April 03, 2006
1. Which regulatory provisions apply to the development and marketing of pharmaceutical products?
The Federal Food, Drug and Cosmetic Act is the basic food and drug law of the U.S. With numerous amendments, it is the most extensive law of its kind in the world. The law is intended to assure consumers that pharmaceutical products are safe and effective for their intended uses and that all labeling and packaging is truthful, informative and not deceptive.
The New Drug Application (NDA) is the vehicle through which drug sponsors formally propose that the Food and Drug Administration approve a new pharmaceutical for sale and marketing in the U.S. Since 1938, every new drug has been the subject of an approved NDA before U.S. commercialization.
The documentation required in an NDA is expected to tell the drug's whole story, including what happened during the clinical tests, what the ingredients of the drug are, the results of animal studies, how the drug behaves in the body, and how it is manufactured, processed and packaged.
Title 21, Code of Federal Regulations (21 CFR) documents all actions that are required of drug sponsors under Federal law. Areas covered include environmental impact considerations, protection of human subjects in research, and required financial disclosures of any potential conflicts of interest by clinical investigators involved in the research and development of pharmaceutical products. 21 CFR is updated on April 1 of each year.
2. Which authority is responsible for enforcing the regulatory regime? What powers of investigation and enforcement does it possess?
The Food and Drug Administration (FDA) of the United States is the government agency responsible for enforcing and regulating the pharmaceutical industry. The FDA is an agency of the U.S. Department of Health and Human Services and has broad investigatory and enforcement powers. Products within the FDA's authority include food, drugs, medical devices, biologics (e.g., vaccines), animal feed and drugs, cosmetics, radiation-emitting devices such as cell phones and "combination products," which are products comprised of two or more regulated components, or separately packaged products intended for use only in combination with another approved product.
The FDA's Center for Drug Evaluation and Research (CDER) evaluates all new drugs using a four-phased series of clinical trials-with phase three being the largest and usually requiring 1,000 to 3,000 patients-before they are approved for sale and marketing to the public.
3. Are there any international initiatives to regulate the pharmaceutical industry? If so, how effective are these?
Although there is no international agency with powers and authority equivalent to the U.S. Food and Drug Administration, the International Pharmacopoeia, a publication of the World Health Organization (WHO), provides recommended quality specifications and methods of analysis for selected pharmaceutical products. These recommended procedures are intended to serve as source material for reference or adaptation by any WHO Member State wishing to establish standards and requirements for pharmaceutical products. The International Pharmacopoeia has no legal status. WHO Member States can choose to adopt it and incorporate it into their national legislation, either in whole or in part.
4. What compliance programs should be considered by a company engaged in the development and/or sale of pharmaceutical products? Are such compliance programs compulsory?
The FDA has specific compliance requirements for the development of new pharmaceutical products. Chapter 4 of the Compliance Policy Guides Manual contains specific steps relating to the development of drugs for people. The Manual is continually updated and reflects the current requirements, and therefore should serve as a compliance roadmap for the companies engaged in pharmaceutical product development.
5. What legislation governs the grant and protection of intellectual property rights in pharmaceutical products? What have been the most important recent developments in this connection?
The legislation that governs the grant and protection of intellectual property rights is the U. S. Patent Act. The provisions of the law are laid out in Title 35 U.S.C. 1 et seq, which gives any person who invents something the right to patent it. The most important provisions within Title 35 U.S.C.-the ones that determine whether or not an invention can be patented-are 35 U.S.C. 101, 102 and 103b.
Section 271(e) (1) of the Act exempts from patent infringement experimental research activities performed in anticipation of an FDA filing. Although the Act does not restrict applicability of the exception to any particular class of infringer, its legislative history specifies that the purpose of the exception is to protect generic drug manufacturers.
