Patent Baristas

After just giving a talk this past week on international strategic alliances, I was struck by the recent Forbes article on the increasing number of big pharmaceutical companies increasingly forming alliances with biotech firms. It seems that almost 30% of big pharma’s revenue now comes from products licensed from smaller biotech firms. This shows the powerful force that biotech has become in the world of targeted drug therapies.

But, figuring out how to make an alliance work is another matter. At least one-third of alliances between big pharma and biotechs are canceled or renegotiated, and less than 40% of alliances meet their stated objectives, according to a report by Deloitte & Touche.

Still, there does seem to be increased activity since the number of alliances last year between big pharma and biotech rose to 502, from just 69 in 1993, netting biotech companies a combined $11 billion last year. There’s also been a boomlet of about 750 biotech-biotech alliances between 2000 and 2003.

Of the 126 biotech companies with revenues less than $500 million surveyed by Deloitte, nearly three-quarters said they plan to increase the number of alliances in the next three years. For 59% of firms surveyed, alliances are part of their core strategy.

So, what makes for a successful alliance? Biotech firms surveyed described four key factors:

* Commitment from senior management
* Favorable deal terms
* Market depth in particular therapeutic areas
* Firm alignment with the partner’s core strategy

Since big pharma and biopharma are competing for alliances to make up for patent expirations and depleting pipelines, small biotechs are choosing from an average of eight candidates for each alliance deal and at earlier stages of product development.

As I always tell clients, you need to develop a patent and licensing strategy that is consistent with the company’s business plan. That is, look for a strategic partner that advances the company’s goals and not just provides licensing revenue back to the licensor or you’ll find yourself without a “next phase” in the plan. And while you always expect the best, you need to plan for the worse in case things go wrong. This includes setting up various exit strategies so you’re not tied to a bad deal.

But most of all, remain flexible. Many times, I’ve had to work with clients to re-do a deal because things did not go well, such as regulatory approval or clinical trials. I’ve had to re-negotiate the licensing terms of more than one deal where the licensee finds out the payments are more than the market can bear. Often, it is when the company goes to the next round of financing and they find that no one will invest because of the royalty rates.

Then there are the tax ramifications. In globally-competitive development, manufacture, sales, or partnership agreements, there can be some overall tax savings or deferral (or improvement to the company balance sheet) through cross-border shifting of income, risk, and/or control. But, as they say, offshore tax strategies are hard to do properly — you must establish residence for central management and control in an offshore jurisdiction.

Some of the substantial elements to establishing residence:

(a) a majority of directors are non-residents; (b) director’s meetings are held outside of current country; (c) licensing entity staffed with employees who have authority to direct operations; (d) books and records are maintained offshore; (e) all contracts are signed by offshore staff; and (f) day-to-day operations conducted by offshore staff.

And like they say, these are trained experts; don’t try this at home without adequate supervision.

Janssen Pharmaceutica Products, L.P. (a subsidiary of Johnson & Johnson) and Synaptech filed suit against Barr Laboratories Inc., for patent infringement relating to Razadyne (galantamine hydrobromide), 4 mg, 8 mg, and 12 mg Tablets, formerly Reminyl. The action was initiated under the Hatch-Waxman Act as an infringement of a patent on the compound that expires in December 2008. They also filed against Teva Pharmaceutical Industries Ltd. Mylan Laboratories Inc., Dr. Reddy’s Laboratories Ltd. and Alpharma Inc.

Barr filed an Abbreviated New Drug Application (ANDA) with the US Food and Drug Administration (FDA) for Razadyne tablets on February 28, 2005, the first day that an ANDA containing a Paragraph IV certification could be submitted based on the expiration of the New Chemical Entity (NCE) exclusivity on the product.

Barr received notification from the FDA of the application’s acceptance for filing in April 2005. Following receipt of notice from FDA, Barr notified Janssen, the New Drug Application (NDA) holder, and Synaptech, the patent owner, of Barr’s challenge to the patents protecting Razadyne.

