On May 25, 2018 the new and far reaching General Data Protection Regulation (GDPR) went into effect in the European Union. The key goals of GDPR are to strengthen transparency and accountability of data security. The rights afforded to individuals to control their personal data is unprecedented in scope and extend beyond companies headquartered in the EU and its citizens to cover all residents of any EU member country. The changes affect every industry and every company doing business within the EU including US based life science companies that are conducting clinical trials in the EU.
Clinical research has long been governed by strict consent rules and therefore many of the requirements of the GDPR are not new to companies in the clinical research sector. However, there are some important changes that sponsors of clinical trials and CROs need to keep in mind. The most important ones related to clinical trials are:
Extra-Territorial Effect of The Law
Going forward one of the first questions to ask and answer before undertaking a clinical trial that touches one of the EU member states is: “Does GDPR apply?”. The answer is not as clear cut as one might hope. Let’s look at the easy case first: if the sponsor of a clinical trial is located in the EU, GDPR automatically applies. However, if the sponsor is not based in the EU, GDPR may still apply depending on the specific circumstances. If the sponsor has an office in the EU that is involved in any aspect of the clinical trials, GDPR likely still applies. In addition, clinical trials that include data subjects located in the EU fall under GDPR regardless of where the sponsor and/or CRO are located, where the clinical data is processed, and where the sponsor plans regulatory submission. This applies even if the trial participants are not EU citizens but are simply in the EU while their data is collected.
Accountability Extends to Data Processors
GDPR makes it easier for individuals to not only hold data controllers (sponsors) but also data processors, e.g. CROs, investigators or statisticians, responsible for any breach of privacy and obtain compensation even for infringement that lead to non-material damages. The ramifications for the data controllers include that they might have to hire a data protection officer and maintain documents proving compliance with GDPR.
New Rights for “Data Subjects”
One of the phrases one hears frequently in connection with GDPR is the “right to be forgotten”. This is one of a number of new rights given to individuals under GDPR. Also known as the Right to Erasure this provision enables the “data subject”, in this case the clinical trial participant, to have their personal data deleted without undue delay, which is defined as within one month of receipt of the request. A helpful exception for clinical trials is, that the right to be forgotten does not apply if processing of the data is necessary for scientific research. It will be interesting to see if this exception will be used as a loophole that could open the door to fairly creative interpretation of what scientific research might entail.
Other rights of the data subject include: the right of access, i.e. the right to know whether or not personal data are being processed and if so, to obtain access to that data. In addition, the right to rectification gives the individual the right to have inaccurate data corrected within a month, and the right to data portability gives the individual the right to receive the data and to transfer these data to another data controller.
Changes to Consent and the Definition of Sensitive Data
The conditions for consent, already a cornerstone of privacy related to clinical trials, has been further strengthened through GPDR. The regulation requires consent to be stated in clear, unambiguous terms, to be distinguishable from other matters, and the purpose for collecting the data must be made clear in the consent. Withdrawing consent has to be just as easy as giving it.
In addition, the definition of “sensitive data” has been broadened compared to HIPAA to include genetic and biometric data.
Where Things Get Tricky
While GDPR mentions clinical trials specifically only twice, the provisions of Regulation (EU) No 536/2014 apply and regulate the specifics. This interface between 536/2014 and GDPR is where it can get tricky, specifically with regards to clinical studies done outside the EU but referenced in a clinical trial application within the EU. These trials must now comply with regulatory requirements that are at least equivalent to those in the EU – and that is now GDPR. That means that even clinical trials that are conducted entirely outside the EU but which the sponsor might want to include as background for an EU trial need to be carefully evaluated for compliance with GDPR.
For pharma and biopharma companies as well as CROs it is critically important to carefully review whether they need to comply with GDPR. Running afoul of the new European Data Protection Regulation can be very expensive – fines up to 4% of worldwide revenue or € 20 million, whichever is higher, apply.
Two weeks ago, the Supreme Court issued two important decisions involving Inter Partes Reviews (IPRs). On April 24, 2018, the Supreme Court first issued a seven to two decision in Oil State Energy Services, LLC v. Greene’s Energy Group, LLC (Oil States), where it upheld the constitutionality of the IPR practice. That same day, the Supreme Court issued a five to four decision in SAS Institute Inc. v. Iancu (SAS), holding that when the Patent Trial and Appeal Board (PTAB) institutes an IPR, it must decide the patentability of all challenged claims, not just some of them. Here we discuss some of the implications that the Supreme Court rulings may have on biosimilar manufacturers.
The Supreme Court decision in Oil States was a welcome decision for biosimilar manufacturers. At a minimum, the decision affirmed the constitutionality of IPRs and held that, for the time being, IPRs are here to stay. That is not to say that IPR procedures will not change in the future or that there will not be further constitutional challenges to them. In fact, this decision opens the door for Congress to revisit the America Invents Act and address the many unresolved issues relating to IPR proceedings. However, IPRs and the general concept of challenging patents at the U.S. Patent and Trademark Office (USPTO), will continue to be an effective means by which biosimilar manufacturers can challenge issued patents outside of the traditional district court litigation route.