The Drug Price Competition and Patent Term Restoration Act of 1984 (usually referred to as the Hatch-Waxman Act 35 U.S.C. §§ 156, 271, 282, et seq) was designed to promote generics, while leaving intact a financial incentive for research and development. It allows generics to win FDA marketing approval by submitting bioequivalence studies (as opposed to clinical data, which is costlier to compile). It also grants a period of additional marketing exclusivity to make up for the time a patented pipeline drug remains in development. This extension cannot exceed five years, and it is in addition to the 20 years of exclusivity granted by the issuance of a patent.
Another provision of the Hatch-Waxman Act grants a 30-month stay to drug companies that file suit against generic manufactures that challenge their patents. This has become controversial in recent years, as pharmaceutical companies have used the provision to keep generics off the market by protecting their drugs with extra patents of poor quality, filing lawsuits to protect the patents even when the lawsuit will be lost, but getting the extra market exclusivity anyway.
Hatch-Waxman also provides the mechanism for resolving pharmaceutical patent disputes when a generic manufacturer believes that it can manufacture a bioequivalent product that does not infringe on the original patent, or when it believes that a patent is invalid.
Despite 20 years of judicial construction, confusion remains over the appropriate application and scope of Section 271(e) (1). Accordingly, companies involved in pharmaceutical research need to carefully examine their activities to be sure they are protected.
6. Are there any relevant international agreements relating to pharmaceutical patents? If so, what is their effect? (e.g. TRIPS?)
The Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS) standardizes international intellectual property protection and expands patent protection for the pharmaceutical industry. Essentially, TRIPS confers international patent protection for all products and process inventions meeting the novelty, inventive step (non-obviousness) and utility requirements of the U.S. Patent Act. All World Trade Organization member countries are required to provide certain minimum standards for intellectual property protection pursuant to the TRIPS Agreement.
Although the TRIPS Agreement provides a patent term of 20 years from the date of filing a patent application, the WTO has interpreted its provisions to provide certain exceptions to patent exclusivity. The research exception allows local researchers to use a patented invention for research purposes. The regulatory exception allows generic manufacturers to obtain marketing approval of a drug under patent without the patentee's permission, in order to allow the generic manufacturer to enter the market as soon as the patent expires. Further, governments can prevent patentees from using their exclusive rights to unreasonably restrain trade or technology transfer. For example, governments can provide compulsory licenses when the patent holder unreasonably refuses to grant a voluntary license or in cases of national emergencies, government use, "other circumstances of extreme urgency," or anti-competitive practices.
Compliance with TRIPS provisions is monitored via annual reviews by the United States Trade Representative, which conducts annual reviews to identify countries that deny adequate and effective protection of intellectual property rights or fair and equitable market access. The U.S. trade representative is authorized to file a complaint before the WTO and/or impose trade restrictions obliging non-compliant countries to provide compensatory trade benefits or stop the egregious activity. Among the countries identified as potentially problematic for the U.S. pharmaceutical industry are Israel, Argentina, India and Taiwan. Problems identified include allowing non-patent rights holders to import patented pharmaceutical products; failure to provide the market exclusivity required by the Agreement; discriminatory price setting and reimbursement systems that effectively inhibit foreign firms from competing in local markets.
Lack of compliance with TRIPS obligations allows local laboratories to freely copy and sell innovative pharmaceuticals covered by U.S. patents. The threat of WTO sanctions has spurred action on the part of the most egregious members of the developed and developing world. If this legislation proves fruitful, the world can expect other WTO member countries to follow suit. This will strengthen incentives to U.S. pharmaceutical companies to enter into and reap the economic benefit from potentially lucrative markets. Until then, however, consideration should be made whether the risk, by way of expense and disclosure of proprietary information, is greater than the gain.
7. How is a patent obtained? What requirements must be satisfied, and how is the application made?
Applications for a patent are made through the U.S. Patent and Trade Mark Office (USPTO). A patent can be obtained for anything new, useful, not obvious and not otherwise statutorily barred.
Generally, the term of a new patent is 20 years from the date on which the application for the patent was filed in the United States or, in special cases, from the date an earlier related application was filed, subject to the payment of maintenance fees. U.S. patent grants are effective only within the United States, U.S. territories and U.S. possessions. Under certain circumstances, patent term extensions or adjustments may be available.
