BioWorld International Correspondent

LONDON - Biotech companies often question the need to take out liability insurance when they have no products on the market.

But the outbreak of foot and mouth disease in the UK this month, caused when the virus escaped from a laboratory, has not only highlighted the potential ramifications of an escape of biomaterials. It demonstrates also that companies with drugs in development could face public liability claims in the event of a lapse in biosecurity.

"A lot of early stage biotech companies I get involved with are working on preclinical projects and think they just need to cover their basic office and equipment," Andrew Tamworth, business development director of Giles Insurance Brokers, told BioWorld International.

"While some are aware of the possibility of facing liability claims, some aren't, and I've often found they resist the idea of product liability."

Two reports are due to be published in the next week on how the virus escaped and whether the source was the government Institute of Animal Health (IAH), or the foot and mouth vaccine manufacturing plant, Merial Animal Health Ltd, which share the same site in Pirbright, Surrey.

Whatever the findings, Tamworth said the incident shows a product does not need to have been 'sold' to lead to a potential liability. "A lot of start-ups don't think about these kinds of risk issues, they just want to insure assets."

For a company working with pathogens, it may be viewed that care is owed to the general public to maintain biosecurity. It is also the case that a company can be held vicariously liable for the actions of its employees, even if these actions are dishonest or malicious.

In addition to what happens in their own laboratories, small biotechs use a lot of outsourcing in their R&D operations. "While you would expect outsourcing companies to have liability insurance, a biotech could find itself having to deal with an incident, handling the media, having work in progress disrupted, that is not down to its own negligence," said Tamworth.

The direct costs may be only the tip of the iceberg and contingency plans need to include the cost of management time and the skills needed to respond effectively.

Restrictions on animal movements and exports have been lifted following the outbreak, which affected two farms close to the Pirbright site. Pirbright itself remains under a five kilometer biosecurity cordon. The 01BFS67 strain of the foot and mouth virus that caused the disease was being worked on by both the IAH and Merial at the time the escape occurred.