In contrast to the Oil States decision, the Supreme Court’s decision in SAS may have increased some of the hurdles faced by petitioners in challenging patents at the U.S. Patent Trial and Appeal Board (PTAB). According to the Court, the PTAB was improperly issuing “partial-institution” decisions and holding trials on only a subset of challenged claims. Thus, from now on when the PTAB decides to institute an IPR, the PTAB must decide the patentability of all challenged claims as opposed to only granting institution on and/or fully considering only some of the challenged claims.
This all-or-nothing approach to the new IPR treatment by the PTAB will require petitioners to be more careful and strategic in selecting the claims to be challenged due to estoppel considerations. Previously, if the PTAB decided not to institute an IPR on an invalidity argument, the petitioner could raise those arguments again in district court because IPR estoppel did not attach to grounds that were denied at institution. However, estoppel does attach to final decision. Therefore, if the PTAB now has to fully grant a petition in an “all-or-nothing” fashion, challenges that previously would have been denied at institution will be part of the final decision and petitioners will be estopped from raising those issues again in future district court challenges. To prevent being estopped from raising arguments in future litigations, biosimilar manufactures will, as a result, have to be more strategic in deciding which arguments to raise in an IPR proceeding.
Biosimilar manufactures, and petitioners in general, will likewise need to be more selective in the claims they decide to challenge. The dissent, written by Justice Breyer, notes that the PTAB has discretion not to institute review. Previously, if the petitioner challenged 16 claims, and the PTAB decided that the challenges to 15 of those claims were frivolous, the PTAB could institute review on only one claim. Now the PTAB could chose to simply deny the petitioner entirely if it feels the overall case is not strong. To prevent a denial of all of its challenges, biosimilar manufactures will need to put forth their best arguments against a carefully selected set of claims and not just throw everything at the wall and hope something sticks.
The SAS decision may also impact whether or not patent owners submit a preliminary response, which occurs before an institution decision is made by the PTAB. As of May 2016, preliminary responses have also been permitted to include expert testimony. Historically, patent owners could submit a preliminary response to avoid institution on certain claims. Now, if the patent owner feels that institution is likely, there is little incentive to submit a preliminary response since it may be strategically advantageous to withhold the best arguments and evidence until the proceeding is further advanced. Moreover, patent owners may wish to fight the claims before the PTAB and chose to forgo submitting a preliminary response thereby increasing the chance that the PTAB institutes review of all of the challenged claims. This will create estoppel with respect to the challenged claims and preclude future district court challenges on those claims. On the other hand, with the number of preliminary responses expected to decline, biosimilar manufactures will not have the benefit of knowing which arguments and evidence they may be up against in an IPR proceeding.
While the Supreme Court decisions in Oil States and SAS will have immediate implications on biosimilar manufacturers, there remain many unanswered questions especially with regard to how institution decisions at the PTAB will play out. If the PTAB considers only 2 of 10 claims to be worth review, will the PTAB simply deny the overall petition? Will the PTAB require that all claims be ripe for review before instituting an IPR proceeding? Will the petitioner even be told how the PTAB made its decision, or based on which evidence the decision was made, if the petition is denied? Bioimilar manufacturers should continue to stay tuned to how the PTAB behaves in the coming year as more developments concerning IPR processes are expected to follow.
Last week was a busy week in American intellectual property with the Supreme Court issuing two decisions involving Inter Partes Reviews (IPRs). On April 24, 2018, the Supreme Court first issued a much-anticipated decision in Oil State Energy Services, LLC v. Greene’s Energy Group, LLC (Oil States), where it upheld the constitutionality of the IPR practice. That same day, the Supreme Court issued a five to four decision in SAS Institute Inc. v. Iancu (SAS), holding that when the Patent Trial and Appeal Board (PTAB) institutes an IPR, it must decide the patentability of all challenged claims, not just some of them. The first opinion concerning Oil State is addressed in a separate blog post. In this post, some interesting, and perhaps unaddressed, issues are discussed concerning the SAS decision.
In the SAS decision, Justice Gorsuch, writing for the Court, held that the U.S. Patent and Trademark Office (USPTO) has been improperly issuing “partial-institution” decisions and holding trials on only a subset of challenged claims. According to the Court, the plain text of 35 U.S.C. §318(a) requires that the PTAB address all challenged claims in a final written decision. As a result, when the PTAB institutes an IPR, it must decide the patentability of all challenged claims as opposed to only granting institution on and/or fully considering only some of the challenged claims.
Following the SAS decision, on Thursday, April 26, 2018, the USPTO issued a one-page guidance memorandum for moving forward after SAS. According to the guidance memo:
While the guidance appears to address some immediate concerns about how IPRs before the PTAB will proceed in light of the Supreme Court’s SAS decision, there are still some unanswered questions. Most notably, the USPTO guidance document fails to address how “partially-instituted” cases currently pending before the PTAB will continue, only saying that the “panel may issue an order” and “may take further action.” It appears, at least from the wording of the guidance, that perhaps only cases that have not yet received a decision on whether they will be instituted will be subject to the new guidance. This raises the question of how currently pending cases, such as those for which an IPR trial has been instituted, but appeals are not yet finalized, will be handled.
It is important to further note that the guidance does not appear to address what effect, if any, the SAS decision will have on previously decided cases that were the result of “partial-institution” decisions. More particularly, patent owners and patent practitioners will need to know whether the previously decided IPR decisions are subject to the new decision, or if will there be opportunities for either party to reopen to the proceeding.
