This article was published in the Intellectual Property and Life Sciences sections of Law360 on June 29, 2015. © Copyright 2015, Portfolio Media, Inc., publisher of Law360. It is republished here with permission.
The America Invents Act established inter partes review and post-grant reviews mechanisms to challenge the validity of issued United States patents. These procedures were created to improve patent quality, and were introduced in part because of perceived abusive enforcement by nonpracticing entities in the consumer electronics space. As with most legislative changes, the consequences of these post-grant challenge mechanisms may not be fully appreciated until long after the law has been enacted. What can be appreciated at this early stage, however, is that the delicate balance between innovators, generics, biosimilars and competitors established by the 25-year framework of Hatch-Waxman and the more recent Affordable Care Act has been impacted by post-grant challenges in the life science space.
IPRs have recently been in the spotlight as the life sciences industry has begun to use these proceedings to challenge the validity of issued patents covering lucrative therapeutics. Media attention intensified when hedge funds began filing IPRs against patents covering a number of branded pharmaceutical and biologic products. These IPRs allegedly aim to “lower drug prices for everyone,”1 but in some instances, they have resulted in falling stock prices for the branded drug company, potential gains for those “shorting” the stock, splashy headlines in the media, and anxiety throughout the industry. Is this all “much ado about nothing?”
At the time of this writing, only nine PGR petitions have been filed, two of which are related to the pharmaceutical industry. The frequency of PGR petitions will likely increase as more AIA patents are issued,2 but currently, the bulk of post-grant activity in this space has come in the form of IPRs. We have reviewed more than 120 IPRs filed within the life sciences industries.3 Not surprisingly, the devil is in the details. Although hedge fund-like petitioners are grabbing headlines, the real story is playing out in the IPRs filed by both generic and branded companies.
Of the more than 120 IPRs filed in the life sciences, (1) 17 have been filed by hedge fund-like petitioners against patents relating to nine products; (2) about 43 have been filed by generic or biosimilar therapeutic companies against patents relating to 23 products; and (3) about 63 have been filed by historically branded therapeutic companies against patents relating to about 26 products or technologies.
IPRs Filed by Hedge Fund-Like Petitioners
There has been a recent flurry of filings by hedge fund-like petitioners, with 14 of 17 IPRs filed since April 1, 2015. This increase may be in part because such entities are becoming more efficient in their analyses and filing processes. These hedge fund-like petitioners may also be filing IPRs in rapid succession because of concerns about a legislative end to their ability to file. At least one proposed patent reform bill, the STRONG Patents Act, would require an IPR petitioner to have federal declaratory judgment standing in order to file.4
Hedge fund-like petitioners appear to relish the headlines and potential monetary gain, despite their claims of advancing the greater good. Several funds associated with the Coalition for Affordable Drugs LLC, led by activist investor Kyle Bass, have filed IPR challenges as part of a self-proclaimed short activist strategy. Of note, Kyle Bass has been behind 16 of the 17 IPR petitions filed by hedge fund-like entities; the remaining one was filed by Ferrum Ferro Capital LLC. While some petitions negatively impacted the targeted patent owners’ stock prices upon filing, others have had little or no effect. Decisions to institute these IPR proceedings, and their final outcomes, will likely affect the patent owners’ stocks more dramatically. By comparison, a series of IPR petitions filed by BioMarin (a historically branded therapeutic company) against patents relating to Genzyme’s Myozyme and Lumizyme appeared to significantly impact Genzyme’s stock only after the Patent Trial and Appeal Board issued unfavorable final decisions in those proceedings.
Notably, hedge fund-like petitioners appear to have only challenged patents that do not cover the molecule or biologic itself (often referred to as the “composition of matter” patent). It is also important to note that in many cases, hedge fund-like petitioners are not challenging the longest term Orange Book-listed patents for a given product. In many instances, even a successful outcome for the petitioner would only shorten the branded product’s patent coverage by several months — not exactly the big windfall for patients that Kyle Bass has alluded to.
When faced with an IPR filed by a hedge fund, patent owners may use the requirement that the “real party in interest” be identified to prevent an IPR from being instituted by the PTAB. In fact, Acorda Therapeutics Inc. has attempted to do just that in its preliminary response to an IPR challenge from the Coalition for Affordable Drugs, stating:
Moreover, the Petition should also be denied because it fails to name all of the real parties-in-interest (RPIs). The funding of an IPR is an important factor that the Board must consider in determining whether a party is an RPI. […] Yet Petitioner, a hedge fund, does not name the investors funding the Petition.
The importance of a fund identifying its limited partners to comply with the “real party in interest” requirement will likely be determined in August 2015, when the PTAB’s institution decision is expected in this IPR, unless the STRONG Patents Act or similar legislation passes in the interim that may preclude IPR filings by hedge fund-like petitioners.
Patent owners may also be at an advantage because hedge fund-like petitioners are currently unable to appeal an adverse PTAB decision because there is no “case or controversy” between the parties to establish subject matter jurisdiction for the Court of Appeals for the Federal Circuit, which is designated to handle such appeals.
IPRs Filed by Generic or Biosimilar Therapeutic Companies
When generic or biosimilar therapeutic companies file IPR petitions, they appear to primarily challenge Orange Book-listed patents that have a substantially longer term or that cover core features of the product which cannot be easily designed around. Accordingly, Orange Book-listed patents directed to particular crystalline salts or polymorphs are often not challenged, since infringement of such patents can be avoided by developing bioequivalent products. For example, Mylan Pharmaceuticals, a generic pharmaceutical company, filed an IPR against one of six Orange Book-listed patents for Livalo (pitavastatin). The challenged patent is directed to pitavastatin and its use in treating high cholesterol, whereas the remaining five patents are directed to combination therapy regimens and particular crystalline forms of pitavastatin.