The right conferred by the patent grant is, in the language of the statute and of the grant itself, "the right to exclude others from making, using, offering for sale, or selling" the invention in the United States or "importing" the invention into the United States. What is granted is not the right to make, use, offer for sale, sell or import, but the right to exclude others from making, using, offering for sale, selling or importing the invention. Once a patent is issued, it is the patentee's responsibility to enforce the patent without aid of the USPTO.
The PTO issues three different kinds of patents: utility patents, design patents and plant patents.
To qualify for a utility patent-by far the most common type-an invention must be:
• A process or method for producing a useful, concrete, and tangible result (such as a genetic engineering procedure, an investment strategy, computer software, or a process for conducting e-commerce on the Internet)
• A machine (usually something with moving parts or circuitry, such as a cigarette lighter, sewage treatment system, laser or photocopier)
• An article of manufacture (such as an eraser, tire, transistor or hand tool)
• A composition of matter (such as a chemical composition, drug, soap or genetically altered life-form)
• An improvement of an invention that fits within one of the first four categories.
If an invention fits into one of the categories described above, it is known as "statutory subject matter" and has passed the first test in qualifying for a patent. But an inventor's creation must overcome several additional hurdles before the PTO will issue a patent. The invention must also:
• Have some utility, no matter how trivial
• Be novel (that is, it must be different from all previous inventions in some important way)
• Be non-obvious (a surprising and significant development) to someone who understands the technical field of the invention
8. How effective is the patent as a means of protecting intellectual property in the pharmaceutical context? What remedies are available for breach or threatened breach of patent?
Patents constitute the predominant form of intellectual property rights for pharmaceutical companies. Without adequate and effective patent protection, the research-based pharmaceutical industry would not exist. Fortunately, the standards for protection of intellectual property in the United States are, for the most part, adequate, with mechanisms in place for extending pharmaceutical patent terms to compensate in some measure for the years of effective patent life lost during the lengthy regulatory approval process.
The TRIPS Agreement has been very effective at maximizing intellectual property privileges throughout the world, in that it has a powerful enforcement mechanism that provides for discipline of countries that do not adopt the Agreement's required intellectual property systems with trade sanctions authorized by the World Health Organization. The TRIPS Agreement represents a major step in formally codifying strong, substantive standards for the protection of all forms of intellectual property.
In the event of breach or threatened breach of patents, remedies include injunctions, litigation against infringers, recovery of lost profits and/or royalties, recovery of court costs and attorney fees, and a trebling of patent-damage awards.
9. What particular intellectual property issues may arise at the preclinical and clinical trial stages of the development of a pharmaceutical product? How have such issues been addressed?
The safe harbor provision of 35 U.S.C. § 271(e)(1) provides that "it shall not be an act of infringement to make, use, offer to sell, or sell … 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 or veterinary biological products." P.L. No. 98-417, 98 Stat. 1585 (amending 35 U.S.C. § 271 to add § 271(e)).
In Integra Lifesciences I, Ltd. v. Merck KgaA, the United States Supreme Court unanimously held that the exemptions from patent infringement under § 271(e)(1) extended to "include preclinical studies of patented compounds that are appropriate for submission to the FDA in the regulatory process."
In the wake of this Supreme Court decision, pharmaceutical companies' patents do not bar rival companies from starting research on competing medications. Research is immunized under § 271(e)(1) so long as the research is appropriate for submission to the FDA in the regulatory process. The Supreme Court ruling means that pharmaceutical companies can start experiments on generics sooner, which should lead to faster drug development, lower costs, due to savings in licensing fees, and lower costs for consumers. The decision puts the U.S. on a more even playing field with foreign countries, which have had looser patent protections. Therefore, the decision, rather than the increase in outsourcing to foreign companies, may promote more drug development within the U.S.