While last week was definitely interesting in terms of IPR decisions, it seems to further compound uncertainties in the US patent system by raising many additional questions that the USPTO, PTAB, and the US courts will have to sort out in the near future. Stakeholders should stay tuned because more developments concerning IPR processes are sure to follow, perhaps raising even more questions and even more uncertainty. It will be interesting to see what effect, if any, these cases will have on how the USPTO and/or Congress revisit the America Invents Act and address the many issues relating to IPR proceedings.
On April 24, 2018, the U.S. Supreme Court issued a much-anticipated decision in Oil State Energy Services, LLC v. Greene’s Energy Group, LLC (Oil States), where it upheld the constitutionality of the post-grant Inter Partes Review (IPR) process. The Court held, in a 7-2 decision, that IPR proceedings do not violate Article III or the Seventh Amendment of the United States Constitution. Justice Thomas wrote for the majority while Justice Gorsuch dissented, and was joined by Chief Justice Roberts.
In reviewing the Supreme Court’s decision, below are five key take-ways from the decision:
1. Patents are public rights – As previously discussed, the main focus in this case is how the Court views the nature of the rights granted by a patent. Are the rights conferred by granting of a patent purely private property rights, in which case their taking must be adjudicated by a jury, or are they public rights that may be altered or extinguished by an administrative agency such as the U.S. Patent Trial and Appeal Board (PTAB)? According to the Court, the rights granted by a patent fall within the public-rights doctrine, and since IPRs involve the same interests, they also fall within the public-rights doctrine. In supporting its decision, the Court goes as far as to equate patents with “public franchises” such as when Congress grants a franchise that permits a company to erect a toll bridge but qualifies that grant of rights by reserving its authority to revoke or amend the franchise.
2. Previous cases are bound to the patent laws in place during that time – One of the more interesting aspects of the case was to see how the Court reconciliated its decision with previous opinions that explicitly held that patents are private rights. In particular, in its 1898 decision in McCormick Harvesting Mach. Co. v. Aultman & Co., 169 U.S. 606 (1898), the Supreme Court held that once a patent is granted it “is not subject to be revoked or canceled by the president, or any other officer of the Government” because “[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.” To differentiate itself from the prior decisions, the Court in Oil States held that those cases, including McCormick, are not in conflict with its current holding because those cases were decided under the Patent Act of 1870 that did not include any provision for post-issuance administrative review. Specifically, under the Patent Act of 1890, the Patent Office Commissioner “had no power to revoke, cancel, or annul” the patent at issue. In contrast, the current patent laws allow for the U.S. Patent and Trademark Office (USPTO) to review and revoke issued patents under certain circumstances.
3. Historical use of courts does not preclude today’s use of the PTAB to adjudicate patents – The Court further dismissed the relevance of traditionally using American Article III courts to adjudicate patent validity, saying that even though these American courts were historically used to do so, this past use of such courts did not preclude use of other forums today. In particular, the Court held that since patents are governed by the public-rights doctrine (see 1 above), their oversight can be assigned to the Legislature, the Executive, or the Judiciary branch for adjudication. While Congress chose the courts to adjudicate patent matters in the past, it is free to choose the USPTO to do so now. The Court further went on to support this practice by analyzing the treatment of patents in England in the 18th century, noting that patents could be vacated on a petition to the Privy Council, which was composed of the Crown’s advisors, a Council that closely resembled IPR procedures handled by the PTAB today. For similar reasons, the Court further held that even though the IPR procedure may look like a trial in that it has “motion practice before the PTAB; discovery, depositions, and cross-examination of witnesses; introduction of evidence and objections based on the Federal Rules of Evidence; and an adversarial hearing before the [PTAB],” this does not mean that the PTAB is improperly exercising its power. In other words, even though there are similarities between IPRs and district court proceedings, it does not necessarily lead to the conclusions that IPRs adjudicated by an administrative governing body (i.e., the PTAB) violate Article III of the US Constitution.
4. Congress can change it – One of the most important holdings, I believe, from the Oil States decision is that Congress can control which branch of government adjudicates patents. In its decision, the Court held while “Congress chose the courts in the past does not foreclose its choice of the PTO today.” According to the Court, matters governed by the public-rights doctrine (i.e., patents) can be resolved in three ways: first, Congress can “reserve to itself the power to decide,” second, Congress can “delegate that power to executive officers,” and third, Congress can “commit it to judicial tribunals.” Thus, the power rests within Congress to determine the manner in which government adjudicates patents. If Congress wants patents to only be decided by the courts, then Congress can change the patent laws to achieve that rule. For those unhappy with the Supreme Court’s decision in Oil States, this gives a glimmer of hope that IPR proceedings may yet change in the future.
5. Very limited holding – Finally, the Court cautioned that its decision is a narrow holding that was limited to the precise issues before it and should not be construed to suggest that patents are not property under either the Due Process Clause or the Takings Clause of the U.S. Constitution. Thus, the Court’s holding in Oil States did not foreclose the possibility of future Constitutional challenges to the IPR process.
While the Oil States decision suggests that IPRs are here to stay, it also raises additional questions that will have to be resolved in the near future, particularly with regards to further constitutional challenges to IPR proceedings. It will also be interesting to see whether this decision sparks an interest in Congress revisiting the America Invents Act and addressing the many issues related to IPR proceedings.
