Integration of IP and Regulatory Exclusivity Strategies Critical For Emerging Life Science Companies

The complexity of issues related to a pharmaceutical company’s intellectual property and regulatory exclusivity strategy has increased substantially over the last 10 years. No longer is the ultimate measure of a small molecule product’s success inextricably tied to whether the company has obtained composition of matter patent protection on the active pharmaceutical ingredient (API). Instead, a product’s success is heavily dependent upon the company’s integration of patent protection, regulatory exclusivity, and product life cycle management. All facets of product development, including marketing (e.g., branding) and distribution of the product (e.g., over-the-counter, behind-the-counter, prescription) need to be considered in the very early stages of clinical development. For emerging life science companies, their ability to formulate and articulate a robust strategy that addresses such factors is critical to their ability to secure investments, strategic partnerships, or licenses with third parties. Any such company should expect to undergo due diligence that will be heavily focused on the strength of their IP and regulatory exclusivity strategies. Those that are prepared flourish, and those that are not struggle through the process.

In anticipation of third-party diligence, life sciences companies should consider conducting an internal intellectual property audit using their own IP counsel. Not only will this provide the company with experience in undergoing due diligence, but it also will provide the company and its counsel the opportunity to identify and address any potential issues that could arise during the third-party due diligence. This internal IP effort will allow for protection of the issues identified (e.g. through attorney-client privilege), and care can be taken to address any issues raised in a thoughtful and strategic manner. This is a much better strategy than having an investor’s counsel “discover” a problem on the eve of financing.

Understanding what third parties will consider important and valuable is key. Too often, life sciences companies take a wait-and-see approach to IP due diligence and their own exclusivity strategy. Unfortunately, this approach often results in the company’s appearing to lack knowledge, sophistication, and experience. This impression can destroy any future transaction with a third party or at the very least substantially reduce its value, despite the fact that the science and technology behind the company is extremely promising and exciting.

We were fortunate to be IP Counsel for Knopp Neurosciences Inc. in the recently publicized Knopp–Biogen Idec transaction. Knopp, which developed the opposite enantiomer of Mirapex® (i.e., pramipexole—a drug approved by the Food and Drug Administration for treating restless legs syndrome and Parkinson’s disease), sought both effective due diligence and prosecution counsel in order to position Knopp’s drug (dexpramipexole) in the best possible light. Its experienced management team understood the importance of crafting a strategic approach to IP and regulatory exclusivity and engaged legal counsel early in order to develop an integrated IP strategy. Knopp successfully combined Orphan Drug exclusivity with method-of-use claims to add value to its pharmaceutical compositions claims.

Developing an IP Strategy

Where does one begin in developing an integrated IP strategy? Start with the five basics: (i) patent exclusivity; (ii) rights and ownership; (iii) regulatory exclusivity; (iv) freedom to operate; and (v) competitors. An issue in any one of these categories could stop a potential transaction in its tracks. Even when there are no significant issues, the likelihood of sealing the deal may not be that great if the company and its counsel cannot articulate that the company has a strong and defensible patent and regulatory exclusivity strategy in place.

Patent exclusivity. The issue of patent exclusivity is not addressed merely by providing a list of the company’s owned or licensed patents and applications. The real issue is which patents and applications within the portfolio actually cover the product and/or its intended indication. Frequently a company is not able to explain what its core patent assets are that cover the product nor does it know the strength or weakness of those assets. Once the key patent assets are identified, a company needs to understand whether there are limitations on the breadth of the patent protection by looking at the prosecution history. In addition, the term or life of the issued patent also is important. A company needs to know the natural expiry date of the patent and to understand whether the term can be extended through statutory mechanisms such as patent term restoration or patent term adjustment. Are the company and its counsel taking the appropriate steps during prosecution to maximize any potential patent term adjustment? We often see continuation-in-part applications (CIPs) being filed with little or no thought as to the damaging effect they have on term. These questions can be answered by a thorough comparison of the product to the construed claims of the patent and the product’s eligibility for patent term extension. Ancillary patent families also can be important, such as patents covering alternative indications, formulations, and methods of manufacture.

Rights and ownership. For assets owned by the company, it is important to ensure that assignments from each of the inventors have been executed and recorded with the appropriate body. For assets that are licensed to the company, it is important to understand what rights the company has been given regarding those assets and whether those rights are exclusive to the company. What the company believes is often different from what the agreement reveals. For example, purported assignments may have limitations, or security interests may have been recorded against an asset and never released. License agreements may restrict the company’s ability to enforce a licensed patent or control the prosecution or maintenance of licensed patents and applications. In a license, does a company have sufficient rights to enforce? Does the company have appropriate standing? Non-exclusive licenses remove patents from being a freedom-to-operate concern for a company, but an exclusive license is really effective only to the extent that it allows a licensee to exclude others from making, using, having made, selling, or otherwise commercializing a competitive product embraced by the claims.

