If an attorney wants to work in a static, predictable area of law, pharmaceutical intellectual property is not an ideal venue. Pharmaceutical IP lawyers deal with a slew of dynamics—which all carry expensive implications. This year, a decision by the US Supreme Court threw another curve ball at them.
In January, Teva Pharmaceuticals was written into patent law history with the Supreme Court decision in Teva v. Sandoz. The court raised the standard of appellate review with the decision, saying the federal circuit court must review claim construction rulings with greater deference to the lower court, particularly if fact-finding is involved. The court reversed and remanded an unfavorable decision against Teva regarding its protection of a drug, Copaxone, used to treat multiple sclerosis. The ruling rejected the federal circuit court’s standard of review for patent claim constructions from the trial courts.
The pharmaceutical industry is one of innovation. Analysts constantly talk about the pipeline of new drugs and the multibillion-dollar stakes in developments to address disease and injury. These are lifesaving and life-enhancing medicines used by 70 percent of the American population. A single blockbuster medication—think Abilify (psychosis and depression), Nexium (gastrointestinal disorders), Humira (Crohn’s disease and rheumatoid arthritis), Crestor (cholesterol), or Advair (asthma)—can be worth billions of dollars. Those profits are accrued mostly before patent expiration.
That said, for the companies that create new drugs, patent expiration and successful patent challenges reduce profitability—the revenue stream that funds new research and development. As Matthew P. Blischak, associate general counsel of global branded IP litigation for Teva Pharmaceuticals, explains, “Some of these drugs are worth hundreds of millions if not billions of dollars. If generic entry happens earlier than the patent expiration, it can be a $2 or $3 billion loss to the company.”
Other significant variables include generic manufacturers, global trade agreements, and the fact that many pharmaceutical companies, Teva included, sell both their own innovative drugs and generics that eat into the market share of other companies’ innovations. It’s a maelstrom.
Blischak was the lead internal attorney working with outside counsel on Teva v. Sandoz while it was being decided by the Supreme Court. The implications of some decisions can be overblown or misinterpreted by the press, he notes, but in the lead-up to the decision in early 2015, he worked with the company’s external communications strategists to discuss the case background with the media in advance of the ruling. “I was pleasantly surprised,” he says. “It was reported everywhere, and the quality of the analysis was good.”
The Court of Appeals for the Federal Circuit has historically reversed a high percentage of claim construction decisions, making it obvious why the Supreme Court decided to hear the case. Still, in the long term, the decision may not have a huge effect on companies such as Teva, says Blischak, a comment echoed by colleagues Staci Julie, senior vice president and chief IP counsel, and Lauren Rabinovic, associate general counsel of North American generic IP. All concur that the decision places more pressure on fact-gathering and presenting convincing evidence related to claim construction at trial, and there may be a higher investment in expert testimony. Net-net, they say the decision will have, at most, a nominal financial impact on the litigation processes on both the branded and generic sides of the company.
Legal journals have suggested that Teva v. Sandoz will have a greater impact on other industries, such as the technology sector, which is beleaguered with patent trolling that can cost up to $1 million per challenge to defend.
A long-standing dispute—which doesn’t involve patent trolls—exists between Apple and Samsung, and it may find clarification in the federal circuit court as a result of Teva. According to the Columbia Science and Technology Law Review: “There could be an incentive for litigants to create factual issues in claim construction. This could increase the cost of claim construction because litigants are encouraged to introduce extrinsic evidence, such as expert testimony. Additionally, in light of the heightened deference, district court judges may rely more heavily on factual issues in writing their opinions in order to reduce the probability of being reversed on appeal.” In agreement with Teva attorneys, the journal acknowledges that factual findings in claim constructions may be limited, adding, “Only time will tell whether or not this is actually the case.”