Last week it was announced that Abbvie entered into a settlement agreement with Samsung Bioepis that would delay the U.S. launch of Samsung Bioepis’ biosimilar version of Humira® (adalimumab) until June 30, 2023. This is the second such settlement agreement that Abbvie has entered into related to the its blockbuster rheumatoid arthritis drug. In September 2017, Abbvie also entered into an agreement with Amgen that would delay the U.S. launch of Amgen’s biosimilar product until January 31, 2023, several months earlier than the Samsung Bioepis’ biosimilar.
While a 2023 biosimilar launch perhaps cuts Humira’s patent market exclusivity by more than a decade -- some of Humira’s patents have a patent term extending to 2034 – both settlement agreements provide for undisclosed royalties on Amgen’s and Samsung Bioepis’ biosimilar once those biosimilars launch. Even more impressively, both settlements allow Abbvie to continue marketing Humira without competition more than four years beyond the expiration of a key patent protecting Humira in 2018 (U.S. Patent No. 8,889,135 (‘135 patent)), and more than five years beyond the invalidation of that same patent by the Patent Trial and Appeal Board (PTAB) in an inter partes review (IPR) proceeding in the Summer 2017.
As I previously wrote about, the ‘135 patent is important because it covers the dosing and treatment regimen of the drug, which is necessary for any biosimilar drug looking for gain FDA approval. Specifically, claim 1 is directed to “A method for treating rheumatoid arthritis in a human subject, comprising administering subcutaneously to a human subject having rheumatoid arthritis a total body dose of 40 mg of a human anti-TNFα antibody once every 13-15 days for a time period sufficient to treat the rheumatoid arthritis….”
This begs the question, how has Abbvie managed to extend Humira’s monopoly even when one of its key patents has been invalidated? The simple answer is found in Abbvie’s aggressive patent strategy. While it is unreasonable to believe that all companies will follow the patent strategy that Abbvie took with Humira, there are some lessons to learn from Humira’s IP portfolio that could be beneficial to others seeking to protect their IP assets, especially in today’s anti-patent climate.
Our marketplace understands the importance of patents; their value to business in the US cannot be overstated. Patents provide several offensive and defensive marketplace benefits to their owners or licensees. They can do everything from preventing competitors from making, using, selling, and importing the owner’s claimed product, protecting and expanding one’s presence in the marketplace, to attracting investment from venture capitalists, potential partners, and other investors.
Despite their importance, it should be no surprise to patent owners and licensees that the U.S. is currently operating in an anti-patent climate. Patents are being challenged through various strengthened post-grant procedures enacted by the America Invents Act of 2011 (AIA) or through a more traditional litigation pathway provided by the Biologics Price Competition and Innovation Act of 2009 (BPCIA), and patent holders are finding more and more that their patents are becoming susceptible to attack from competitors prior to the expiration of the patents.
The IPR process, for instance, allows a third party to challenge the patentability of an issued patent based on prior art under 35 U.S.C. §§ 102 and 103. The IPR process differs from a traditional district court litigation because it is heard in front of the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB), a final decision can be typically expected within 12-18 months, and the costs are a fraction of a traditional patent infringement litigation. As I’ve written previously, when a company challenges a patent by requesting an IPR, their odds of invalidating the challenged claim(s) are high.
No company is completely immune from an IPR challenge, although these proceedings are more popular in certain fields like electronics and computers. While IPRs are less popular in the biopharma space, they are still used consistently and with tremendous impact. Humira, for instance, has been a favorite target of IPRs from different challenges. In the summer of 2017, the PTAB struck down the ‘135 patent two times in two months finding it obvious over prior art. Other patents covering Humira were also subject to IPR challenges, including U.S. Patent Numbers 9,017,680; 9,073,987; 9,085,619; 8,802,100; and 9,512,216. Abbvie is certainly not the only company facing IPR challenges. Other biologics that are currently facing or have faced IPR challenges include Avastin®, Enbrel®, Lantus®, Neulasta®, Rituxan®, and Herceptin®.
To mitigate the threat from an IPR, companies need to develop a patent portfolio that is robust enough to withstand not only IPR challenges and traditional litigations, but also possible invalidations. Abbvie’s Humira patent portfolio is a perfect example of this strategy, often termed the “patent thicket” strategy. Despite the challenges and invalidations of Humira’s ‘135 patent over the summer of 2017, no competitor can yet market a biosimilar of Humira in the U.S. without fear of triggering a patent infringement lawsuit. Amgen and Samsung Bioepis are the first in line after signing their settlement agreements, but they will not even be able to enter the market until 2023.
Humira’s dominance in light of the unfavorable environment is in part due to its robust patent portfolio. Humira is protected by about 110 patents, some of which extend the life of the patent portfolio all the way into 2034. We can learn a few things from Humira’s patent portfolio.
First, the Humira patent portfolio is big. As I mentioned previously, there are more than 100 patents protecting various aspects of the drug. Such a large portfolio is designed to contain so many different types of claims, sets of claims, and different claim scopes that at least one of the patents will continue standing even if a few patents are invalidated. Moreover, if a company wanted to challenge all of Humira’s patent, they would find themselves in a very lengthy and costly process. In contrast, many products are not protected by such large patent portfolios. More often than not, companies only pursue a handful of patents for their products, making the portfolio, and thus the product, less valuable and more susceptible to attack.
