Commercial disputes in the life sciences sector: the complexity of assessing loss

This article is part of our Biotech Review of the Year - Issue 13 publication.

Commercial disputes involving life sciences businesses are common but resolving them can be tricky because the sector’s unique features can make assessing loss difficult. In this article, we look at some of the areas where commercial disputes most typically arise and we examine some of the features of the sector that tend to complicate damages analyses.

What kinds of disputes crop up in life sciences?

Many of the disputes commercial disputes lawyers see in life sciences arise out of the IP-rich transactions that are the hallmark of the sector. From collaboration agreements with research institutes or academia to co-development agreements, licensing deals, joint ventures and so on, the transactions that enable innovation can also become fertile ground for dispute. Commercial disputes in life sciences come in a number of flavours:

• Disputes about development or diligence obligations: For example, a party may allege that a counterparty has failed to comply with clauses requiring each party to use a certain level of effort or care – perhaps “commercially reasonable efforts”, “best endeavours” or “reasonable care and skill” – to achieve a project’s goals, for example to develop a drug candidate diligently or to maximize sales of a product or reach a specific milestone, such as to achieve regulatory approval. Innovate Pharmaceuticals Ltd v University of Portsmouth Higher Education Corporation¹ is a good recent example. A university was found to have breached a research agreement by failing to exercise reasonable skill and care in performing a research programme into the properties of IP1877B, a drug for the treatment of brain tumours.
• Financial terms: These disputes are extremely common and run the gamut of contractual payment obligations – from license fees and milestone payments (which may be tied to R&D or regulatory milestones) to royalty rates on sales and profit-sharing formulae. Disputes about indemnity provisions also frequently arise. These disputes may also throw up technical issues because payment provisions are often tied to the way “products” are defined. There are several recent examples in the English case law. See, for example, Astrazeneca UK Ltd v Tesaro Inc² (which considered whether royalties were payable on particular sales of a PARP inhibitor called niraparib) and Eteboxagu AB v Cycle Pharmaceuticals Ltd³ (which considered the appropriate royalty base for sales of a drug called NITYR, used in the treatment of a rare metabolic disorder called Hereditary Tyrosinemia Type 1).
• Disputes about termination and exit: These often arise where performance is at issue – e.g. where allegations are made of material breach. These are highly risky situations and require extremely careful thought, even more so where termination relies on issues of technical fact and time is of the essence to find an alternative supplier.
• Disputes about licences and assignments: Given that IP is the core asset for many life sciences businesses, it is unsurprising that disputes about the scope of one party’s permission to exploit another’s IP are also common. For a recent example, see Dr Vanessa Hill v Touchlight Genetics Limited⁴, in which Bristows successfully defended the Touchlight group from claims that it was not entitled to its core synthetic DNA manufacturing technology, including on the basis that the technology had not been assigned to Touchlight from the claimant.

Beyond core R&D and licensing deals, life sciences companies rely on a complex web of supply chain agreements to bring products to market. Manufacturing agreements for raw materials or APIs, supply agreements, distribution agreements and logistics contracts for transportation, warehousing and packaging services are also all ripe for disputes. Common problems include:

• Quality and compliance issues: For example, when a manufacturer delivers product that does not meet required specifications or quality standards. We often see conflicts over batches that fail testing or GMP standards, or ingredients that do not meet purity specifications.
• Delayed delivery or product shortfalls: Supply chain timing is critical. Disputes frequently occur if a supplier or CDMO misses delivery deadlines or cannot supply the agreed quantities. These disputes can be particularly sensitive because maintaining a commercial relationship is often a priority.
• Distributor performance and termination: Where a distributor underperforms (e.g. fails to hit sales targets or fails to expand the market), suppliers will likely have a right to terminate. Likewise, disputes also often arise over territory and channel restriction, for instance, a distributor selling outside its territory or selling competing products. Managing underperformance can be fraught with difficulty and clients need to be astute not to waive their rights inadvertently by failing to assert them.
• Pricing and payment disputes: Common examples include disagreements on price increases for ingredients, currency fluctuation clauses, or late or non-payment for delivered goods. More recently, rebates payable by companies to central governments (such as VPAG in the UK) have increased dramatically and so these definitions have come under increased scrutiny.
• Regulatory compliance failures: In a highly regulated sector, if a partner fails to obtain or maintain required approvals, this will cause issues throughout the supply chain. A manufacturing partner losing a regulatory certification or failing an inspection can halt production. A product not being registered or approved in a target market on time can cause substantial loss.

