Category: Czech Republic

Life Sciences R&D has consistently been touted as one of the Czech government’s top priorities – and the markets and investors have not been indifferent. We reached out to several experts to check up on the overall health of life sciences R&D in the Czech Republic and learn how that priority translates into practice.

A Strong Academic Foundation

“The country has a strong tradition of academic excellence and research in life sciences,” as PRK Partners Partner Monika Maskova points out, “with Czech universities having a great international reputation and their research work being recognized, particularly, in molecular genetics, immunology, analytical and pharmaceutical chemistry and biochemistry, cardiology, neurology, metabolic diseases and, more recently, medical applications of nanotechnologies.” Glatzova & Co Partner Jiri Sixta also highlights “the deep tradition in the R&D area – from Professor Heyrovsky to Professor Holy and others making unique progress in various areas of life sciences.”

The Czech Republic maintains a high number of graduates in natural sciences (biology, physics, mathematics), Dubanska & Co Partner Barbora Dubanska explains, noting that the country is “doing quite well in attracting the prestigious European Research Council Grants, with an average of four awarded every year. We have the positive examples of Gilead and IOCB, with Charles University and some others also emphasizing the work of their tech transfer offices.” Maskova agrees, saying the high-quality education is supported by close ties between the academic community and the industry “supporting the translation of results from basic research into applications and commercial assets.” According to her, all this translates into “the availability of highly skilled university graduates and industry-specific staff, at a competitive cost.”

In Good Health

There are several positives on the business side as well. Czech life sciences R&D “has received a great deal of attention and support, in recent years, not only from academia but also from the public sector and, most importantly, from investors,” JSK Partner Tomas Dolezil notes. Dozens of companies of all sizes – including many young firms and start-ups – operate in this field, he says, “characterized by an extremely high innovation potential, an above-average number of projects successfully applied to the market, and the high added value of products and high pro-export potential.” Sixta agrees, saying he believes “the Czech Republic is more attractive for life sciences R&D than other CEE countries.”

Dolezil also highlights “the extensive experience in the sector,” with numerous companies “developing their own R&D and education departments.” As Dubanska notes, “local scientists and healthcare professionals are also keener to work with partners – on clinical trials or other projects – as low base salaries mean the extra income is well worth the added effort.”

“And we are quite efficient at running clinical trials,” Dubanska offers, “in terms of timeframes and costs, and we also have a national template for a clinical trial agreement, so less time needs to be spent on negotiations.” Manufacturers of medical devices cooperate with clinical workplaces, Dolezil notes, “both in the research and development of new devices and, later, in the application phase,” also improving the level of medical care.

Finally, Dubanksa also lists some solid supporting factors: “the relatively robust healthcare system, with a decent amount of spending; and the Czech Republic being relatively quick to adopt new medical devices and innovative medicines – both legally and from a mindset perspective.”

But Not Outstanding

Still, Dubanksa is adamant she “would not overestimate the Czech Republic.” While the country is doing well – it isn’t necessarily ahead of its CEE competitors: “We don’t do enough to support technology transfer and, comparatively, we don’t see that many spin-offs, as there’s not enough support or security for them to pursue the road of a biotech startup. Don’t get me wrong, we do have the highlights of Diana Biotechnologies or Oxygen Biotech – but there’s not really a number of those lining up.”

Looking across CEE, Dubanska says Poland is ahead on startups and has a bigger market. She notes that for Czech Zentiva, Poland has Polpharma – “with both companies looking into supporting startups. The Czech Republic also has the factories of Teva – but then Hungary has Gedeon Richter. And Austria’s Boehringer Ingelheim is doing very well, building a new research center, with Austria also boasting very good academics and results.”

Dolezil agrees, saying that the main challenges are “due to the absence of communication between government, university entities, and the commercial sector. Primarily, we still lack the legislative conditions for tech transfer, i.e., for the creation of an innovative environment for the establishment of spin-offs, start-ups, and cooperation with business.”

For Sixta, it’s still mostly a money problem: “while the funding is getting better,” he says, “we are still lacking massive private funding in this area.” We need more grants to fund R&D, Dubanska agrees, and “the money life sciences researchers get is peanuts – so that’s not conducive to more researchers joining the field.”

Lagging Legislation

When speaking about sector-specific challenges, Maskova says “the life sciences sector is highly regulated, with the legal framework often lagging behind the state of play.” This puts pressure on the companies’ ability to navigate complicated regulatory pathways, she says, noting that currently, “compliance issues occur particularly in connection with implementing new technologies and digitalization.”