Regulatory exclusivity. For small-molecule pharmaceutical products, the eligibility of marketing and data exclusivity can be critical. In fact, many products have had strong commercial success wholly independent of their patent position. For small-molecule products, the regulatory exclusivity provided by the Hatch-Waxman Act in the United States can be critical and game-changing. For example, is the API eligible for new chemical entity (NCE) exclusivity or is the product eligible for clinical investigation (CI) exclusivity? Is Orphan Drug designation applicable? Are patents relating to the product eligible for listing in the Orange Book? Even if such regulatory exclusivities are available, it is imperative that the company and its counsel understand the interplay between such regulatory exclusivity and the patent exclusivity. For example, listing patents by their expiry dates in the Orange Book can significantly affect the timing of when a third party can file an abbreviated new drug application. For biologics, the recently enacted Biologics Price Competition and Innovation Act provides an abbreviated pathway for approval of biosimilars and both data and market exclusivity for the branded biologic product. Many foreign jurisdictions, including, for example, Europe, Japan, and Canada, provide their own mechanisms for regulatory exclusivity for both small-molecule and biologic drug products. An important aspect of the Knopp deal was the regulatory exclusivity provided in the United States and Europe for Orphan Drugs.

Freedom to operate. Freedom to operate, also known as clearance, is a concept that companies often confuse with their own patent exclusivity. Many companies emphatically state that they are free to commercialize their product because they have robust patent protection, which clearly is erroneous. Freedom to operate is the company’s ability to make, use, or sell their product without infringing the intellectual property rights, particularly patent rights, of a third party. Freedom to operate is separate and distinct from whether the company has its own patents protecting the product. As a company nears completion of its clinical development, it is imperative that the company confirm that it does in fact have the right to commercialize the product without infringing the rights of others. A company should search the patent literature to identify whether any third party has a patent right that could dominate or cover the use, manufacture, or sale of its product. When asked during due diligence whether there are any freedom-to-operate considerations, the company also should consider identifying patents they license (if applicable to the product in question) because absent the license, the licensor would presumably be in a position to interfere with product development.

Competitors. It is also important for a company continually to monitor and have knowledge of the clinical development progress and the patent portfolios of potential competitors. This information can be used to inform a company about its freedom to operate, as well as its ability to tailor some of its own patent portfolio to block competitors developing similar or competing products. Understanding when a potential competitor could enter the market and the effect of such an entry on the sales of a company’s product is extremely important to third-party investors or collaborators. Scoping out barriers to entry for a generic entry often can illuminate strategies to erecting barriers to entry. This strategic effort has taken on a new and more complex life in the form of the recently enacted biosimilars legislation.

Too often a company and its counsel do not focus on these issues as a whole because there is a belief that a problem can be easily fixed or mitigated. But when these issues are not addressed early, they often are fixed in a piecemeal manner and without the necessary focus on how the topics interact and affect the overall value of the product. Patent and regulatory exclusivity—two areas that can provide the most value and protection to a life sciences product—are very interrelated. Simply identifying when a key patent naturally expires is not sufficient, since regulatory exclusivity could possibly extend the company’s ability to keep competitors off the market or allow competitors actually to speed up entry in certain situations. Regulatory exclusivity, however, is not necessarily a foolproof way to ward off competition because the different types of regulatory exclusivity may have significant limitations that enable a third party to enter the market. In addition, these strategies cannot be considered in the vacuum of the U.S. market. Knowledge of foreign patent and regulatory laws is important to maximizing the value of the company’s intellectual property assets. Understanding regulatory exclusivity and patent exclusivity within each of the intended jurisdictional markets enables a company to identify and fill potential holes in their own fortress to further strengthen the protection around their product.

Ultimately, a well thought out and articulated IP and regulatory exclusivity strategy is a cornerstone to a company’s foundation. Life sciences IP is not like any other area of IP and is not one that should be dabbled in. Extensive experience with the diligence process and the ability to integrate patent and regulatory exclusivity are necessary for the investor/acquirer to focus on the important aspects of the transaction—the products, products like dexpramipexole, which if clinically successful, have the potential to mitigate devastating diseases like ALS (amyotrophic lateral sclerosis).