Razadyne, formerly Reminyl, is a tertiary alkaloid that has been extracted from plant sources and is now synthesized for use in the treatment of mild to moderate Alzheimer’s disease (AD). Galantamine acts both as a reversible competitive inhibitor of acetylcholinesterase (AChE) and as an allosteric modulator of nicotinic acetylcholine receptors.

More here.

Shares of Vicuron Pharmaceuticals increased 79% to an all-time high of $28.21 Thursday after Pfizer agreed to buy the biotechnology company for $1.9 billion, or $29.10 a share in cash (an price 84% premium with a market capitalization of about $1 billion).

The trend in Big Pharma seems to be one of buying biotech companies with products in late stages of development. Vicuron focuses largely on anti-infectives, with two New Drug Applications under review at the FDA. One, anidulafungin, is intended to treat fungal infections and recently showed superiority to fluconazole in a Phase 3 study. The other compound, dalbavancin, is an antibiotic targeted toward gram-positive infections. The present NDA for dalbavancin covers skin and soft-tissue infections (also called SSTIs).

Ever since penicillin, the first known antibiotic, was discovered in 1928 by Fleming, a small percent of the bacterial population is naturally resistant to antibiotics and drug pressure is increasing this percentage. In 1987 only .02 percent of bacteria were penicillin–resistant. By 2002, 16.5 percent were. Staphylococcus resistance is now at 40 percent. Resistance to Vancomycin, the most powerful of the antibiotics and so prescribed only as a last resort, had reached 12 percent by 1994.

All antibiotics are derived from the same 15 or 16 compounds. With the average cost of developing a new drug now at $500 million, there is a disincentive to developing new antibiotics. In 2000, $26.4 billion was spent on drug research and of that, only 14 percent was toward new anti-infectives. Within that category, most money is directed toward finding drugs effective against HIV. Because few new antibiotics have been discovered, newer ones tend to be held in reserve for use against resistant germs, thus limiting their market potential.

So, will other Pharmas follow suit? Drug companies seem to have plenty of cash (see our earlier discussion of the tax repatriation perk). Some companies, like Merck and AstraZeneca, will probably follow with their own deals given their shortage of big hits in the pipeline. But, it’s probably not going to be a wave of M&A’s washing across the continent. Many will look to increasing development partnerships and collaborations with smaller companies (why buy when you can rent?).

Still, the pipelines of new drugs that the big drug makers maintain are too thin to support their present valuations. Drug companies need lots of new drugs in order to maintain such amazing profitability and pick up slack for those drugs going off patent. This should make smaller, biotech companies look plenty attractive.

AstraZeneca has been fined £60m (about $73 million) by the European Commission for illegally trying to prevent generic competition to its best-selling ulcer drug Losec. After a six-year investigation, the EC said the firm gave incorrect information about when the drug was first approved, enabling the firm to extend the patent’s life.

Losec (omeprazole) is a proton-pump inhibitor for acid-related diseases, which is the world’s largest-selling gastrointestinal product market. Losec was launched in its first markets in 1988. While still under patent protection in the 1990’s, Losec was one of the biggest-selling prescription drugs in the world, with sales of around $6 billion a year.

In Europe especially, everyone feels a natural right to health and medicine, a sort of public good, naturally intended for the free circulation and use. In 1855, Carlo Farini, a philanthropic physician and scientist, investigator of tropical diseases, prevailed over the Piemontese patent law, which would become the Italian patent law, prohibiting the patentability of pharmaceutical inventions (which remained in force until 1978). This doesn’t mesh well with the incentive-based patenting system designed to spur innovation in the first place.

I try to remind clients that a patent isn’t a license to do anything you want in the marketplace. This was made clear by the U.S. Supreme Court long ago when it warned:

“…the possession of a valid patent or patents does not give the patentee any exemption from the provisions of the Sherman Act beyond the limits of the patent monopoly.”

U.S. v. Line Material Co., 333 US 287 (1948)

Some say AstraZeneca got off easy since the Commission has the ability to impose a fine equivalent to 10% of a company’s annual sales if it is found guilty of anti-competitive actions. AstraZeneca said it had acted in good faith when it sought to extend the patent and would appeal against the verdict in the EU’s Court of Justice.