Dubanska says this also leads to an imbalance in the market. “Most biotech startups focus on medical devices or AI and digitalization, with Carebot being a good example, and not necessarily on pure innovation – new molecules, drugs, or diagnostics – as clinical trials are still too complex and expensive for small operations. Streamlining clinical trials’ legal and administrative obstacles would go a long way,” she says.

Sixta highlights “the relatively effective patent protection system,” but says “its flexibility and the speed of the processes could still be improved,” with Dolezil adding that, “on both the local and European level, we would need to further develop the protection of intellectual property for early-stage research or open data.” New areas, such as “human resources and ethics in life sciences as well as the protection of the state’s security in research,” also face a lack of regulation and require support, according to Dolezil.

Just How Much of a Priority?

Maskova sums up the positives: “Public funding of over EUR 2.5 billion was allocated in the last decade to building research facilities,” she says, with Sixta pointing out the Czech government is providing significant subsidies, including to the Czech Academy of Sciences. “The government also provides investment incentives, to invest in R&D, employ researchers, and cooperate with universities and research institutions,” Maskova adds.

Dolezil agrees there is state financial support towards R&D in general, with funding for the Research, Development, and Innovation Council set to increase by 15% until 2025. Still, he points out, “that trend does not fully mirror the needs of the sector. We see a huge lack not only of direct financing but also of institutional support in general.” The high entry costs for life sciences R&D, “needing access to expensive infrastructure like research laboratories, is why additional government support is needed,” Dubanska points out.

Finally, she highlights the gap between data and action: “The demographics show the population getting older and sicker. With the current system, we’ll run out of money soon. We know it’s an important sector and we should pour more money into R&D, to facilitate the digitalization of healthcare and restructuring the system – shifting the focus to prevention rather than more expensive care.”

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Although the intensity of solar radiation in the Czech Republic is not particularly significant, the state has extensively subsidized the construction of solar power plants in order to meet its commitments to the European Union regarding the financing of renewable energy sources. In 2009 and 2010, the Czech Republic experienced a solar boom when solar power plants were built on a large scale. Financial support for solar power plants, however, has undergone radical changes since then.

Solar Power Plant Operators Sue the Czech Republic

In this context, there has been a recent proliferation of solar power plant operators seeking compensation from the Czech state for alleged damages on the basis that Czech authorities incorrectly transposed into domestic law Directive 2012/19/EU, on waste electrical and electronic equipment (WEEE Directive). The number of applications to initiate proceedings in similar cases in the Czech Republic has grown to 230, with alleged damages amounting to CZK 2 billion.

The solar power plant operators claim that the Czech state caused them harm when, under Czech law at the time, they were liable for the waste management costs associated with solar panels. Since that is inconsistent with the WEEE Directive, which placed the financial burden on panel manufacturers, not on the operators, the argument was that it is the manufacturers who should bear the waste management costs of solar panels placed on the market after August 13, 2005.

While the common practice of the lower courts was to rule in favor of the operators, the Supreme Court of the Czech Republic referred the matter to the European Court of Justice (ECJ) for a preliminary ruling that reversed this practice.

Findings of the ECJ

The ECJ first concluded that it is possible to classify solar panels as electrical and electronic equipment within the meaning of the WEEE Directive and, thus, the obligation to finance the waste management costs of solar panels placed on the market after August 13, 2005, should be borne by the manufacturers of the panels.

However, according to the EU legislation which existed before the WEEE Directive was adopted, member states had had the choice of requiring the waste management costs to be borne either by the current or previous waste holders, or by the manufacturer or distributor of the panels. When a member state chose to burden subjects other than panel manufacturers – i.e., differently from the WEEE Directive that came afterward – the WEEE Directive affected situations that had been established before it entered into force.

It was concluded that the new rule thus breaches the principle of non-retroactivity of legal acts as it changed a previously established situation where it altered (subsequently and unforeseeably) the allocation of costs. Manufacturers of solar panels were legitimately able to rely on the allocation of those costs that was provided for in the legislation existing at the time, and thus the new rule denies those manufacturers any real possibility of taking appropriate steps following the legislation’s entry into force. In other words, manufacturers of solar panels were unable to foresee, when designing the solar panels, that they would subsequently be required to bear the waste management costs of such solar panels.

Since the WEEE Directive infringes the principle of legal certainty, the ECJ declared the WEEE Directive invalid to the extent it retroactively imposes on manufacturers the obligation to finance the waste management costs relating to the management of solar panels placed on the market between August 13, 2005, and August 13, 2012.

The Supreme Court of the Czech Republic has already ruled on the basis of the ECJ’s judgment, by reversing the lower courts’ judgment in favor of the Czech state. According to the press release, it will take a similar approach to other similar cases. It can be assumed that the lower courts will follow the Supreme Court’s decision.