Why can calculating loss be particularly difficult in life sciences cases?

When assessing loss from a breach of contract, English law starts from a simple proposition: damages are intended to put the claimant in the position it would have been in had the contract been performed. In practice, this requires the decision maker – the judge or a tribunal – to compare what actually happened in the real world (the “breach” situation) with what would have happened if the breach had never occurred. The difference between the two is the starting point for the damage a claimant has suffered. The obvious difficulty is that the non-breach counterfactual is entirely hypothetical – because it never happened! – but it must still be proved. 

A practical way to approach the analysis is to ask three questions:

1. What would the claimant have done?
2. What would the defendant have done (assuming they had performed under the contract)?
3. What would third parties have done? 

Once those questions have been answered, claimants can start to estimate what they might have lost. Counterfactual analysis becomes both interesting and complex where, as in many cases, the counterfactual depends on the convergence of a number of hypothetical acts from the claimant, the defendant and third parties. The trick is to present the simplest story possible to a decision maker, which means that working with expert advisers who know the sector is essential.

Of course, this is far easier said than done when uncertainty is a key feature of the industry. Drug development is long-term, high-cost and high-risk. Even where a candidate enters clinical trials, failure remains extremely common, including at late stages. Damages models therefore demand that decision makers ask: were it not for the defendant’s breach of contract, would the programme have succeeded? Would approval have been obtained? Would launch have occurred on the claimed timetable?

Regulation adds further uncertainty. A regulator’s decision-making behaviour is outside the parties’ control and depends on complex data. A product may need to navigate multiple regimes, each with different evidential requirements and timelines. For on-market products, reimbursement policies can be fragmented and subject to change, complicating modelling of pricing and uptake across territories. 

Manufacturing can be a major source of further uncertainty. In biologics, supply constraints, yield variability and quality issues can dominate the counterfactual. Assumptions of uninterrupted supply and rapid scale-up need to be tested against the technical record: deviation history, capacity limits, validation timelines and the availability of key inputs.

Moreover, decision makers have to make findings about quantum, i.e., how much has been lost, and not just answer binary questions around whether a launch would have occurred at all. In this regard, life sciences products have pronounced lifecycle dynamics that the counterfactual must account for. For patented products, there is usually an introduction period with heavy investment, a growth phase as prescribing becomes routine, maturity as the product becomes established, and then decline following patent expiry or the arrival of new therapies. Timing therefore becomes decisive where a breach is said to have caused a missed window, whether that is first-to-market for a new product or first-mover advantage for a generic or biosimilar.

Competition also rarely arrives smoothly. Price erosion around generic entry may cause rapid initial adjustment followed by periods of relative stability as the market absorbs new entrants. Models that assume linear price decline or immediate full substitution are vulnerable unless grounded in evidence about how the relevant market behaves. Timing also affects business realities: a delay that pushes launch close to loss of exclusivity may make continued development materially less attractive, which changes what parties plausibly would have done in the non-breach world. In other words, a claimant may not have bothered commercialising a product at all.

Life sciences markets are also noisy. Performance may be affected simultaneously by regulatory developments, competitor launches, changes in reimbursement, supply shortages, evolving standards of care, new clinical data and wider economic conditions. Damages assessments therefore often turn on isolating the incremental effect of the breach from unrelated forces.

Conclusion

Damages cases are won and lost on clarity. Judges and tribunals are more than capable of following complex models but they need a coherent narrative that links the breach, the consequences and the numbers. Quantum evidence is most persuasive when it is anchored in the technical and factual evidence, rather than running on a separate parallel track. Scene-setting matters, particularly where the decision maker is not steeped in the science or in the sector itself. The key takeaway is that litigants and their advisers need to advance a case theory that accounts for the peculiarities and complexities of the life sciences sector and be able to carry the decision maker along with them. 

Footnotes

[1] [2022] EWHC 1681 (TCC)

[2] [2024] EWCA Civ 78

[3] [2023] EWHC 462 (Comm)

[4] [2025] EWHC 107 (Pat)