I recently spoke at a biosimilars conference in Boston, MA and one topic that came up multiple times is the antitrust issue relating to Remicade®. I reviewed the recent decision involving Remicade® and its biosimilar, Inflectra®, to see if the court provided any insights into how antitrust issues dealing with biosimilars, particularly those involving “exclusionary contracts” and rebates, will be addressed.
On August 10, 2018, the Pennsylvania Court denied Johnson & Johnson’s (“J&J”) motion to dismiss Pfizer’s antitrust lawsuit relating to its Remicade® biosimilar, Inflectra®. We previously wrote how Pfizer sued J&J in the U.S. District Court for the Eastern District of Pennsylvania in September 2017 alleging that J&J has been conducting “anti-competitive practices” to prevent biosimilar competition by effectively preventing health insurers, hospitals, and clinics from offering Pfizer's lower-priced biosimilar product. According to Pfizer, J&J forced hospitals and insurers to enter exclusive arrangements and bundled rebate programs to ensure that Remicade® was given preferential treatment over Inflectra®.
J&J moved to dismiss the lawsuit, but on August 10, the Court denied Janssen’s motion and is allowing the antitrust suit, the first lawsuit of its kind in the biosimilar field, to continue. In it’s ruling, the Court provides insights as to how some antitrust issues relating to biosimilar market entry may be analyzed.
First, the Court addressed the issue of exclusionary agreements. In Pfizer’s lawsuit, Pfizer alleged that J&J forced hospitals and insurers to enter exclusive arrangements to exclude biosimilars other than Remicade® from coverage under their plans, thereby making Remicade® the exclusive infliximab available to patients covered by that plan. These exclusionary agreements are particularly important in the context biologics. Remicade® and Inflectra®, like most biologics, are administered intravenously at a clinic or hosptial. They are a “medical benefit” product, rather than a “pharmacy benefit” product, which means they must be stocked in advance by providers, rather than directly purchased by patients on an as-needed basis. Since the providers bear the financial risk of reimbursement, there is an incentive for them to stock the drug that will actually be covered by most insurers.
J&J tried to argue that there is no correlation between Inflectra’s® poor market traction and sales and J&J’s exclusionary contracts with insurers and providers and pointed to a number of alternative theories to explain the marked difference in sales between the two products. In particular, J&J argued that the lack of commercial success of Inflectra® was independent of J&J’s exclusionary agreements, and instead were due to provider’s lack of comfort with biosimilars, Inflectra's® status as a “biosimilar” rather than as an “interchangeable”, and Remicade’s® cost-effectiveness.
In the end, the Court dismissed J&J’s argument that Pfizer needed to disprove all of their alternate theories of why sales of its product were lagging at this stage of litigation. By holding that Pfizer was not required to disprove all other theories on a motion to dismiss, the Court left open the possibility that J&J, or a future innovator, could exonerate itself using one or more of these alternate theories. That is an important takeaway because it suggests that even though J&J’s actions could lead to antitrust liability, i.e., by entering into exclusionary contracts, it also provided ways to avoid such liability.
Bundled Rebates and Multi-Product Bundling Programs
Second, the Court addressed the issue of bundled rebates and multi-product bundling programs. In one instance, Pfizer alleged that J&J introduced a rebate program that would provide savings off Remicade®’s increasing list price for all existing Remicade® patients, which would, in effect, bundle the base of existing Remicade® patients with new patients entering the infliximab market. To this end, the Court held that bundled rebates can be anticompetitive when they preclude competition for new infliximab patients by being linked to noncontestable (existing) patients. This, of course, assumes that new patients are contestable because they are not anchored to a product while existing patients are incontestable because they are anchored to a product. Under this reasoning, the Court found that J&J’s rebate program could be anticompetitive since it “bundled its power over existing Remicade patients to break the competitive mechanism and deprive new infliximab patients (and their insurers) of the ability to make a meaningful choice between Remicade and its biosimilars.” The Court, therefore, refused to dismiss Pfizer’s bundling claim. Since most biologics have legacy patients, this factor may be relevant to future rebate schemes. Specifically, this shows that rebate schemes may be tailored by innovators to potentially exclude non-competitive products and avoid antitrust liability
Additionally, Pfizer alleged that J&J bundled rebates across multiple products to force insurers to grant exclusivity to Remicade® or pay higher prices on other J&J products. J&J argued that this claim should be dismissed because Pfizer failed to offer its own multi-product bundles. The Court appears to have sided with J&J on this issue and held that bundling rebates across multiple products is not, per se, an antitrust violation. The Court noted that Pfizer was not a single-product company and therefore had the capacity to offer such bundles itself. This seems to suggest that whether or not rebates schemes are permissible will depend, in part, on who the biosimilar competitor actually is.
