As part of a series of interviews with in-house counsel, Thomas J. Knapp, interim general counsel of Galena Biopharma Inc., recently spoke with Bloomberg BNA's Michael Greene on what it is like for a small company in the competitive and highly regulated biopharmaceutical industry to work with outside counsel. Knapp also discusses why he believes the law firm model of billable hours isn't ideal for the provision of legal services, and why it may be up to in-house counsel to drive change in that area.
Bloomberg BNA: Could you talk a little bit about how you became interim general counsel at Galena Biopharma?
Thomas Knapp: I had been general counsel of a small publicly traded pharmaceutical company in Maryland and, after a management turnover, was looking for another opportunity. I was introduced to the chief executive officer of Galena Biopharma at a pharmaceutical conference in Chicago and learned about the company, its history and its current needs. Galena was attractive because it had a number of issues that needed to be resolved quickly. The company is also working on a very exciting trial to address a very serious unmet medical need—a vaccine to prevent the reoccurrence of breast cancer. My mother died after a recurrence of breast cancer, so the opportunity to be part of a team working to prevent this disease was very appealing to me. After a series of conversations with the CEO and board members, we firmed up a deal.
BBNA: Was being an in-house counsel always something in your plans?
Knapp: Not always. I have had a varied career in that I have gone in-house, outside, in-house, outside and now back inside. I've been in several industries and with a governmental agency. If an opportunity interested me and looked good, I jumped.
BBNA: How does the work of being an in-house counsel differ from representing companies while working at an external firm?
Knapp: It is quite a bit different in that you have to make sure that your team of people is fulfilling all of their duties accurately and appropriately, and in the best interests of the company and its shareholders. You obviously feel a strong sense of teamwork with all the other employees to accomplish corporate objectives and follow the mission of the company.
In a law firm, you are doing what's best for your clients, but you also have to keep the interests of the law firm (and of yourself) in your sights. In addition, even though you're in the trenches with clients and get to know them very well, you still go back to another office. And clients can change throughout the day, the week, the month or the year.
BBNA: Could you address the distinct challenges, and perhaps advantages, you may have in each position?
Knapp: When you're in-house you have one client—the company. You learn the people, politics and business of the company from the inside out and are able to take actions to help make the company successful. It is an advantage to work with a team towards the success of one organization. Of course, depending on the organization, it can also be challenging to work within a corporate structure. In a law firm, the disadvantage is that you're never really part of a team. You're pretty much developing yourself and trying to maximize your business. So you don't really have that sense of teamwork or the concept of working towards a certain common goal.
BBNA: As a general matter, what types of things attract you in looking for potential outside counsel?
Knapp: Their ability, experience and expertise are what I look for. An outside counsel's understanding of the company's business is incredibly important to me—it's the key to outside counsel success in representing any company. It's crucially important that they know and have directly relevant experience so they can hit the ground running and make real contributions right out of the gate.
BBNA: What kind of things alert you that a law firm knows your business as opposed to one that doesn't?
Knapp: Actually, it is easy to tell and becomes evident fairly quickly. Sometimes even one conference call will tell the tale. After we explain a situation, all you have to do is listen to responses and questions. If someone knows the business, their responses and questions will be on point, and so will their suggestions for possible actions.
BBNA: Are there any factors that may turn you away from a particular law firm?
Knapp: Lack of knowledge about the industry, attitude, and perhaps an unwillingness to work on efficiencies and pricing. Also, if approaches are suggested that aren't in keeping with the direction of the company, that firm might not be a good fit with the organization, culturally or otherwise. That happens sometimes. There are always several approaches to every issue, and not everyone fits into the culture of every organization.
So, as you would with any outside consultant, you're looking to find the right fit. The attorney also has to be willing to partner with you, to work with you on pricing, and to show he or she can manage the people from the firm who are going to work for and with your company.
BBNA: Can pricing be an instant disqualifier?