Second, the Humira patent portfolio is very diverse. In a presentation in October 2015 entitled “Broad U.S. Humira Patent Estate”, Abbvie outlined its strategy: to cover every aspect of the drug. Abbvie listed 22 patents directed to various diseases or methods of treatment, 14 patents directed to the drug’s formulation, 24 patents encompassing the manufacturing practices surrounding production of the drug, and 15 “other” patents. Often companies focus narrowly on specific formulations, indications, or manufacturing processes instead of incorporating modifications, alternatives, or improvements, sometimes not developed until after the initial patent filing, that would expand their scope.
Third, the Humira patent portfolio is temporally staggered. By not filing all the patent applications at one time and including additional inventive elements in later follow-on patent application filings, Abbvie was able to extend Humira’s patent protection to 2034, 16 years past the initial expiration of the primary patents in 2018. Within the U.S. first-to-file system, companies are sometimes too eager to file their patent applications and too focused on making their limited number of patent filings as broad as possible, thereby risking condensing their potential patent term by cutting off the ability to file future follow-on patent applications.
Of course, it should be mentioned that a portfolio like Humira’s comes at a price. Filing, prosecuting, and later maintaining a global portfolio is not cheap. As a $16 billion per year drug, Abbvie’s investment in the Humira patent portfolio most certainly pays for itself. For other products, however, companies should weigh the overall cost of prosecuting and maintaining patent applications in the US and abroad against a realistic projected value of their product in various jurisdictions of the global marketplace. That being said, patent portfolio building decisions can be made strategically to tailor the size and shape of the portfolio to fit the business strategy of the company. Competent patent counsel should guide companies through decision-making gates to determine how best to strategically design and implement the best protection strategy.
In today’s AIA and BPCIA era, companies with robust patent portfolios are better positioned to weather this attack. It is therefore important to cultivate a patent portfolio that includes claims that are not only broad enough to provide ample protection in the marketplace, but also one that is deep enough to withstand possible invalidation. Such patent portfolios should include sufficient “back-up” claims in case the first claim set falls prey to post-grant attack and should further include sturdy, well-written, and strategically planned specifications to prop up those claims and support further revisions if needed.
Earlier this month, a group of Senators including Tom Cotton (R-AK), Claire McCaskill (D-MO), Pat Toomey (R-PA), Joni Ernst (R-IA), and David Perdue (R-GA) introduced the Preserving Access to Cost Effective Drugs (PACED) Act to prevent companies from asserting sovereign immunity in patent-related proceedings. The bill is in response to Allergan’s act of transferring ownership of all Orange Book-listed patents for RESTASIS® (Cyclosporine Ophthalmic Emulsion) 0.05% to the Saint Regis Mohawk Tribe (the Tribe) in an effort to avoid facing inter partes review (IPR) challenges because of sovereign immunity afforded by the Eleventh Amendment.
The bill, if passed, would amend title 35 of the United States Code to prevent a patent owner from asserting sovereign immunity, including the sovereign immunity accorded to an Indian tribe, as a defense in certain actions before the United States Patent and Trademark Office. As such, sovereign immunity could not be asserted in derivation, reexamination, inter partes review, and post-grant review proceedings.
It is interesting to note that the bill also expands the abrogation of sovereign immunity to specifically to include claims involving biosimilars under Section 351 of the Public Health Service Act (42 U.S.C. § 262).
In the case where the patent owner is a foreign state, the bill gives the Patent Trial and Appeal Board the power to determine whether the state is immune from jurisdiction in accordance with 28 U.S.C. Chapter 97.
According to the Senators, the bill is in response to what they perceive to be a misuse of the patent system by biopharma firms that only serves to increase drug prices and delay generic competition. To this end, Senator Cotton stated, "It's far past time that we crack down on patent abuse, which is raising costs for our seniors. This bill will make sure unscrupulous patent holders can't game the system and block their competitors from entering the market. That'll go a long way to help seniors get the drugs they need."
Senator McCaskill further added, "We watched a company brazenly try to exploit a potential legal loophole to game the system in an effort to protect their bottom line-and keep Missourians from access to cheaper generic drug options in the process. That should be illegal, and our bipartisan bill would make it so by ending this astounding assertion of sovereign immunity to avoid patent review, before any other companies follow suit."
In addition, Senator Ernst noted, "Congress cannot look the other way as some pharmaceutical companies attempt to stifle competition and prevent Americans from accessing affordable generic drugs. Failure to act could incentivize other industries to use similar tactics to block competitors. Through the Preserving Access to Cost Effective Drugs Act, we can speed up the entry of safe and affordable generic drugs into the market while maintaining the integrity of the U.S. patent system."
The PACED Act has support from a number of groups, including R Street, The Electronic Frontier Foundation, Engine, American Consumer Institute Center for Citizen Research, Public Knowledge, America's Health Insurance Plans (AHIP), Association for Accessible Medicines, United for Patent Reform, High Tech Inventors Alliance, Patients for Affordable Drugs Now, BlueCross BlueShield Association, and Blue Shield of California.