Companies developing innovator and biosimilar products, alike, should be aware of the outcomes of this dispute. At least one United States District Court has found that certain pricing tactics may rise to the level of impermissible monopolization. The outcome of this case will likely provide more insights on which pricing practices are permissible under antitrust laws and which are not.
We will continue to monitor the case and provide updates as they become available.
The Massachusetts Legislature passed non-compete reform in the final days of the 2018 session which will take effect on October 1, 2018. A non-compete clause, or covenant not to compete, is a clause under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer). The purpose of these clauses is to protect employers against an employee who may exploit confidential information, trade secrets, or sensitive information, such as customer/client lists, business practices, etc., to gain a competitive edge when working for a competitor or starting a business. These types of clauses are sometimes referred to as "restrictive covenants."
Massachusetts has long debated non-compete reform. This reform will not only affect biotech and pharma employers in Boston, but other employers in Massachusetts as well. While employers will still be able to use non-compete agreements for most workers under the new law, employers will have to adopt a new approach to drafting, implementing, and enforcing these agreements. Some key components of the new law, known as “An Act relative to the judicial enforcement of noncompetition agreements,” (the “Act”) are provided below:
Employer need to pay during the restricted period: The Act requires employers to pay employees “garden leave pay” or some “other mutually-agreed upon consideration” during the restricted period. The Act imposes no specific requirements on the value or timing of any “other” consideration the employer and employee may agree upon as an alternative to garden leave.
The new law only applies to agreements entered into on or after October 1, 2018: Older agreements are not voided, but employers should consider revisiting the existing agreements and determining whether they should be updated or amended.
Continued employment is not sufficient consideration: Employers must provide “fair and reasonable consideration independent from the continuation of employment.” Therefore, for non-compete agreements signed after employment has commenced, continued employment is not sufficient consideration.
Non-competes must be reasonably tailored to protect a legitimate business interest: The Act recognizes three “legitimate business interests”: (a) the employer’s trade secrets; (b) the employer’s confidential information that otherwise would not qualify as a trade secret; and (c) the employer’s goodwill. Under the Act, the non-compete covenant will be presumed to satisfy this element if the employer can demonstrate that no other type of restrictive covenant (e.g., a non-solicitation or non-disclosure covenant) would be sufficient to protect the legitimate business interest at issue.
Non-competes must be limited in duration and geographical scope: Non-competes cannot last more than one year and must be limited to the area where the employee actually worked or had a material presence in the prior two years.
Non-competes include both employees and independent contractors: Under the Act, the definition of a covered “employee” includes independent contractors.
Not all employees are covered by the Act: Employers cannot enforce non-competes for non-exempt employees, college or graduate students, short-term employees, or anyone under the age of 18.
Non-competes may not always be enforceable: If an employee is terminated without cause, a non-compete will be void.
The new law does not apply to all agreements with restrictive covenants: The law does not cover certain types of agreements, including non-solicitation, non-disclosure, and certain separation agreements. These agreements will continue to be analyzed under Massachusetts common law, but now against the backdrop of the new public policy on non-compete restrictions.
The new non-compete law has wide-ranging legal and practical implications for employers in Boston and Massachusetts in general. Employers will now have to evaluate their overall non-compete strategy and human resources processes to ensure compliance with the new law. Moreover, employers will have to review their existing non-compete agreements and update their agreements, if necessary, to ensure compliance. Given the stakes involved, and how widely applicable it is, disputes over the new law will likely take place. We will keep you updated on any developments.
