By Kevin E. Noonan —

The pros and cons of patenting in the biosimilars scheme recently enacted as part of the Patient Protection and Affordable Care Act have been discussed, here and elsewhere (see "Will Patents Become Irrelevant in a Biosimilars Future?").  Whether envisioned by the bill's drafters or not, the provisions of the Biologics Price Competition and Innovation Act of 2009 (particularly the litigation provisions) contain incentives for biologic drug innovators not to rely on patents to protect these drugs and the return on investment (or at least the reasonable prospect thereof) needed to support the capital-intensive effort that must be exerted to bring such drugs to market.  Limitations on claim scope, possibilities of successful "design arounds" and the limited scope available for infringement by equivalents, as well as the uncertainties associated with amino acid sequence and other variants, make biologic drugs different from conventional small molecule drugs, which have been protected by patents under the Hatch-Waxman regime.  Also a factor in why small molecule drug innovators have relied more heavily on patent protection that is likely for biologic drugs is the difference in term of exclusivity under the two Acts:  Hatch-Waxman gives small molecule drugs only five years of exclusivity while the BPCIA gives biologic drugs twelve years (a term fought by the FTC (who wanted no exclusivity; see "No One Seems Happy with Follow-on Biologics According to the FTC"), Congressman Waxman (5 years; see "Waxman Introduces Follow-on Biologics Bill"), and even President Obama (7 years; see "White House Recommends 7-Year Data Exclusivity Period for Follow-on Biologics").  Patent law provisions (including 35 U.S.C. § 271(e)(2), which make the filing of an Abbreviated New Drug Application an statutory act of infringement) and drug regulatory law (wherein filing a patent infringement lawsuit by an NDA holder after receiving a Paragraph IV letter regarding an Orange Book-listed patent from a generic drug maker provokes a 30-month stay in FDA approval of the ANDA) have made patent litigation the principal battle ground between innovator and generic drug makers for a generation.  None of these advantages exist in the biosimilar approval pathway specified under the BPCIA.

Even though patenting may not hold its preeminent place in protecting biologic drugs that it has had in protecting small molecule drugs, it would be a mistake to think that patents have become completely irrelevant to biologic drug deveopment.  They may be so with regard to the (generally adversarial) relationship between biologic drug innovators and companies (perhaps including traditional innovator companies) that make biosimilars.  But there is another conventional purpose for biologic drug patenting:  protecting startup companies early in the development cycle.  In this regard, patents continue to serve their purpose of providing exclusivity for further development stages, and in prohibiting larger, better-funded companies from expropriating early-stage technology.  Patents also satisfy the requirements imposed on universities under the Bayh-Dole Act, and enable federally funded grantees to reap the benefits of licensing their technology.

These advantages are unlikely to change even for biologic drugs.  But the expected de-emphasis on patent protection for later-stage development (including regulatory approval) can be expected to change the relative importance of patents in the two stages.  Such de-emphasis will also change where the valuation in biologic drugs may lie, because there will be a relatively greater advantage in optimizing cell lines and other process parameters (which even today rarely benefit from patenting) than in patents on the biologic drugs per se.  That doesn't mean that patents will be any less important for startups, but thirty years of deal-making and negotiating behavior between small companies and their larger brethren will be impacted, probably not in a way that will inure to the benefit of the startups.  While patents will remain essential to early-stage companies, their diminished value to larger partners (and the concomitantly greater value of the contributions of such companies) should also diminish the valuation of such deals.

The counter-argument is that startups will play an even more important role in providing the next generation of new potential "blockbuster" drugs, something is short supply from big pharma over the past few years.  Whether due to inherent flaws in the "waiting for a blockbuster" drug development model or because the "low-hanging fruit" of small molecule drug development has been expended (or more likely because the diseases of aging garnering the most attention today are particularly intractable to pharmaceutical intervention, i.e., you can't put eating right and regular exercise into pill form), the prospects for startups (particularly university-generated startups) may be rosier than might be expected if patents become less important in protecting biologic drugs.

A good source of information on the interplay between patent protection and statutory protection under the BPCIA comes from Dr. Yaniv Heled, a recent Patent Docs commenter (see "Patents vs. Statutory Exclusivities in Biological Pharmaceuticals – Do We Really Need Both?").  Dr. Heled's paper contains some valuable tables comparing the terms of the two types of exclusivity (patent and statutory) for dozens of biologic drugs.  One conclusion from the paper is that patent protection provides (on average) about one additional year (~327 days) of exclusivity past the end of the 12-year exclusivity provided by the BPCIA.  (The table also indicates that the average time between patent application filing date and FDA approval is more than ten years (~3728 days).)  Dr. Heled's paper (while coming to slightly different conclusions and couched in the language of academic patent law) is consistent with the idea set forth here that the future will be different than the past regarding biologic drug development and efforts to obtain the benefits of biologic drug development at a reduced price.  For all these reasons, we may find that for biologic drugs the goals espoused by the proponents of the biosimilar approval pathway may be surprised at how that future turns out.