The bill comes at a time when we are seeing a lot of pushback on the use of sovereign immunity. Shortly after Allergan transferred its patents to the Tribe, the district court ruled that the patents protecting Allergan's $1.5 billion blockbuster dry-eye drug, Restasis, are invalid due to obviousness. In the ruling, US Circuit Judge William Bryson explained that the court had “serious concerns about the legitimacy of the tactic that Allergan and the Tribe have employed" and that in his view, Allergan has paid the Tribe to "rent" its sovereign immunity at the US Patent Office. Moreover, on February 23, 2018, the PTAB itself denied the Tribe’s motion to dismiss the pending IPRs, stating that the doctrine of tribal sovereign immunity does not apply to IPR proceedings.
Of course, it should be noted that the issue of sovereign immunity in IPRs may be rendered moot if the Supreme Court rules that IPRs are unconstitutional in Oil States Energy Services v. Greene's Energy Group. If this were to happen, the bill may be unnecessary.
We will continue to keep you informed of developments in this field as they occur.
The GOP tax bill, known formally as the "Tax Cuts and Jobs Act" (H.R. 1), was signed into law by President Trump on December 22, 2017, in what is considered to be the first major overhaul of the federal tax code in more than three decades. The tax bill dramatically changed the corporate tax law and could have a particular impact on life sciences companies both abroad and in the U.S. Below are some observations of a few potential ways that the new tax bill will impact life sciences companies positioned solely within the U.S.
Reduced corporate tax rate
Probably at the center of the tax bill is a reduction of the overall corporate tax rate. The final version of the tax bill reflects a 21% corporate tax rate that will be effective January 1, 2018, an increase from the 20% rate in the bills passed by the House and the Senate, but less than the 35% tax rate previously in effect.
While a reduced corporate tax rate of 21% can be beneficial to companies, companies should be aware that changes to deductions or credits, discussed below, could off set some of the benefits of the lower tax rate. As such, companies should work together with their accounting teams to identify opportunities to accelerate deductions and defer income as part of their tax planning. Such planning could result in tax savings given the reduction in corporate income tax rate.
Repeal of the domestic production activities deduction
One of the deductions that is repealed by the new tax bill is for domestic production activities under Section 199. The purpose of the domestic production deduction, passed in 2004, was to give companies a tax break on income they earned from making things in the U.S. It was intended to help American manufacturers compete against companies overseas. The repeal of this deduction will be effective after December 31, 2017.
Life sciences companies often engage in manufacturing, production, or service activities that fall within the scope of Section 199. Since taxpayers can make amended return claims for Section 199 deductions, life sciences companies with Section 199 eligible activities may want to review the claims they have already made for additional opportunities or consider making new claims on an amended return to ensure they are maximizing the benefit of the deduction before it is too late.
Change in R&D tax credit
Another area that the new tax bill will impact is the tax credit allowed for research and development (“R&D”). While companies will continue to be allowed to write off many of their research-related expenses, the final tax bill will require companies to write off those costs over a longer period of time.
Under the previous tax law, companies could take deductions immediately and in a single year if they desired. Such a credit is estimated to be worth approximately $10 billion annually to companies. The Senate had initially inserted language in its bill that would have essentially removed the credit entirely, but in a last minute change, lawmakers kept the credit in place, but changed the rules so that companies would have to write off their research-related expenses over 5 or more years instead of in a single year.
By increasing the time period that R&D expenses could be written off, the new tax bill is preventing companies from claiming all their credit in a single year. Life sciences companies will need to work with their accounting teams to determine what impact the prolonged period of time will have on their research and development goals and related tax liability.
Modification of the orphan drug credit
The new tax bill also reduces the credit available to life sciences companies engaged in clinical testing of orphan drugs. Orphan drugs are drugs used for treating rare diseases or conditions affecting fewer than 200,000 persons in the U.S. The previous law allowed companies to write off 50% of the research costs of developing orphan drugs. Under the new tax bill, the credit is reduced by half to 25% and generally would need to exceed 50% of the average expenses over a three-year period. The reduced credit would apply to amounts paid or incurred in tax years beginning after December 31, 2017.
Research expenses that qualify for the orphan drug credit may in many cases also qualify for the research credit. Life sciences companies should evaluate which credit would be better to claim and whether there are opportunities to maximize the benefits of each.
It will be interesting to see how the new tax bill plays out over the next few years and what benefits will be seen by companies in the life sciences sector. While many of the deductions and credits available to these companies will be reduced, companies will still be able to take advantage of an overall reduced federal tax rate. Life sciences companies should begin reviewing their options under the new tax bill and reevaluate their tax accounting methods to identify opportunities to maximize their tax benefits.
On December 14, 2017, the U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”), in a unanimous opinion, ruled in favor of Sandoz in Sandoz Inc. v. Amgen Inc., when it prevented reference product sponsors from using state laws to punish biosimilar manufactures for not disclosing information about they biosimilar products. The Federal Circuit’s decision is a victory for biosimilar manufacturers who now have fewer obstacles to overcome in reaching the market. At issue in the lawsuit was whether Amgen could use state laws, namely California’s unfair competition law, to force Sandoz to disclose its manufacturing information under the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”).