More here.

While the U.S. Supreme Court’s opinion did not extend the statutory research use exemption to patented research tools under 35 U.S.C. ss.271 (e)(1) in Merck KGaA v. Integra LifeSciences I, Ltd . (2005 WL 1386324 (U.S.)), the Court unanimously ruled for a broader interpretation of the exemption from patent infringement for use of a patented invention “solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs.” The Court specifically noted that patented “research tools” were not part of that interpretation.

Some lawyers for these companies also said it was hypocritical of drug companies, which constantly assert the importance of strong patent protection in spurring innovation, to argue that they should be permitted to infringe upon patents held by others.

The Supreme Court said in a footnote that this case was about research using patented drugs themselves, not about tools used to study those drugs. Therefore, it did not address whether drug companies could use research tools without worrying about patents.

This case involved the question of whether uses of patented inventions in preclinical research, the results of which are not ultimately included in a submission to the Food and Drug Administration (FDA), are exempted from infringement by 35 U. S. C. §271(e)(1). While it is generally an act of patent infringement to “mak[e], us[e], offe[r] to sell, or sel[l] any patented invention . . . during the term of the patent therefore,” the Drug Price Competition and Patent Term Restoration Act of 1984 provides:

“It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention (other than a new animal drug or veterinary biological product (as those terms are used in the Federal Food, Drug, and Cosmetic Act and the Act of March 4, 1913) . . .) solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs . . . .”

The clause permits drug companies to infringe on patents “solely for uses reasonably related to the development and submission of information” to the Food and Drug Administration. But it is not specifically restricted to generic drugs, so there have been questions about how far it extends.

The appeals court that handles patent cases ruled in 2003 that the exemption should be narrow, covering, in effect, clinical trials but not earlier work like test-tube experiments to determine which of several compounds might be the best drug candidate.

Now, the Supreme Court ruled that the exemption applied to more than clinical trials. The Court stated that:

Basic scientific research on a particular compound, performed without the intent to develop a particular drug or a reasonable belief that the compound will cause the sort of physiological effect the researcher intends to induce, is surely not “reasonably related to the development and submission of information” to the FDA. It does not follow from this, however, that §271(e)(1)’s exemption from infringement categorically excludes either (1) experimentation on drugs that are not ultimately the subject of an FDA submission or (2) use of patented compounds in experiments that are not ultimately submitted to the FDA. Under certain conditions, we think the exemption is sufficiently broad to protect the use of patented compounds in both situations.

…

We decline to read the “reasonable relation” requirement so narrowly as to render §271(e)(1)’s stated protection of activities leading to FDA approval for all drugs illusory. Properly construed, §271(e)(1) leaves adequate space for experimentation and failure on the road to regulatory approval: At least where a drugmaker has a reasonable basis for believing that a patented compound may work, through a particular biological process, to produce a particular physiological effect, and uses the compound in research that, if successful, would be appropriate to include in a submission to the FDA, that use is “reasonably related” to the “development and submission of information under . . . Federal law.” §271(e)(1).

The use of a patented compound in experiments that are not themselves included in a “submission of information” to the FDA does not, standing alone, render the use infringing. The relationship of the use of a patented compound in a particular experiment to the “development and submission of information” to the FDA does not become more attenuated (or less reasonable) simply because the data from that experiment are left out of the submission that is ultimately passed along to the FDA. Moreover, many of the uncertainties that exist with respect to the selection of a specific drug exist as well with respect to the decision of what research to include in an IND or NDA.

The decision means that drug companies can do much of the laboratory, animal and human testing needed to win approval of a drug even if the new drug would infringe on the patent on another product. However, the new drug could not be sold until the patent on the other drug expired.

The Supreme Court sent the case back to the appeals court for reconsideration in light of the new ruling.

