The prevalence of inter partes reviews (and post-grant reviews to come) forces practitioners to consider the strong likelihood that patents covering commercial products will face post-grant challenges.
This article was published in the Intellectual Property and Life Sciences sections of Law360 on January 7, 2016. © Copyright 2016, Portfolio Media, Inc., publisher of Law360. It is republished here with permission.
2015 brought many changes to the landscape of post-grant challenges in the life sciences, particularly in the pharmaceutical and biologics space. In our midyear assessment of the impact of post-grant challenges on innovator exclusivity strategy in the life sciences, we explored the large number of inter partes review (IPR) petitions filed by generic and historically branded pharmaceutical companies, and touched on the headline-grabbing IPR petitions filed by hedge fund-like entities.
Since our midyear assessment, the distribution of IPR petitions in the pharmaceutical and biologics space filed by generic pharmaceutical companies, branded pharmaceutical companies, and hedge fund-like petitioners has stayed roughly the same. At the time of this writing, nearly 300 IPR petitions had been filed in the pharmaceutical and biologics space since September 2012, more than 100 of which were filed during the second half of 2015.1 Of these 300 petitions, 34, or just over 11 percent, were filed by hedge fund-like petitioners. The remaining approximately 89 percent were split between generic and branded petitioners, with branded companies filing slightly more petitions than generic companies.
As we discussed previously, the motivation for generic and branded petitioners to file is clear, and seems to be a natural extension of district court litigation. Generic or biosimilar therapeutic companies seem to primarily file IPR petitions to challenge Orange Book-listed patents that have a substantially longer term, or that cover core features of the product that cannot be easily designed around. Similarly, historically branded therapeutic companies seem to file IPRs to challenge relatively broad patents that are likely to create freedom-to-operate issues for new or competitive products; they may also challenge key patents to undermine a competitive product’s exclusivity.
For these generic and branded petitioners, IPRs are in many ways simply business as usual, albeit in a new forum established by the America Invents Act. While the growth of these IPR petitions is notable, it is not necessarily surprising. In contrast, while hedge fund-like petitioners have had less of an impact by the numbers alone, they have raised interesting issues surrounding patent monetization, putting a new spin on the ongoing debate over nonpracticing entities and their influence on innovator exclusivity. Some have called these petitioners “reverse patent trolls,” using the patent system to invalidate practicing companies’ patents.2 Hedge fund-like petitioners continue to use IPRs to pursue their stated goal of lowering drug prices, along with the implicit goal of shorting patent owners’ stocks, and don’t appear ready to abandon their mission any time soon.
In total, hedge fund-like petitioners have filed 34 IPR petitions targeting patents covering 14 branded products. The Patent Trial and Appeal Board (PTAB) has denied institution of 10 of these IPRs, and has instituted seven of them on at least one issue raised in the petition. Seventeen remain pending. Of the 34 IPR petitions filed, 33 were filed by affiliates of the Coalition for Affordable Drugs.
Patents covering Acorda Therapeutics Inc.’s Ampyra were the first to be challenged by the coalition. The PTAB denied institution of the first two petitions challenging Acorda’s patents, saying that the coalition had not presented sufficient evidence that the reference(s) it cited should be considered a printed publication. Undeterred, the coalition filed two new IPR petitions in September challenging the same two patents it initially challenged, along with two more IPR petitions challenging other patents covering Ampyra. All four of the new petitions remain pending, with PTAB institution decisions expected in the first quarter of 2016.
With the coalition’s remaining 27 IPR petitions, it has challenged patents covering a number of branded therapeutics. The PTAB has instituted the coalition’s IPRs challenging one or more patents covering Shire PLC’s Lialda and Gattex, and Celgene Corp.’s Revlimid. The PTAB denied institution of the coalition’s IPRs challenging one or more patents covering Jazz Pharmaceuticals Inc.’s Xyrem, AbbVie Inc.’s Imbruvica, Biogen Inc.’s Tecfidera, Celgene’s Revlimid, and Horizon Pharma PLC’s Vimovo. The coalition has pending IPR petitions challenging patents covering Ampyra, as discussed above, along with Tecfidera, Vimovo, Bristol-Myers Squibb Co.’s Eliquis, Sandoz Inc.’s Kerydin, Amgen Inc.’s Enbrel, Insys Pharma Inc.’s Subsys and Aegerion Pharmaceuticals Inc.’s Juxtapid.
