IPR challenge could up the ante of defending drug patents

Defending patents for drugs and medical devices is part of the stakes of an R&D budget, but the size of that stake could increase significantly if a hedge fund manager wins his inter partes review (IPR) challenge of selected drug patents.

Since Hatch-Waxman shuffled the deck for generic competition in the 1980s, patent infringement litigation has become a routine part of doing business for drugmakers, adding to the price of both brand and generic drugs even as it encourages the market entry of generics.

As a result, innovative drugmakers shell out millions of dollars and spend an average of three to five years litigating the patents on each drug, Courtenay Brinckerhoff, a partner at Foley & Lardner LLC, told BioWorld Today.

In addition to litigation in the courts, drugmakers are now having to defend against IPR challenges before the Patent and Trademark Office (PTO), which can add to their legal costs, Brinckerhoff said, noting that diagnostics and devicemakers could be susceptible to similar challenges.

The IPR process was set up under the America Invents Act as a faster, cheaper alternative to litigating patents on the basis of prior art. Despite the cost savings, litigation is still the preferred challenge for drug patents, as it offers a six-month exclusivity for successful generic filers. Since IPR became available in September 2012, a few drugmakers have had their patents challenged before the PTO, Brinckerhoff said, but the questioned patents generally are also the subject of litigation.

For instance, Mylan Inc. filed IPR petitions against Teva Pharmaceutical Industries Ltd.'s patents related to Copaxone (glatiramer acetate) 40 mg. Whether the PTO accepts the petition will not be known until mid-August. According to ISI Group's Umer Raffat, the agency accepts about 40 percent of biopharmaceutical IPR petitions. Of the 13 IPR petitions filed against biopharma last year, six were settled, two were denied and five were still awaiting a decision, he said.

What's different about the recent spate of IPR challenges is that they're not coming from companies hoping to compete in the marketplace. Rather, they're from a hedge fund manager looking to affect drug prices and stock value.

Kyle Bass, founder of Hayman Capital, recently formed the Coalition for Affordable Drugs to challenge Orange Book-listed patents for obviousness through the IPR process. "His official lofty stated purpose" is to rid the world of invalid drug patents and allow cheaper generics to enter the market, Brinckerhoff said. However, even if successful, his challenges would not stack the deck for generic entry, as most of the brand drugs would still be protected by other patents, she added, and the challenged patent is not always the latest-expiring one.

In actuality, the coalition seems to be shorting the stock of publically owned drugmakers by devaluing their stock prices when news of the IPR challenge gets out, Brinckerhoff said.

TARGETED DRUGS

The group's first target was two patents for Acorda Therapeutics Inc.'s Ampyra (dalfampridine). When word spread of the coalition's IPR petition in February, Acorda shares (NASDAQ:ACOR) lost about 10 percent, to close at $36.65, even though the drug is protected by three other Orange Book-listed patents. (SeeBioWorld Today, Feb. 13, 2015.)

Since then, Bass' coalition has filed IPR petitions against patents for:

• Gattex (teduglutide, NPS Pharmaceuticals Inc.);

• Lialda (mesalamine, Shire plc);

• Xyrem (sodium oxybate, Jazz Pharmaceuticals Inc.);

• Imbruvica (ibrutinib, Pharmacyclics Inc.);

• Tecfidera 480 mg (dimethyl fumarate, Biogen Inc.);

• Revlimid (lenalidomide, Celgene Corp.).

Some of the patents targeted by the coalition are the subject of other IPR petitions or litigation. For example, the coalition is challenging Tecfidera's key method patent, which expires in 2028 and is the subject of ongoing interference between Biogen and Forward Pharma A/S. Bass' argument is that a person skilled in the art would have had reason to conduct dose-ranging studies of dimethyl fumarate to treat multiple sclerosis at a range of 360 mg/day to 720 mg/day, which would make Biogen's 480-mg/day claim obvious, ISI Group analyst Mark Schoenebaum said. (See BioWorld Today, Aug. 12, 2014.)

But none of the prior art included in the IPR specifically claims the use of 480 mg/day, Scoenebaum added. The IPR also does not cite Forward's '871 U.S. patent application, which has a priority date of Oct. 8, 2004, as prior art.

WINNING HAND?

It's too soon to say whether the coalition holds a winning hand, as its IPR petitions have yet to be officially accepted by the PTO. The agency has a year to rule on each challenge, Brinckerhoff said. The PTO's decision can then be appealed to the U.S. Court of Appeals for the Federal Circuit, which could add a new wrinkle to the petitions as the courts require patent challenges to be filed by individuals or companies that are looking to compete. The IPR process is open to all comers.

Whether other activists follow Bass' IPR strategy in challenging medical patents will depend on the success of his petitions and the vulnerability of specific patents, Brinckerhoff said. The cost of filing an IPR could discourage frivolous challenges, as each IPR costs a few hundred thousand dollars.

If the drug patents targeted by Bass' coalition are not invalidated through the IPR process, Brinckerhoff said she hopes the stock market will learn that just because an IPR is filed doesn't mean a drugmaker will lose the patent or face earlier generic competition. If the stock market doesn't react to such news, the incentive to manipulate stock price would be gone.

But if the PTO tosses the patents, drugmakers may be hard pressed to defend their remaining patents – much as Myriad Genetics Inc. was after the Supreme Court struck down its isolated DNA claims to the BRCA1 and BRCA2 genes. Following that ruling in June 2013, Myriad aggressively defended the other patents protecting its BRCA 1 and 2 diagnostic tests for breast and ovarian cancers, only to have some of them struck by the Federal Circuit. (See BioWorld Today, June 14, 2013, and Dec. 19, 2014.)

Meanwhile, drugmakers will have to budget to defend against both court and IPR challenges – and make sure they're holding strong patents. That's exactly what Acorda, of Ardsley, N.Y., is doing. If the coalition's IPR petition against Ampyra's patents is accepted, "we will vigorously defend the patent in the PTO review process, just as we are doing in the federal courts with the abbreviated new drug application filers," Acorda CEO Ron Cohen said during the company's 2014 earnings call.

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