Seth Godin, listed as an author, entrepreneur and agent of change, recently published his thoughts that Small is the New Big. He argues that while big used to matter, small is now where it’s at. [Disclaimer alert: I work for a law firm with 370+ attorneys spread over seven offices] In weaving together a conclusion from empirical evidence, he looks at Fortune 500 as where workers made value from efficiency of scale and contrasts that with the demise of Enron. He postulates that since American Airlines (big) is in trouble but Jet Blue (think small) is doing well, small is all that matters. I guess being shackled with labor and pension costs has nothing to do with it.

He laments that:

Big accounting firms were the place to go to get audited if you were a big company, because a big accounting firm could be trusted. Big law firms were the place to find the right lawyer, because big law firms were a one-stop shop.

And then small happened.

Without giving out too many real statistics, he touts that today, little companies often make more money than big companies. For example, he points out that Craigslist (18 employees) is the fourth most visited site according to some measures (his statistic).

This all is well and good but we part ways on our opinions with his belief that a “small law firm or accounting firm or ad agency is succeeding because they’re good, not because they’re big. So smart small companies are happy to hire them.” This doesn’t really tell the whole story, does it?

A small firm, with small overhead, often charges less — and that can lead to success. For some, good enough is, well, good enough. But certainly large firms, especially in today’s climate, no longer succeed because of their size and stature. Everyone is price (and value) conscious. That means larger firms also succeed because they’re good.

Often, large (and medium-sized firms) bring together a team of attorneys with individual specialties that no small firm can match. I am currently working with a client that in one “small” matter, has issues involving not just patent protection but issues in taxation, bankruptcy, interstate & international commerce, regulatory and criminal law, all rolled into one. Fortunately, we’re able to put together the right mix of attorneys to work through the problems and come up with a success overall.

As with his Airline example above, on an average day, American Airlines will fly more than 2,600 flights. Meanwhile, Jet Blue has 68 aircraft that connect 32 cities (about 290 flights a day). Let’s hope that we don’t all need to rely on just Jet Blue or we’ll be using a lot of bus service.

Don’t get me wrong, I love small. I miss my small, corner grocery store every week whenever I’m forced to go to the big-boxes that have now forced everyone else out of the area. I love the family bicycle shop and the tiny corner coffee shop. But what really matters is personal attention. What we like to call Midwestern values or some sort of hometown attitude. People want to feel appreciated and to feel that their matter is important. To be known by name and to be get attention. That’s why our firm doesn’t feel “large” — we take time to notice people and to care about what matters to them.

This is something every large(r) firm needs to learn.

The U.S. Court of Appeals for the Federal Circuit in Washington today upheld an earlier decision that three patents held by Purdue Pharma LP can’t be enforced because of misrepresentations to the U.S. Patent and Trademark Office about the painkiller’s effectiveness thus giving Endo Pharmaceutical Holdings Inc. the right to sell a generic version.

OxyContin, a time-release painkiller generally prescribed to cancer patients and chronic-pain sufferers, had about $2 billion in sales last year. The drug is considered a controlled substance because its potential for abuse is similar to morphine’s.

This was a patent infringement case in which the patents were held unenforceable by the trial court due to inequitable conduct during prosecution before the USPTO. Purdue Pharma filed an infringement suit against Endo alleging that Endo’s proposed generic versions of OxyContin®, would infringe three Purdue patents. The district court found that Endo would infringe Purdue’s patents, but determined the patents were unenforceable due to the inequitable conduct that occurred during prosecution. Purdue appealed the inequitable conduct judgment.

The three patents asserted by Purdue against Endo are directed to controlled release oxycodone medications for the treatment of moderate to severe pain. The patents are related: U.S. Patents No. 5,656,295 (the “’295 patent”) and No. 5,508,042 (the “’042 patent”) are, respectively, a continuation-in-part and a divisional of U.S. Patent No. 5,549,912 (the “’912 patent”). The ’912 patent itself is a continuation-in-part of U.S. Patent No. 5,266,331 (the “’331 patent”), which Purdue has not asserted against Endo.