The decision also affords broader protection for smaller biotechnology companies in the research and development (R&D) stages of new product development. The § 271(e)(1) penumbra shades small biotechnology companies in their use of potentially patented compounds, so long as the companies use the compounds "in research that, if successful, would be appropriate to include in a submission to the FDA."
In the long term, the Integra decision may encourage universities to protect technology in the early stages of development by licensing it as trade secrets instead of seeking patents for it. The shift to trade secrets would result in a similar, corresponding reduction in the dissemination of scientific information within the community.
Integra Lifesciences I, Ltd. v. Merck KgaA, 331 F.3d 860 (Fed. Cir. 2003), vacated and remanded, 125 S. Ct. 2372 (2005). On remand at Integra Lifesciences I, Ltd. v. Merck KGaA, 421 F.3d 1289 (Fed. Cir. 2005).
10. Please explain the role of licensing in the pharmaceutical industry. What are the most popular sectors for licensing agreements?
Licensing is playing an increasing role in the business model of pharmaceutical and biotechnology companies. Industry leaders now recognize licensing as a strategic mechanism for achieving corporate objectives. For the pharmaceutical industry, in particular, licensing plays a crucial role in that no one company can contribute all of the components of a product. Each entity involved in the development of an invention receives licensing rights in the life cycle of the process or composition. For example, because of the increased pressure and competition faced by large pharmaceutical companies to bring in promising new drugs from biotechnology companies, licensing arrangements provide a key financial and tactical advantage.
11. What due diligence checks should be performed prior to concluding a license agreement?
Potential investors, acquiring companies and other parties privy to the acquisition of an interest in intellectual property rights should conduct a due diligence analysis to ensure that the technology underlying the transaction in fact has its purported value and is properly protected.
The purpose of a due diligence analysis generally is primary twofold and comprises both the assessment of potential risks and benefits related to the transaction- including identifying risks which may undermine the value of the technology-as well as the development of strategies for overcoming such risks. In conducting the analysis, one must confirm that a purported technology owner actually owns the intellectual property rights to the technology, has the right to transfer the technology, and can use the technology without substantial risk of treading on third-party intellectual property rights.
The first inquiry in conducting due diligence is ascertaining who owns the subject technology. Under United States patent law, patents are issued by default in the name of the inventor(s). This means that, unless there is an agreement to the contrary, each joint inventor shares an undivided interest in the rights to the entire patent, irrespective of the individual inventor's contribution to the totality of the invention defined by the patent. The due diligence assessment should therefore begin with an identification of whether the inventor(s) have properly assigned the technology to the entity purporting to own the patent rights. The U.S. Patent Act states that the transfer of rights from the inventor(s) to the assignee may be formally perfected by means of an assignment recorded in the United States Patent and Trademark Office (USPTO); assignment materials are publicly available from the USPTO.
The next inquiry involves ascertaining whether the conditions have been satisfied for any agreements underlying the development of the subject technology and other related agreements. This issue particularly comes into play for life science companies, which are often licensees of a given technology. Without viable rights granted to the company pursuant to an underlying agreement, a life sciences company does not own the licensed technology. Obligations in an underlying license agreement, if not satisfied, may terminate the underlying license. These licenses and other underlying agreements should also be further scrutinized to ascertain whether the technology may be transferred. It is not uncommon for license agreements to contain provisions that the use of the technology in question be restricted to a specified field of use, geographic territory, etc.
Another equally important due diligence inquiry examines the strength of the assignee's intellectual property portfolio. For example, market research projects wherein intellectual property assets comprise 75% of the total market value for S&P 500 companies. Intellectual property not only includes composition (e.g., pharmaceuticals, genes, etc.) and process patents, but may also include formulae, training manuals, manufacturing techniques, product packaging, technical data sheets, product specifications, databases and production facilities. This type of intellectual property should be examined collectively for its ability to enhance market share, increase profit margins and help secure a position in a new market.