IPRs Filed by Historically Branded Therapeutic Companies
When historically branded therapeutic companies file IPRs, they often challenge relatively broad patents that are likely to create freedom-to-operate issues for new or competitive products. Alternatively, or in combination, they may challenge key patents to undermine exclusivity around a competitive product. IPRs filed by branded companies may be the most impactful of all, because successful IPRs may cause branded products to lose their right to the valuable 30-month stay of ANDA approval provided by Hatch-Waxman, and may allow entry of competitive products.
In one example, in August 2013, BioMarin filed three IPR petitions against patents covering Genzyme’s Myozyme and Lumizyme. All three IPR proceedings were instituted, and the PTAB concluded that every challenged claim was unpatentable. Accordingly, claims that generally covered human acid alpha-glucosidase (GAA) and methods of its use to treat Pompe disease were invalidated. This outcome was overwhelmingly favorable for BioMarin, which is developing a fusion protein of insulin-like growth factor 2 (IGF-2) and GAA for the treatment of Pompe disease. Assuming the decisions are not overturned on appeal, it appears that not only is BioMarin free to commercialize its product, but biosimilars may also enter the market as early as the end of 2018. Similarly, other GAA competitors may enter the market at any time. Without BioMarin’s success, it is unlikely that any Myozyme or Lumizyme competitor would have been able to enter the market until 2023.
In another example of branded companies filing IPRs to challenge their competitors’ patents, in January 2015, Actelion Pharmaceuticals filed two IPR petitions against patents covering tadalafil, the active ingredient in Cialis, used to treat erectile dysfunction, and Adcirca, used to treat pulmonary arterial hypertension (PAH). Actelion is one of the biggest players in the treatment of PAH; its PAH product, Tracleer (bosentan), is nearing the end of its market exclusivity. Actelion recently introduced a new product, Opsumit (macitentan), for the treatment of PAH. While Opsumit does not contain tadalafil, Actelion’s strategy may include the introduction of a combination of macitentan and tadalafil, or it may aim for Adcirca to face generic competition earlier than the product’s patent exclusivity would have otherwise allowed. These reasons may have motivated Actelion to file the IPR petitions against patents covering tadalafil, both of which are currently pending at the PTAB.
How Can Patent Owners Strengthen Their Position?
Patent owners should consider using a different or complementary legal team to handle IPR proceedings. This approach may be important in cases where a protective order containing a prosecution bar is issued, which could limit counsel’s involvement in the IPR or related proceedings. Additionally, IPR counsel is required to be registered with the U.S. Patent and Trademark Office (although counsel not registered with the USPTO may file a motion to appear pro hac vice before the PTAB), and litigation counsel is often not a registered patent attorney. Most importantly, IPR practice is evolving, and practitioners handling IPRs are best suited to understand subtle differences in approach that could make or break an IPR strategy.
To mitigate the risk of an unfavorable IPR, a patent owner should consider various strategies, such as: (1) including a large number of claims and multiple claim strategies to make challenging the patent more difficult; (2) keeping a continuation application pending to enable citation of any new art arising out of an IPR with the PTO and/or presenting new claims informed by the IPR; (3) filing a supplemental examination of core patents; and (4) elevating the importance of non-Orange Book-listed patents, or patents that have historically been considered ancillary to the product, by attempting to integrate the subject matter of “ancillary” patents into key elements of the therapeutic’s approval.
Additionally, patent owners can strengthen their portfolios by (1) filing new applications on discoveries related to the product; (2) combining an existing product with another product that has a strong exclusivity position (e.g., a new chemical entity or new biologic with strong patent or regulatory exclusivity); and (3) mining clinical data to reposition indications that have stronger patent protection.
When patent owners receive notice that an IPR petition has been filed or is about to be filed, they should immediately contact IPR counsel to formulate an effective response strategy. The IPR petition will describe the petitioner’s substantive position, but considering the petitioner’s motivation may provide the best roadmap for an appropriate response. While IPR responses will be fact-specific, immediate consideration should be given to whether the real parties of interest have been identified, and to the petition’s materiality as it relates to the particular therapeutic or technology. In many instances, the notoriety associated with filing an IPR appears to be the petitioner’s desired end game, as the substantive impact (e.g on scope or term) of even a successful IPR would be relatively minor. Some patent owners have even responded to IPRs with attempts to position the challenge as extortionist activity, so an interdisciplinary teams of securities lawyers, litigators, and patent practitioners may be required.
Conclusion
IPRs and PGRs have only begun to affect the life sciences industries. While petitions filed by hedge fund-like entities have grabbed headlines, highlighting the law of unintended consequences of post-grant proceedings and causing uncertainty in the industry, the vast majority of IPRs have been filed by generic and branded competitors. Fortunately, patent owners may carefully strengthen their positions to protect their patents from third-party challengers, and should consult with their patent counsel to thoughtfully employ these strategies.
Endnotes
1 See Riley McDermid, Hedge Fund Manager Picks Acorda Therapeutics (ACOR) as His First Victim Against the Pharmaceutical Industry and Its “BS” Patents (Feb. 11, 2015), http://www.biospace.com/News/hedge-fund-manager-picks-acorda-therapeutics-as/364315.
2 PGR is available for issued patents with a claim having an effective filing date on or after March 16, 2013.
3 Our focus has been on IPRs challenging the validity of patents found in the U.S. Patent and Trademark Office’s biochemistry and organic chemistry technology center.
4 See Cavan et al. Reverse Patent Trolls: Patent Law’s Newest Strategy Unfolds. Patent Trademark & Copyright Law Daily (May 29, 2015).
