts’ view, the quoted text is rather thin as a main justification for saying that Moorfields was required to manufacture additional batches. Perhaps the judge framed it this way because English law tends not to imply extensive terms, particularly when the parties have signed a detailed agreement. As too often happens in court decisions over contract disputes, there is a smell of working out who deserves to win, then working backwards to the reasons.

How is the contract drafter supposed to ensure that disputes of this kind don’t arise? Perhaps by adding disclaimers that make clear what services will not be provided? By challenging technical colleagues to describe the services in greater detail in the technical schedule? It may be unrealistic to expect the contract drafter to have the necessary understanding of pharmaceutical science and regulation to spot inadequacies in their technical colleagues’ service descriptions.

In relation to the obligation to maintain GMP status after the contract work is completed, this seems to IP Draughts a potentially onerous obligation, and one that small-scale manufacturers should take into account when deciding whether they want to be in this line of business. Dabblers beware!

IP Draughts will be interested to see if the decision is appealed.