12. What terms should be considered for inclusion in a license agreement?
Licensing agreements should specify whether the technology may be transferred to a specified field of use, geographic territory, etc. The following negotiated licensing terms identify key matters to include in licensing agreements:
• Confidentiality obligations
• Consideration
• Duration
• Indemnification and product liability responsibility
• Licensed property
• Obligations of the licensee
• Obligations of the licensor
• Ownership, right to use and improvements of intellectual property
• Recordkeeping requirements
• Reporting
• Scope of rights granted
• Termination and exit strategies
• Terms of the license
• Territory
Carefully worded definitions are essential for protecting the interests of licensees. In fact, definitional sections of licensing agreements often constitute their longest sections. The agreement must clearly identify the technology/intellectual property that is the subject of the license as well as related molecules such as homologs, derivatives and analogs (4). A licensee (and affiliates) should be construed as narrowly and specifically as possible in order to limit their financial obligations and liability. Conversely, a licensor (and affiliates) will wish to be construed as broadly as possible in order to limit their own financial obligations and liability.
13. What particular issues are raised by trade secret licensing, and how can such difficulties best be addressed?
Trade-secret licensing, whereby companies agree to exchange proprietary information, presents unique challenges in biotechnology. Such licensing is advantageous when a small, research-oriented biotechnology company wishes to avoid the expense and length of time associated with commercial development and/or to avoid making a publicly available deposit of biological material, which is required when filing a patent application. Terminology problems in licensing trade secrets pertain to ambiguities in definitions of what constitutes a legitimate biotechnology trade secret and the custom of scientists sharing their research findings with colleagues through publication.
When licensing a trade secret, a licensor can bargain only for disclosure of the secret; that is, a licensor cannot offer protection against third parties who may independently develop or reverse-engineer the proffered goods. Each type of intellectual property (IP) requires its own confidentiality provisions. Other confidentiality issues pertain to obligations upon termination of the agreement and sharing of information with third parties (publication). Such issues are best addressed in the licensing agreement.
14. What considerations should be taken into account when formulating a patent and/or licensing strategy?
In light of the tremendous costs associated with marketing biotechnology, successful competition in the industry requires designing licensing strategies to maximize income. Linking such strategies to corporate strategy is essential. In addition, because of the pressure and competition faced by large pharmaceutical companies to bring in promising new drugs from biotechnology companies, licensing deals must have financial and tactical advantages over other bidders.
Two useful in-licensing strategies for enhancing a competitive advantage are minimizing up-front payments and offering quid pro quo drugs. In quid pro quo transactions (or "quids"), a licensee offsets the cost of an alliance by offering a non-case asset, such as trading one drug for the rights to another one. Quids often involve co-promotion alliances. Large pharmaceutical companies generally trade only limited rights or less important products.
Option or "right-to-negotiate" provisions and evaluation agreements involve up-front payments in exchange for an exclusive option to obtain a license, depending on the results of an evaluation. Such an agreement can defer the costs of a license when a product profile is still uncertain. A biotechnology company must, however, evaluate whether to have a prospective partner or to obtain an actual license at an earlier date.
Low-value/high-volume and high-value/low-volume strategies are useful if a technology can be easily designed around-and are especially lucrative for small biotech licensors. This strategy secures a royalty base and discourages competitors from developing competing technology.
Market foreclosure strategy offers a limited number of coexclusive licenses. This strategy is useful when a small biotech company is the licensor and a large entity is the licensee.
15. Please explain how antitrust issues can arise in the context of pharmaceutical patents (e.g. sham patent litigation, improper orange book listings, settlement of patent litigation and market allocation/tying agreements).
Antitrust and unfair competition issues can arise as a result of infringement or enforcement of intellectual property (IP) rights or in the course of any commercial business practice and corporate transaction involving IP assets. Antitrust issues include price fixing and bid-rigging, predatory pricing and price discrimination, deceptive trade practices, misrepresentation and fraud, interference with business relationships and attempted monopolization.