As a way of background, the BPCIA was passed on March 23, 2010 by Congress as part of the Affordable Care Act to provide an expedited approval pathway for biosimilars. In addition to expediting FDA approval of biosimilar products, the BPCIA provides a means of resolving patent disputes between reference product sponsors and biosimilar applicants earlier in the drug development process. The BPCIA sets forth several requirements for biosimilar applications, with the most litigated requirement being that of the “Patent Dance.”
Sandoz v. Amgen is the pioneer case for interpreting the Patent Dance. This case involved the drug filgrastim, a biologic used to stimulate the production of white blood cells. Amgen claims to hold patents on the manufacture and use of filgrastim, which it sells under the name Neupogen®. Sandoz, the biosimilar applicant, filed an application with the FDA seeking approval of a filgrastim biosimilar, Zarxio®.
In June 2017, the Supreme Court ruled, in part, that the only federal remedy available to the reference product sponsor when a biosimilar applicant fails to disclose its biosimilar application and manufacturing information is to bring a declaratory judgment action for patent infringement. The Supreme Court noted that “[t]he BPCIA’s carefully crafted and detailed enforcement scheme provides strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly.” The Supreme Court, however, did not rule out the possibility that an injunction might still be available under state law. For its state law claim to be successful, Amgen would have to show that Sandoz’s failure to share its biosimilar application and follow 42 U.S.C. §262(l)(2)(A) of the BPCIA is “unlawful” under California’s unfair competition law.
In the eagerly-awaited decision in the remand of Amgen v. Sandoz from the U.S. Supreme Court, the Federal Circuit unsurprisingly held that Amgen’s state law claims “are preempted on both field and conflict grounds.” To this end, the court noted that patents are “inherently federal in character” because a patent “originates from, is governed by, and terminates according to federal law.” The Federal Circuit thus found that Congress “fully occupied” the field of biosimilar litigation through its creation of the BPCIA and as a result, state laws must give way to federal laws. While the decision does not address specifics of California law, it does seem to foreclose any attempts to enforce BPCIA provisions on state law grounds.
The Federal Circuit’s decision is a win for biosimilar manufacturers because it reduces some of the obstacles faced by biosimilars in reaching the market. In fact, Sandoz called the ruling “an important win for patient access to life-changing medication.” Not only does the ruling streamline the Patent Dance process by reducing potential state law claims, it also eliminates the possible uncertainty that could have been created as a result of having different state remedies being applied. The Federal Circuit acknowledged that concern, writing that “compliance with the BPCIA’s detailed regulatory regime in the shadow of 50 states’ tort regimes and unfair competition standards could dramatically increase the burdens on biosimilar applicants.”
For reference product sponsors, on the other hand, the decision may act to discourage sponsors from engaging in the Patent Dance. By removing the possibility of seeking state law remedies, including damages or an injunction, sponsors may not be able to compel biosimilar applicants to disclose critical manufacturing information that may be needed to determine whether infringement occurred. As a result, sponsors are left with the only recourse available to them under federal law, which is to sue -- a very costly and timely endeavor. Thus, the Federal Circuit may have removed a very important incentive for sponsors to dance. Nevertheless, there may be other factors -- including the potential profitability of the biosimilar, the strength and number of patents protecting the innovator product, and the patent term remaining on the innovator product -- that determine whether a sponsor wants to engage in the Patent Dance so it will be important to monitor how companies manage their strategies when it comes to the BPCIA.
On November 13, 2017, the U.S. Court of Appeals for the Federal Circuit upheld the District Court verdict in Amgen v. Apotex (Amgen v. Apotex, No. 2017-1010, slip op. at 3 (Fed. Cir. Nov. 13, 2017), in which the court ruled that the commercial marketing of Apotex's proposed biosimilar versions of Amgen's Neulasta® and Neupogen® do not infringe Amgen's U.S. Patent No. 8952,138 (the '138 patent). The claims of the ‘183 patent are directed to a method of refolding recombinant proteins expressed in non-mammalian cells. At the center of the dispute was whether information provided during the information exchange process of the “Patent Dance” pursuant to 42 U.S.C. § 262(Ɩ)(3) can later be used as evidence during a District Court patent infringement litigation.
The '138 patent is generally directed to a method of refolding misfolded proteins, known as "inclusion bodies,” expressed in non-mammalian cells. Claim 1 of the '138 patent recites a "refold mixture" and specific protein concentrations that the District Court interpreted as a high protein concentration "at or above 1 g/L." As part of the Patent Dance, Apotex stated in several "pre-litigation letters” that it did not infringe Amgen's '138 patent because the relevant inclusion body concentration in its product was limited to 0.9-1.4 g/L. Apotex's abbreviated Biologics License Application, or aBLA, also identified the relevant inclusion body concentration in its product to be in the range of 0.9-1.4 g/L. During the infringement trial, however, Apotex's fact witness testified that the "pre-litigation letters" were "factually inaccurate," and Apotex presented two batch records showing the protein concentration in its "refold mixture" never exceeded 0.56 g/L. Based on this new evidence, the District Court sided with Apotex and found that Amgen had failed to prove direct infringement of the '138 patent.
On appeal to the Federal Circuit, Amgen argued that the District Court erred, in part, in finding that Apotex's "pre-litigation letters" lacked probative value.