Federal Circuit Affirms PTAB Finding That UC's and Broad's Foundational CRISPR Technologies Are "Patentably Distinct"
On September 10, 2018, the U.S. Court of Appeals for the Federal Circuit (CAFC), in University of California v. Broad Institute, Inc., affirmed the Patent Trial and Appeal Board’s (PTAB) earlier determination that there was no interference-in-fact between the University of California’s (UC) patents and those owned by the Broad Institute, MIT, and Harvard (collectively “Broad”), directed to CRISPR-Cas9 technology. In so doing, the CAFC upheld the PTAB’s underlying finding that, “given the differences between eukaryotic and prokaryotic systems, a person of ordinary skill in the art would not have had a reasonable expectation of success in applying the CRISPR-Cas9 system in eukaryotes.”
In general, CRISPR-Cas9 is a targeted DNA-cutting system that occurs naturally in prokaryotes, and which has been used to edit the DNA of eukaryotic cells in recent years. In August 2012, UC published an article demonstrating that the CRISPR-Cas9 system could be used in vitro, i.e. in a non-cellular experimental environment. Within a few months of UC’s publication, several groups, including Broad, independently applied CRISPR-Cas9 in eukaryotic cells. Broad’s researchers described the use of CRISPR-Cas9 in a human cell line in a published article in February 2013. Both UC and Broad sought patent protection for their respective CRISPR-Cas9 technologies. Whereas UC filed its patent application with claims directed to methods of cleaving DNA using CRISPR-Cas9 without reference to a specific cell type or environment, Broad filed its patent applications with claims limited to the use of CRISPR-Cas9 in eukaryotic cells.
To determine whether the CRISPR-Cas9 claims of UC and Broad were “patentably indistinct,” and which party was the first to invent the claimed technology, the PTAB instituted an interference proceeding under pre-AIA 35 U.S.C. § 102(g) (since the applications were filed before enactment of the AIA). When determining whether claims are “patentably distinct,” the PTAB asks whether the subject matter of a claim of one party, if prior art, would have rendered obvious (or anticipated) the subject matter of a claim of the opposing party.
In examining the claims of UC and Broad the PTAB determined that no interference-in-fact existed because UC’s claim would not have rendered obvious or anticipated Broad’s claims. Broad provided extensive expert testimony about the differences between prokaryotic and eukaryotic systems and how those differences rendered the application of the CRISPR-Cas9 system in eukaryotic cells unpredictable. Moreover, Broad presented statements from UC inventors acknowledging doubts and frustrations about engineering CRISPR-Cas9 systems to function in eukaryotic cells and noting the significance of Broad’s success. Finally, the PTAB found that the developments of other gene editing systems were not particularly informative in assessing the reasonable expectation of success of CRISPR-Cas9 in plant and animal cells. In light of all this evidence, the CAFC concluded “that the Board’s fact finding as to a lack of reasonable expectation of success is supported by substantial evidence.”
In upholding the PTAB’s ruling, the CAFC rejected UC’s arguments that simultaneous inventions may serve as evidence of obviousness: “[t]he fact that six research groups succeeded in applying [CRISPR-Cas] in eukaryotic cells within a short period of time after [UC’s disclosure] is certainly strong evidence that there was a motivation to combine the prior art in this manner.” While the PTAB recognized UC’s evidence of simultaneous invention in this context, it concluded such evidence pointed to a motivation to combine the prior art references but not ‘necessarily’ an expectation of success. The CAFC thus affirmed the PTAB’s finding, but noted that the decision is limited to “the scope of two sets of applied-for claims,” and “is not a ruling on the validity of either set of claims.”
The decision has important implications for the CRISPR-Cas9 patent landscape as it upholds both UC’s and Broad’s patent claims to this foundational and potentially game-changing technology. Third parties that are active in the field may thus have to seek a license from both groups if they want to commercialize this technology. Moreover, since the intellectual property landscape of the CRISPR-Cas9 is so intertwined, even UC and Broad may have to cross-license the technology between themselves to continue research. While the CAFC’s affirmation of the PTAB’s earlier decision seems to provide a modicum of clarity to this complex landscape for those waiting on the sidelines to capitalize on the discovery, given the financial stakes involved and the flexibility of this technology, it is likely that further disputes over the foundational CRISPR-Cas9 innovation will likely continue for some time into the foreseeable future.
We will continue to monitor trends and disputes involving CRISPR-Cas systems and provide updates.
BioPharma Law Blog posts updates and analyses on IP topics, FDA regulatory issues, emerging legal developments, and other news in the constantly evolving world of biotech, pharma, and medical devices.