16. What is "sham" patent litigation, and what problems does it present for the pharmaceutical industry?
Sham patent litigation refers to antitrust-oriented counterclaims filed by business competitors against patent holders who claim infringement of their intellectual property. The antitrust claims are based on the theory that the patent holder's infringement suit is actually intended to prevent competition rather than protect property rights. A competitor's claim that an infringement suit is a "sham" imposes a burden on the patent holder to defend the infringement action against the counterclaim that it represents an antitrust violation.
Even though there is a small likelihood that sham litigation counterclaims will succeed, courts continue to be reluctant to dismiss them without further proceedings, resulting in significant burdens for courts and litigants. For the pharmaceutical industry, in which intellectual property protection is a critical and ongoing concern, sham litigation presents a potentially huge expenditure in terms of time and resources.
17. What are parallel importing and parallel distribution? How have these issues been addressed, and what have been the most important recent developments in this connection?
Parallel importing occurs when a product that is produced and under protection of a trademark, patent or copyright in one market is placed into circulation in a second market without authorization of the local owner of the intellectual property right. For example, a trading firm purchases large quantities of a drug produced in the U.S. and imports them into another country for sale without the approval of the local U.S. patent holder.
Proponents of parallel importing state that the practice can lead to access to prescription medications at locally affordable prices and therefore provides a public health benefit. By sourcing products from lower-priced markets to sell to consumers in higher-priced markets, trading firms can offer significant savings to consumers, who thereby have an alternative to the price that the product is being sold at in their country by the original manufacturer.
The World Trade Organization, in both the November 2001 Declaration on the TRIPS Agreement and Public Health (the Doha Declaration) and the September 2003 Implementation of Paragraph 6 of the Doha Declaration (Section 2101(b)(4)(C) of the Trade Act of 2002), confirms the right of each country to retain flexibility in allowing parallel imports of drugs as one way of meeting the public health needs of its citizens.
18. What are the recent trends in pharmaceutical class action litigation?
Several cases over the past few years have demonstrated a trend on the part of plaintiffs to eliminate personal injury claims from class action litigation in pharmaceutical and medical device cases. This is a result of historically unsuccessful attempts to certify classes due to concerns expressed in the 1966 amendments to Rule 23, which judged mass torts "ordinarily not appropriate" for class treatment.
Challenges to pharmaceuticals and medical devices have typically involved considerable issues of personal injury, making a class trial unmanageable. Trials of this nature require inquiries into the claimant's life style, alcohol and drug use, and personal and family medical history. If the case involves pharmaceuticals, investigation as to whether the drug was consumed in appropriate amounts and in concert with other drugs is necessary. In addition, a conflict of interest arises in cases where the plaintiff seeks to represent plaintiffs with personal injury claims as well as those who are asymptomatic, emphasizing the unsuitability of granting class claims to such cases.
Presenting further complication, is the requirement of juries to determine what warnings, if any, class members received, read, understood and adhered to about a drug; the impact of receiving the product through an intermediary (physician or pharmacist); as well as variations in state laws.
19. To what extent is a pharmaceutical company obliged to report or share information concerning its products?
Drug makers test their medicines in thousands of trials each year, and federal laws require the disclosure of all trials and trial results to the FDA. While too complex for many patients to understand, the trial results are useful to doctors and academic scientists, who use them to compare drugs and look for clues as to possible side effects. But companies are not required to disclose trial results to scientists or the public.
A drive is currently under way to force drug makers to disclose their study data, especially when it is negative or shows that drugs do not work. In June 2004, New York Attorney General Eliot Spitzer sued GlaxoSmithkline, arguing that it committed fraud by withholding negative data on the drug Paxil. In August, the company settled the suit without admitting fraud, but it agreed to publish data from all its drug trials on a publicly available database.
Some members of Congress and groups such as the American Medical Association are calling for a public database listing all drug trials and the study results. In addition, the New England Journal of Medicine, the Journal of the American Medical Association and others will now not publish the results of clinical trials unless that trial is registered in a public database from its inception.
For more information, please contact any member of Thelen's Life Sciences Practice Group.
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