In the pharmaceutical sector, the case was closely watched and yet not the subject of industry advocacy. Blischak notes that in the Supreme Court proceedings, neither the trade associations representing the branded interests (Pharmaceutical Research and Manufacturers of America) nor the generics (Generic Pharmaceutical Association) filed an amicus brief. This may be due to the nature of many companies having both branded (Rx) business and generic (Gx) businesses—an interesting crosscurrent, given the chronic nature of litigation between these interests. Or, as Blischak notes, because “neither the brand nor the generic sides really knew what outcome would serve their interests long-term. Only time will tell.”
“It puts us in an unusual position,” says Rabinovic, whose primary responsibilities are in the Gx business. “In fact, most people identify Teva as a generics company, but half our revenue comes from the specialty (also known as the branded) side.” She clarifies that the substantive law ultimately determines whether a patent challenge will or will not succeed. “At the end of the day, patent claims, prior art, etc., are what matters.”
Rabinovic acknowledges that internal communications are critical to ensuring they “don’t make arguments that undermine each other.” This is possible because, unlike most companies that have both Rx and Gx products, Teva’s IP function is administered under one department, which is headed up by Julie. In her position, Julie interfaces frequently with the business side of the company, both in terms of product strategy and in balancing the interests of the Rx and Gx businesses.
“I feel strongly that it should be a combined function,” Julie says. “This leverages our experience, expertise, and perspectives on both sides. For both the brand and the generic side, we can approach the situation from the vantage point of knowing the opposition’s weaknesses.”
Julie notes that firms increasingly have this same dual personality as a result of mergers and acquisitions. Examples include Pfizer purchasing Hospira and Actavis buying Allergan, among others, both within the last year. Industry analysts predict more mergers in 2015 as businesses seek to balance their portfolios to mitigate the boom-bust nature of pipelines and patent expirations.
There are many offshore companies in that mix, which is the current trend. Teva Pharmaceutical Industries is an Israeli company with North American headquarters in North Wales, Pennsylvania. The United States may be a large consumer market, but health-care systems around the globe foster extensive, well-regulated care and access to drugs, medical devices, and other therapies.
Another dynamic in the worldwide pharmaceutical industry is trade and lower-cost manufacturing in such places as India, Taiwan, Thailand, and China. Companies based there are almost never innovators but instead produce generic drugs that copy other patented drugs on a massive scale.
While important for making much-needed medications available at affordable costs in disease-ravaged Third World countries, these companies are also among the major challengers to patents belonging to companies, including Teva, that invest heavily in research and development. According to John R. Graham, a senior fellow at the National Center for Policy Analysis and co-organizer of the Health Technology Forum DC, average drug research costs have increased by a factor of 2.5 since 2003. He cites research from the Tufts Center for the Study of Drug Development, which found that research and development for a new drug averaged $802 million about a decade ago, and by 2014 that average had risen to $2.5 billion. Tufts includes dollars spent by companies on the more than 80 percent of projects that are abandoned before getting to market.
Upstart companies overseas have contributed significantly to increased patent challenges in recent years. Blischak says in years past, there would typically be three to six challengers to a patent. Today, that number ranges between 10 and 20; Teva’s own drug Treanda, used to treat cancer, is currently under attack from 18 generic manufacturers. “Every drug is vulnerable to challenge,” he says.
It takes time for challengers to work through the courts. The Hatch-Waxman Act (also known as the Drug Price Competition and Patent Term Restoration Act of 1984) is the defining regulation of generic drugs in the United States. The intent of the law is to protect innovative companies, which it does through a 30-month stay on challengers and the ability to extend the terms of patents. The first generic company to file a patent challenge is potentially given 180-day exclusivity in the generics market, a leg up on the other dozen or more companies hoping to capture market share. “Teva helped create today’s generic drug industry and so has been heavily involved in patent litigation,” explains Rabinovic.
Whatever its application and eventual impact on the world of intellectual property, Blischak values the experience of seeing the Sandoz case work its way up to the US Supreme Court. “The odds are very low that the Court will take any case,” he says. The Supreme Court reports that it hears about 100–150 of the more than 7,000 appealed to it each year. “It was my first time there,” Blischak says, “perhaps the only time. It was an incredible intellectual challenge working out strategies with our counsel. It felt like climbing Mount Everest.”
