The companies I represent supply their drugs, devices or components to other companies and/or institutions (hospitals) that need them. I help the companies negotiate the agreements that cover the purchase and sale of those products.

In negotiating the terms, it’s MAINLY about indemnification and warranty, and THEN about pricing, volume, shipping and delivery.

I’ll break it down in the blog here today. So without further ado…..

 

#1 biggest negotiation points: Indemnification and Warranty – 

Indemnification

Indemnification is strictly a legal provision.  It addresses who is responsible for payment in the event there is an injury or property damage.

If a patient is injured for example, they are going to sue the hospital or the doctor that administered the drug or implanted the device.  The hospital is going to turn around and look at who is going to pay.

The pharmaceutical company (you) agrees to pay for injury or property damage that happens as a direct result of the use of the Product, however, you can limit that kind of exposure by making sure the indemnification language includes a carve out if the damage or injury occurs as a result of Customer/hospital’s negligent use of the Product, such as not following the instructions for use or using the Product in combination with another non-Company Product.

If you don’t have this language set in stone, or some form of it, you’re not protected if a patient gets injured.  You don’t want to unnecessarily expose yourself to a lawsuit that will bankrupt you and the company.

 

Warranty

If there’s a problem, who is gonna pay for it? Standard Product Warranties state that the Product is manufactured in accordance with good manufacturing practices and other warranties. Try to limit the warranty to warranties on Product IFU.

 

Example of a Good Warranty That Saved The Pharmaceutical Company

A Famous actor’s premature newborn was in the ICU when the infant was inadvertently given the wrong dose of Product. Fortunately the mistake was discovered in time and corrected, however the manufacturer was sued along with the hospital. The lawsuit claimed defective Product but ultimately shown to be the negligent administration of the drug that caused the injury not the Product. That language concerning properly administered Product and following the instructions for use kept the manufacturer from having to pay hefty damages.

Your reps would prefer not to have any warranty, but your customers and the hospitals want a warranty because it makes them feel safer.  That’s the last thing after the indemnification clause that is vitally important for helping your reps to sell your drug or implant.

Now that we’ve covered the most important negotiation points, once you’re solid on that, keep reading about negotiation for pricing, volume and shipping.

 

Pricing

The key to pricing terms is to be able to negotiate first year firm pricing with the option to adjust pricing after the first year.

This allows your company the opportunity to raise pricing if they are in a long term contract. The companies or institutions receiving the Product will want to lock in pricing for the full 3 or 4 year term which is not advantageous for your client.

Another note: I would not accept auto renewal or “evergreen” terms as these are also not good as they lock in pricing. You want to be able to get out of the contract or renew it while increasing pricing on your terms, when you are ready to do so.

 

Volume

Some companies will propose language that requires your pricing to be better/cheaper than prices offered by other Suppliers. Try to avoid this language if at all possible to avoid that burden and if you cannot avoid it at least limit exposure by narrowing the focus to pricing offered to other similarly situated customers purchasing similar volumes of Product.

 

Shipping

Who is responsible and who will pay for it, and at what point in time?

Key shipping terms have to do with the timing of responsibility for title and risk of loss of Product during shipment since lots can go wrong during shipping. Most Suppliers want “FOB shipping or Origin” which allows title and risk of loss to pass to the Customer upon shipment/delivery of product to the carrier. Shipping is prepaid and added to the invoice. Companies receiving the Product push for “FOB Destination” which makes Supplier responsible for shipping until Company actually receives the product at its dock or facility.

Products that require refrigeration at a particular temperature. In transit, the refrigerator stops working. Who is responsible for the damaged Product? Depends on the shipping terms and other liability provisions,  that will determine who has to take responsibility and pay for the damaged product.

Don’t Let Your Pharma Company Go Bankrupt

If you’ve covered these 5 main points in your agreement you’ve got a good contract that’s going to protect you in this transaction and all transactions when entering into a purchase agreement.  You want these terms to be to your advantage.

Don’t let your pharma company go bankrupt from a lawsuit.

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