On this issue, the Federal Circuit found that the District Court properly considered the statements in the "pre-litigation letters" and properly found that they lacked probative value in light of the other evidence presented at trial. The Federal Circuit also noted that Amgen did not present any evidence to contradict the statements from Apotex's fact witness, and furthermore, did not attempt to challenge the accuracy of the witness's testimony. In its decision, the Federal Circuit clarified that statements made in the "pre-litigation letters" are party admissions and therefore have some probative value.
The Federal Circuit’s decision underlines the importance of statements made during the Patent Dance and their potential use in a subsequent patent infringement litigation. Parties on both sides should be careful of what they say during the Patent Dance exchange because, as clarified by the Court in this decision, such statements are treated as party admission. These statements therefore carry probative weight and must be considered in view of other evidence presented at trial. This decision also further emphasizes the importance of fact witness testimony and other evidence to support arguments regarding infringement. To this end, the parties in a biosimilars patent infringement litigation should be prepared to rebut or support these statements with their own expert witness testimony and other intrinsic and/or extrinsic evidence.
On Monday, November 27, 2017, the Supreme Court heard arguments in Oil States vs. Greene’s Energy Group, et al. (No. 16-172 S.Ct., Supreme Court 2017), a case challenging the constitutionality of the U.S. Patent and Trademark Office’s (USPTO) post-grant patent review proceeding, known as inter partes review (IPR). A decision in this case by the Supreme Court will have important ramifications for both patent holders and third-party petitioners alike and could change how patent disputes are litigated in the United States.
IPR challenges have become a popular and effective way by which third parties can challenge issued patents. The IPR proceeding was enacted on September 16, 2012 as part of the America Invents Act (AIA) and allows a third party to challenge the patentability of an issued patent based on prior art under 35 U.S.C. §§ 102 and 103. The proceeding takes place in front of the USPTO Patent Trial and Appeals Board (PTAB) and a final decision can generally be obtained within eighteen months. The popularity of IPR challenges stems from the PTAB’s record of invalidating numerous patent claims. In about 1,733 final decisions from January 2017 through August 2017, the PTAB cancelled all or part of a patent around 80 percent of the time, earning the PTAB the moniker patent “death squad”, a term first coined by Randall Rader, the former chief judge of the U.S. Court of Appeals for the Federal Circuit. Further enhancing their popularity, third party petitioners have quickly realized the various benefits to IPR challenges over protracted litigation in District Court, namely that IPRs are cheaper, quicker, and more effective at invalidating patents than challenging the patents of competitors in district court.
Despite their popularity, IPRs are not without controversy. Not surprisingly, some patent holders call the IPR proceedings a threat to innovation. Larger patent stakeholders, such as Allergan PLC, have even resorted to creative and unusual lengths to avoid having their patents subject to an IPR. Thus, the desire to find constitutional fault within the IPR framework is just as high as the popularity of IPR proceedings with third party petitioners.
At the center of this dichotomy of opposing interests is the Oil States dispute, where the question of the constitutionality of IPR proceedings takes center stage. Specifically, Oil States asks whether IPRs violate the U.S. Constitution by extinguishing private property rights through a non-Article III forum without a jury. In challenging the constitutionality of IPRs, Oil States argued that patents are private property and therefore can be revoked only by a federal court, where the standard for overturning a patent is higher than in the IPR proceeding. From this viewpoint, Oil States contends that the administrative procedures controlling IPR proceedings violate the U.S. Constitution’s right to be heard by a federal court and jury. This argument finds basis in the 1898 Supreme Court decision in McCormick Harvesting Mach. Co. V. Aultman & Co., 169 U.S. 606 (1898), wherein the Supreme Court held that once a patent is granted it “is not subject to be revoked or canceled by the president, or any other officer of the Government” because “[i]t has become the property of the patentee, and as such is entitled to the same legal protection as other property.”
During oral arguments held on November 27, 2017, three of the court’s liberal justices including Ruth Bader Ginsburg, Elena Kagan, and Sonia Sotomayor appeared sympathetic toward the review process, noting that the USPTO must have the power to invalidate wrongly issued patents after they have granted.
Conservative justices including John Roberts and Neil Gorsuch raised concerns that the government might be able to revoke patents too easily. Justice Gorsuch, in particular, noted that judicial review is available only if someone appeals the PTAB’s decision, which does not always happen.
The ultimate decision in the case will have important ramifications for both patent holders and third-party petitioners alike and could also change how patent disputes are litigated in the U.S. If the Court rules that IPRs are unconstitutional, striking down laws and regulations implementing the IPR practice, then there will be many questions about the status of the patent claims that have already been challenged, whether they were cancelled or amended, through an IPR. If the Court upholds IPRs as being constitutional, on the other hand, patent holders may face even more challenges to their patents as third parties will continue to view the IPR process as an effective and efficient means of challenging patents without going down the more time and cost consuming litigation route. Moreover, upholding the constitutionality of IPRs will undoubtedly bring into question the overall value of US patents with respect to the patent rights issued by other countries since there exists no other similarly robust and effective means of invalidating issued patents abroad. Ultimately the constitutionality of IPR proceedings could have important ramifications to the US economy in general, which has become heavily dependent on innovation and protection of innovation rights.
We will continue to monitor this lawsuit. A decision will likely be issued in June 2018.
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.