Gateway Closed

For a while, a gateway was open for operators of solar power plants to recover the waste management costs associated with solar panels. However, that gateway was closed following the intervention of the Supreme Court of the Czech Republic and the ECJ, which did not accept the operators’ arguments and thus did not require panel manufacturers to retrospectively and unforeseeably bear the costs of recycling the panels at the end of their operational life. Thus, based on the legal position taken by the ECJ, the actions by the Czech solar power plant operators were, in the end, unsuccessful.

By Tomas Sequens, Partner, and Jiri Dycka, Junior Lawyer, Kocian Solc Balastik

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Kocian Solc Balastik has advised Heureka Group on its acquisition of Balikobot. Solo practitioner Martin Buchta reportedly advised the seller. 

Heureka Group is a shopping advisor and price comparison tool that operates in the Czech Republic and other CEE countries.

Operating since 2014, Balikobot provides automated data exchange on parcels, pallets, and letters from e-commerce or enterprise systems to carriers.

In 2021, KSB also advised Heureka Group on its acquisition of Dataweps (as reported by CEE Legal Matters on March 29, 2021). 

The KSB team included Partner Petr Kasik, Lawyers Jakub Porod, Jaroslav Zahradnicek, and Tomas Travnicek, and Junior Lawyers Filip Rehak and Karolina Vosatkova.

PwC Legal Czech Republic has advised the Forez shareholders on their sale of the company to the BR Group. Forlex advised the buyer.

Forez is a Czech metal and plastics molding company supplying mainly the automotive industry. The BR Group is a Czech holding company operating in the textile, plastics, and engineering industries.

The PwC Legal team was led by Attorney-at-Law Vendelin Balog and Legal Assistant Martina Sedlackova.

The Forlex team was led by Partner Pavel Riha.

Allen & Overy, in partnership with Clearstream and Euroclear, has advised on the drafting and implementation of bondholder tax certification procedures in the Czech Republic.

“These procedures are designed to provide for the effective management of issuers’ post-issuance withholding tax compliance obligations arising under the new 2022 Czech Eurobond taxation rules,” Allen & Overy informed. “The procedures represent a complex multiparty information chain arrangement, which will enable Czech issuers to once again tap into the essential Eurobond market while allowing them to duly address the withholding tax obligations that they have as withholding agents. This should relieve issuers of the existing financial and reputational risks, and significantly reduce the costs of financing by enabling issuers to avoid the adverse consequences of grossing-up payments to investors.”

According to Allen & Overy, the procedures were finalized and approved by the International Capital Market Services Association.

The Allen & Overy team was led by Partner Petr Vybiral and included Senior Tax Adviser Michal Dusek and Junior Lawyer Jan Mourek.

Dentons has advised Ceska Sporitelna on its EUR 113 million refinancing of Zeitgeist Asset Management’s residential real estate portfolio. BNT Attorneys reportedly advised Zeitgeist.

“The deal will enable Zeitgeist to ensure the financial stability of its current portfolio for the next 10 years,” Dentons announced. “Through its financing of this project, Ceska Sporitelna demonstrates its support of quality alternatives to home ownership, by bringing more stability into the Czech rental market.”

Erste Bank’s subsidiary Ceska Sporitelna provides services to individuals and small and medium-sized enterprises.

Prague-headquartered Zeitgeist Asset Management specializes in development services and asset management for private and institutional investors. The company has operations in the Czech Republic, Poland, Hungary, and Germany.

The Dentons team was led by Partner Daniel Hurych and included Counsels Martin Mandulak and Jana Malkova Zelechovska and Associates Martin Fiala, Samuel Bodik, Jan Blazek, and Leontyna Bartova.

 

Kinstellar has advised Helaba on the financing provided to Czech developer Crestyl for the revitalization of the NR7 building in Prague.

According to Kinstellar, “the landmark property, with a total area of approximately 5,600 square meters, is located at the heart of Prague’s historic city center, on Namesti Republiky, opposite the Palladium shopping center, and offers excellent visibility in an area characterized by good retail, office, hotel, and downtown residential locations. NR7 benefits from excellent accessibility by public transport due to its location and infrastructure.”

Commercial bank Helaba is a German company that has been active in CEE for more than 16 years.

The Kinstellar team was led by Partner Klara Stepankova and Managing Associate Leo Javorek and included Senior Associate Vaclav Kment and Junior Associate Igor Sebo.

Kinstellar did not respond to our inquiry on the matter.

JSK has advised Credit Value Investments on its investment in the Saunia Group through a bond financing. BDO Legal reportedly advised Saunia.