The “Detailed Description” section of the written description in each asserted patent opens with the following statement, which played a prominent role in the trial court’s inequitable conduct determination:

It has now been surprisingly discovered that the presently claimed controlled release oxycodone formulations acceptably control pain over a substantially narrower, approximately four-fold [range] (10 to 40 mg every 12 hours—around-the-clock dosing) in approximately 90% of patients. This is in sharp contrast to the approximately eight-fold range required for approximately 90% of patients for opioid analgesics in general.

The thrust of this language is that the invented oxycodone formulation using a four-fold range of dosages (e.g., between 10 mg and 40 mg) achieves the same clinical results as the prior art opioid formulations using an eight-fold range of dosages (e.g., between 10 mg and 80 mg). The written description later explains that the “clinical significance” of the four-fold dosage range of the oxycodone formulations of the present invention, as compared to other opioid analgesics, such as morphine, requiring twice the dosage range, is a more efficient titration process, which is the process of adjusting a patient’s dosage to provide acceptable pain relief without unacceptable side effects.

However, the trial court concluded that Endo had shown by clear and convincing evidence that Purdue’s patents were “invalid” due to Purdue’s inequitable conduct during prosecution of the patents before the PTO based its inequitable conduct determination on underlying findings of materiality and intent.

First, the court found that in view of Purdue’s repeated statements to the PTO that it had discovered an oxycodone formulation for controlling pain over a four-fold range of dosages for 90% of patients, compared to an eight-fold range for other opioids, Purdue failed to disclose material information because it did not inform the PTO that the “discovery” was based on “insight” without “scientific proof.” Second, the trial court found the record as a whole reflected a “clear pattern of intentional misrepresentation.”

Purdue contended it is irrelevant that it lacked scientific proof of the four-fold dosage range for oxycodone because the inventors never stated during prosecution of the patents that the discovery had been clinically tested, and thus did not expressly misrepresent a material fact. But that was not the basis for the trial court’s materiality finding. The court found Purdue had relied on its discovery of a four-fold dosage range throughout prosecution and failed to disclose material information that was inconsistent with its arguments for patentability.

Purdue first told the PTO it had “surprisingly discovered” the four-fold dosage range for controlled release oxycodone, compared to the eight-fold range for other opioids. In response to an obviousness rejection, under headings containing the phrases “Surprisingly Improved Results” and “Results Obtained,” Purdue distinguished its oxycodone formulations from other opioids based on the “surprising result” of the four-fold dosage range and its “clinical significance”—a more efficient titration process. Purdue presented this argument even though neither the written description nor the pending claims of the ’331 patent application made reference to the four-fold dosage range.

The court held that:

In light of Purdue’s consistent representations of the four-fold dosage range for controlled release oxycodone as a “surprising discovery” and the context in which that statement was repeatedly made, we cannot say the trial court’s finding that Purdue failed to disclose material information was clearly erroneous. While Purdue never expressly stated that the discovery of the four-fold dosage range was based on the results of clinical studies, that conclusion was clearly to be inferred from the language used by Purdue in both the patents and prosecution history.

Therefore, the court concluded that weighing materiality and intent is a matter of judgment and thus, the trial court’s findings on materiality and intent were well-founded, and thus not clearly erroneous.

The case is Purdue Pharma LP v. Endo Pharmaceuticals Inc., 04-1189, 04-1347 and 04-1357, all U.S. Court of Appeals for the Federal Circuit. See opinion here: Download file

Maybe we’re on to something with coffee and legal work. The Editor of the Blawg Review suggested we trademark Patent Baristas and set up a new shop after seeing this posting on George Lenard’s Employment Blawg

(photo by Fifi LePew/Marcia Cirillo via flickr)

We won’t ask why he was looking for “law & coffee” but he stumbled across this Dallas-based coffeeshop/law office combination offering a la carte basic flat fee legal services.

While I think most anything goes better with coffee, patents would certainly pair particularly well (the tedious details, you know). We’ll have to consider a new venture of “Patents & Coffee” … by the ocean. And with scones.

If you aren’t familiar with them already, check out the Employment Blog for their news, analysis & comments on labor & employment law.

We’ll see you at the beach.

[Updated 06/10/05. ed.]