The coalition’s IPRs challenging patents covering Celgene’s Revlimid brought forth a motion for sanctions from Celgene, accusing the coalition of abuse of process. Celgene contended that in these cases, the coalition had used the IPRs as part of their strategy to profit by affecting stock prices. The coalition filed an opposition to the motion for sanctions, stating that “at the heart of nearly every patent and nearly every IPR, the motivation is profit.” The PTAB ultimately sided with the coalition, saying, “Profit is at the heart of nearly every patent and nearly every inter partes review. As such, an economic motive for challenging a patent claim does not itself raise abuse of process issues. We take no position on the merits of short-selling as an investment strategy other than it is legal, and regulated.” The PTAB seems to have implicitly recognized that the limited monopoly associated with a patent is for the purpose of monetization, and has taken no issue with the profit motive behind either obtaining or challenging a patent.
Ferrum Ferro Capital LLC filed the remaining hedge fund-like IPR petition, which challenged a patent covering Allergan’s Combigan, a combination of brimonidine and timolol for topical ophthalmic use. While the PTAB denied institution of the IPR, Allergan fired back with a civil action against Ferrum Ferro and its founder Kevin Barnes.3 The suit accused Ferrum Ferro and Kevin Barnes of civil extortion, malicious prosecution, and unfair business practices arising from U.S. patent laws, saying the civil action arose from Ferrum Ferro’s attempt to extort Allergan by misusing the IPR process “for the express purpose of monetizing the petition, including by attempting to extort compensation from Allergan.” The complaint asserted there was federal jurisdiction in the matter, and on Dec. 28, the case was dismissed without prejudice, because the court ruled there was no subject matter jurisdiction over the action. It is not known whether Allergan plans to refile.
While there have been some fireworks in the industry over IPRs from these hedge fund-like petitioners, perhaps one of the most interesting effects of this phenomenon is that it has drawn attention to the interaction between hedge funds, the pharmaceutical industry and drug pricing generally. When the coalition filed its first IPR petition, its leaders Kyle Bass and Erich Spangenberg stated publicly that the coalition aimed to lower drug prices for everyone, arguably for the greater good. In contrast, Martin Shkreli, a co-founder of the MSMB Capital Management hedge fund and CEO of Turing Pharmaceuticals AG, made waves in the media in late 2015 by raising the price of the anti-malarial and antiparasitic drug Daraprim by 5,500 percent, a move that sparked a public outcry. In December 2015, Shkreli was arrested on securities fraud charges, sealing his place alongside Bernie Madoff as perhaps one of the most hated hedge fund managers in history. In light of this attention on hedge funds and pharmaceuticals, has the general opinion of the coalition shifted from bad to good? Its overall effect on both drug prices and stock prices remains to be seen.
In addition, as the number of IPR petitions in pharmaceuticals and biologics continues to grow, it is interesting to consider whether there is a difference in the rate at which IPRs are instituted in this space, as compared to other technology areas. Our preliminary analysis suggests that IPRs may be less likely to be instituted in the pharmaceutical and biologic arena compared to the PTAB’s overall IPR institution rate. Is this difference noteworthy? It may be explained by the fact that in the highly regulated pharmaceutical and biologic industry, improvements must be significant enough to bring to market, which may in turn lead to stronger, more thoroughly vetted patents that are less susceptible to challenges. How does the burden for petitioners challenging pharmaceutical patents compare to the burden in other chemical arts, where relatively few IPR petitions have been filed? Are there political issues at play in the life sciences that may not affect institution decisions in other art areas? These questions may warrant further exploration.
Overall, 2015 illustrated the importance of IPRs in the life sciences. The prevalence of IPRs (and post-grant reviews to come) forces practitioners to consider the strong likelihood that patents covering commercial products will face post-grant challenges. In addition, while many would-be petitioners believed at the outset that IPRs would be a relatively easy way to challenge patents, the rate at which the PTAB has denied institution of IPRs in the pharmaceutical space has challenged this notion. From both perspectives, it is clear that post-grant challenges have changed the landscape of patent disputes in the life sciences.
DISCLOSURE: Pepper Hamilton LLP represents or has represented parties mentioned in this article, including Acorda Therapeutics Inc. and Bristol-Myers Squibb.
1 We have focused on IPRs challenging the validity of patents found in the U.S. Patent and Trademark Office’s biochemistry and organic chemistry technology center.
2 See Walker et al., New Hedge Fund Strategy: Dispute the Patent, Short the Stock, The Wall Street Journal (Apr. 7, 2015), available at http://www.wsj.com/articles/hedge-fund-manager-kyle-bass-challenges-jazz-pharmaceuticals-patent-1428417408.
3 See Allergan Inc. v. Ferrum Ferro Capital LLC, No. 8:15-cv-00992 (C.D. Cal.).
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.