According to JSK, “Saunia used the funds to pay other liabilities and for further development.”

CVI is an asset manager that focuses on investments in small and medium enterprises, as well as real estate projects in Poland and other countries in Central and Eastern Europe.

Saunia is a sauna-focused wellness company in the Czech Republic, with a network of 16 branches.

The JSK team was led by Partner Tomas Dolezil and included Associate Daniel Pospisil and Junior Lawyer Jan Koprnicky.

Editor’s Note: After this article was published, BDO Legal confirmed it had advised Saunia. The firm’s team was led by Partner Stepan Klecek.

Majernik & Mihalikova also announced that it had advised CVI on Slovak law-related matters. The firm’s team included Partner Katarina Mihalikova, Of Counsel Michal Ranostaj, and Senior Associate Michaela Lipkova.

Potential political switch-up, construction legislation changes, and economic ups and downs are the talk of the town in the Czech Republic, according to Havel & Partners Partner Robert Nespurek.

“The municipal and senate elections, slotted for late September, are likely to shake up the local political landscape,” Nespurek begins. “We also have the presidential elections in January 2023, so, from a political perspective, the scenery might change somewhat,” he says. Last year, following a general election, “the Czech Republic saw the rise of a new, center-right government, made up of a five-party coalition,” he adds.

On legislation, Nespurek reports a few updates of note. “The new construction legislation, which passed all approval stages and was set to enter into force in 2023, has been postponed by the government,” he says. For the housing sector, he stresses that “construction is delayed on account of permits being tough to obtain as well as the diminishing supply of materials and rising prices – the new legislation was meant to address some of these issues, but the delay means the problems are likely to persist.”

Nespurek then says that the legislative landscape has been changing to take into account “over 300,000 refugees coming in from Ukraine. Catering for their needs, making sure they receive access to work, healthcare, and education systems – as well as relaying material and military aid to Ukraine – was a legislative priority,” he says. Finally, he indicates that the “parliament is expected to pass legislation implementing the whistleblowing directive framework of the European Union. The legislation should take effect in the middle of 2023 and is set to affect the compliance work of lawyers,” he explains.

As for the economy, Nespurek points out the “National Bank has been raising interest rates, which has, in turn, affected businesses and finance, leading to rising financing costs as well as costs of mortgages and loans.” The rising energy prices, only exacerbated by the war and rising price of gas, have been affecting the country as well. “The country is heavily dependent on Russian-sourced gas,” he says, “so the current crisis spurs questions of what will happen by winter and how the government would tackle the problem.”

With the Czech National Bank changing leadership recently, Nespurek shares that “it remains to be seen if the interest rates would rise further. The new head, Ales Michl, has expressed that no further increases are likely, on account of prediction models showing that inflation should decrease over the next couple of years.” Nespurek feels, however, that it is difficult to predict if this “wait and watch” approach will bear fruit. “We would have to look at the numbers of this year’s third quarter, once available, and analyze these thoroughly before making any calls,” he explains. Still, the economy overall is “performing strongly,” and he emphasizes that this is a good indicator for the immediate future.

On that point, Nespurek highlights the issues in the automotive industry. “Unfortunately, we’ve seen a decrease of the production capabilities of the automotive sector – Ukraine was an important supplier of parts, so the war hit this sector hard,” he explains. This came at a particularly inopportune time, as the market is also faced with “the transition to electric and other alternative energy source engines. Now, with additional stress, the industry will have to run the gauntlet.”

Not to end on a grim note, Nespurek does point out that the TMT and IT sector has been thriving. “Following Rohlik – a food e-commerce and delivery company – becoming a unicorn, the entire sector has been experiencing growth and has continued to attract a strong flow of venture capital funding,” he concludes.

Havel & Partners has advised European Housing Services on its investment in M&M Reality. Kocian Solc Balastik advised PM Family Estates as the sellers.

The transaction remains contingent on regulatory approval.

According to Havel & Partners, “the EHS real estate group now holds a 50% stake in M&M Reality, and the total investment has exceeded CZK 1 billion. The group’s goal is to further strengthen its position in the domestic market and to become a strong player in Central Europe. The group is currently preparing to enter Germany and Austria.”

M&M Reality is a Czech Republic-based real estate company.

Havel & Partners’ team included Partner Petr Dohnal, Associate Josef Bouchal, and Legal Assistant Filip Pavlik.

KSB’s team included Partner Dagmar Dubecka, Counsel Jan Cernohouz, Senior Associate Jakub Porod, Junior Associate Karolina Vosatkova, and Tax Advisor Simona Hornochova.

Editor’s Note: This article was updated to include an expanded KSB team.