Knapp: It would be a disqualifier if a firm was unwilling to negotiate. In my view, all firms should be willing to negotiate the price.
BBNA: As a general matter, is there any type of work that you believe is better suited to external counsel? Does being in a small company impact what needs to be done with external counsel?
Knapp: Most smaller organizations handle the bulk of their litigation externally. You wouldn't be able to handle all litigation in-house because you simply don't have the people.
Your big M&A deals probably also are going to be outsourced.
On the other hand, regulatory and compliance issues and contractual matters can be handled internally. In fact, if you have a good contract administration group, you are going to be doing probably 90 to 95 percent of your contracts in-house. And that's probably a good thing because it allows the legal department to learn the company's business as well as gain an appreciation of other functional groups in the organization.
For intellectual property, you may go outside unless you're big enough to have your own IP team. And the list goes on.
BBNA: What type of ratio does Galena Biopharma maintain between in-house and external counsel?
Knapp: 50-50. Like other small companies, Galena has a single in-house counsel. I probably provide about 70 percent or less of the legal services for the company because the GC role has really evolved into both a legal and a business adviser role, so I spend a fair amount of time on business issues.
BBNA: How many law firms are you currently working with and do you see that continuing into the future?
Knapp: We're using three outside firms and that's unlikely to change in the immediate future. Looking ahead, if the company is successful with its trial and grows, that would be an opportunity to bring in in-house people to deal with the additional legal services that come with growth.
BBNA: What would tip the scales, if anything, to using more outside firms?
Knapp: Time. There is never enough of that commodity. Things always come up—a crisis here or an important matter there that requires immediate attention. That means more work for outside firms.
BBNA: What keeps you up at night? The biopharma industry is under intense regulatory scrutiny. How does this impact your work?
Knapp: It does impact your work. A lot. You're always concerned that you are doing the right thing, giving the correct advice. Making sure the i's are dotted and the t's are crossed, and there are a lot of those. Being swept into a government investigation is always a concern.
You're also always concerned that everyone in the company knows what the right thing is and is doing it. There are a lot of moving parts to keep track of. Making sure the company is on the right track and successful, and keeping abreast and ahead of changes in the regulatory environment certainly are things that take up a fair amount of my attention.
BBNA: Has anything changed within the last year that makes it more difficult to do your job?
Knapp: You're always going to be on the lookout to ensure that the company is in accord with the regulatory environment. That environment, as well as the case law for the environment, is constantly evolving. So you need to be on top of that. I would say that's the part of the business that changes from year to year.
BBNA: Are there other issues you've encountered in your experience that you think may interest other corporate counsel?
Knapp: I'm a member of a group of in-house counsel that is working towards changing the compensation model for external counsel. One of the suggested approaches is compensating outside counsel by project instead of by hours. Obviously, the model needs to be tweaked to be fair to everyone, but it is food for thought.
BBNA: What, if anything, can be done to change this model?
Knapp: More in-house counsel need to negotiate this model with their outside firms. They can experiment on small projects first to see how the arrangement works for both parties. There is room for change, and in-house counsel must be the drivers of that change.
Thomas Knapp has over 20 years of corporate and large legal firm experience with regulated industries. Prior to joining Galena Biopharma Inc., a publicly traded biopharmaceutical company, as interim general counsel and corporate secretary, Knapp was executive vice president, chief legal officer and corporate secretary for Sucampo Pharmaceuticals Inc., a publicly traded biopharmaceutical company, from 2010 to 2015 where he was responsible for all in-house and outside legal activities, including governance and compliance activities, litigation, M&A and licensing. Prior to Sucampo, he was vice president, general counsel and corporate secretary at NorthWestern Corp. He's also held senior in-house attorney positions at the Boeing Co. and Burlington Northern & Santa Fe Railway Co., and was of counsel at Paul, Hastings, Janofsky & Walker LLP.
Knapp also is a member of the Association of Corporate Counsel and the American Bar Association.
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