By Kevin E. Noonan —

The future is always the undiscovered country.  But it tends to be one that people believe they can understand based on what has happened in the past.  This is the reason people invest with successful money managers, and why every prospectus carries the disclaimer that "past experience does not ensure future performance."  It is also why learned (and not so learned) disquisitions on innovation and innovation policy are so incomplete and unsatisfying — innovation like the future comes from where we least expect it, both in substance and the people who turn out to be the innovators.  As Niels Bohr said, "[p]rediction is very difficult, especially about the future."

But one thing that is predictable is that people will modify their behavior (at least to some extent) to adapt to changing circumstances.  One such changing circumstance is the biosimilars provisions of the omnibus health care reform bill enacted into law almost three years ago.  As has been discussed here and elsewhere extensively (and won't be repeated here), there are two general provisions to the law:  the requirements and procedures for a biosimilar applicant to be granted approval of a biosimilar application (section 7002) and the provisions for litigation between the biosimilar applicant and the reference product sponsor (section 7003).  The Food and Drug Administration is charged in large part with determining the requirements and procedures specified broadly by Congress in section 7002.  The agency has hinted that it will propose rulemaking and issue guidelines by the end of the year, and these guidelines will not only establish the parameters of the biosimilar pathway but also affect how likely it will be that biosimilar drug manufacturers will apply for approval under the biosimilars provisions (codified under § 351(k) of the Public Health Service Act, codified at 42 U.S.C. § 262(k)) or under other sections (such as a full-blown Biologic License Application under § 505(a) of the Food, Drug and Cosmetics Act, codifed at 21 U.S.C. § 355(a)).  These guidelines will also affect the likelihood that the biosimilar applicant will attempt to qualify for interchangeability and the incentives for producing so-called "bio-betters," i.e., biologic molecules having differences in structure and different (preferably improved) biological properties.

The ligation provisions, on the other hand, depend on the existence of patents to protect biologic drugs after expiration of the twelve-year data exclusivity period.  Superficially, these provisions are modeled on the Hatch-Waxman regime, insofar as the statute guides how patent infringement litigation will proceed.  Superficially is where the resemblance to Hatch-Waxman ends, of course; a significant difference is the absence of an "Orange Book" defining what patents are to be the subject of litigation.  In its stead is a complex negotiation protocol by which the parties decide which patents will be the subject of infringement litigation triggered by the filing of a biosimilar application.  There has been speculation that the statute was intended to discourage litigation and its labyrinthine, almost Byzantine provisions support this view.  It is likely to take at least five years to almost a decade before there is any case law developed enough to test the effectiveness of these provisions.

There is an alternative, however, that may tend to change unpredictably the course of biosimilar development.  That alternative is for biologic drug innovators to eschew patenting altogether and thus avoid the possibility of protracted patent infringement litigation under the statute.  There are a number of vulnerabilities to patents that claim biologic drugs that are not shared with small molecule drugs and that may make such an approach attractive.  Most of these vulnerabilities stem from the greater complexity of biologic drugs; as shown below, biologic drugs have 2-3 orders of magnitude more atoms than small molecule drugs.  In addition, biologic drugs are made (generally) in genetically engineered cells that impose their own variabilities (in post-translation modifications such as glycosylation for example) on the processes used to make such drugs.  Further, the complexity makes the scope of patent protection on biologic drugs to be less certain than for small molecules, since even small differences in structure (such as the single methylene group that distinguishes valine from isoleucine) may have unpredictable effects on biologic drug structure, biological activity and immunogenicity.  As a consequence, broad coverage for even structurally similar species of the same biologic drug are infrequently granted, and even when obtained may be of dubious provenance and reliability.

But this very complexity might be a source of an advantage for a biologic drug innovator not to pursue patent protection.  In that case, the incentives for the innovator would be to provide as little information as required by the FDA for biologic drug approval.  This would of necessity involve disclosure of how the biologic drug was made and its characterization, but would not include disclosure of the cell itself.  Even if the disclosure to the agency included a detailed description of the cells, the transgenes and the methods and conditions for producing the recombinant cells, optimization of the particular cell line should not need to be revealed.  And the uncertainty that would produce would provide a clear obstacle to a biosimilar manufacturer that might be a disincentive to trying to readily (i.e., predictably) produce a biosimilar version of a biologic drug.

The benefits of this approach for biologic drug innovators are evident:  producing obstacles to the biosimilar applicant (for whom it would be more difficult to produce a biosimilar drug) as well as avoiding biosimilars litigation under the statute.  It is unlikely that the Congressional staffers and their patrons intended this result.  It is equally unlikely that the promised benefits of biosimilar availability (and the expected massive cost savings, especially to the government) will be achieved were innovators to eschew patenting.  But this is yet another consequence of (mis)applying our experience with small molecule drugs and the Hatch-Waxman regime to biosimilars, and another example of the past not reliably informing the future.