California Biotech Law Blog

Following up on our May 30, 2007 posting, MedImmune has finally settled its lawsuit with Genentech over a patented component of Synagis, MedImmune's best-selling drug, which is aimed at preventing respiratory infections in infants, according to a report by the Washington Post.  The settlement comes just over a year after the Supreme Court decision was issued allowing MedImmune to challenge the validity of the Genentech patent while continuing to pay royalties incurred in a license agreement with Genentech. 

No details of the settlement have been released thus far; however, the parties are reported to be filing a stipulation of dismissal in the next few weeks.

Palo Alto-based StemCells filed a second lawsuit last week in a California federal court against Neuralstem alleging infringement of two patents related to human neural stem cells, reported the Associated Press. 

StemCells issued a press release following the filing of its complaint, which described the nature of its suit as follows:

The California action alleges that Neuralstem and its two founders infringed the Company’s U.S. Patent No. 7,115,418 (methods of proliferating human neural stem cells) and its recently issued U.S. Patent Number 7,361,505 (neural stem cell compositions of matter).  The two patents had not previously been asserted by StemCells against Neuralstem and are not part of the pending Maryland litigation initiated by StemCells in 2006, which is currently on hold by court order.   Further, the California action alleges that Neuralstem has engaged in a campaign of misinformation about StemCells’ patents and proceedings before the U.S. Patent Office.  StemCells is seeking compensatory and enhanced damages as well as injunctive relief.  

According to the Associated Press, StemCells previously filed another lawsuit against Neuralstem alleging infringement of two different patents, and Neuralstem just last week filed suit against StemCells in the same Maryland court seeking to invalidate one of the StemCells patents and alleging that StemCells committed fraud and misconduct in gaining that patent.  The Maryland case is currently on hold pending reexamination of the patents.

It goes without saying that the parties appear headed for a long and heated patent battle.  The California Biotech Law Blog will keep you posted on the legal developments as the suit  progresses.

The California Supreme Court has overturned a $200 million punitive damage award against Genentech in the City of Hope National Medical Center case.  A copy of the opinion is attached.

The San Francisco Business Times reported on the ruling as follows:

Because of the court's decision, Genentech (NYSE: DNA) will still pay out about $475 million in the second quarter of 2008, which includes $300 million in compensatory damages and interest since the original jury decision in 2002. . . . the removal of punitive damages will save Genentech about $315 million when interest is factored in.

The suit, filed in 1999, was over a 1976 research agreement in which Genentech paid royalties to the hospital. A first trial ended in a hung jury in October 2001. In a retrial verdict in 2002, South San Francisco-based Genentech was ordered to pay $300 million in royalties and $200 million in punitive damages.

The California court's decision will likely be viewed with a sense of relief by the California business community, which was stunned by the 2005 damage award against Genentech for breach of contract..  It is highly unusual for punitive damages to be awarded in a breach of contract case, and of course, the concern was that this decision would set a new precedent.

Bloomberg.com reported on the history of the dispute between the parties:

The dispute between Genentech and City of Hope involves a research relationship more than 30 years ago. Doctors Arthur Riggs and Keiichi Itakura, who began working under contract with Genentech in 1976, produced human insulin two years later. The contract gave Genentech, then a fledgling company, the patents on the techniques used by Riggs and Itakura. In exchange, City of Hope was to receive a 2 percent royalty on sales of products that resulted from the patents. A dispute arose over the products covered by the contract.

City of Hope said it deserved royalties from 35 patent license agreements between Genentech and 22 other companies including Shering-Plough Corp. and American Home Products Corp. The center sued Genentech for breach of contract and fiduciary duty in 1999.

Genentech said in 2002 that it owed royalty payments to City of Hope only for sales of products made using DNA produced by the center and containing the patented technology from the sponsored research. The company said it paid City of Hope more than $300 million over 20 years.

A jury ruled against Genentech and awarded City of Hope compensatory damages and punitive damages. A state appeals court in Los Angeles upheld the jury's verdict in 2004 and the California Supreme Court agreed to review the case in 2005.

What was the basis for today's California Supreme Court ruling?  An excerpt from the opinion explains the Court's decision as follows:

[W]e conclude that the trial court erred here in instructing the jury that a fiduciary relationship is necessarily created when a party, in return for royalties, entrusts a secret idea to another to develop, patent, and commercially develop.  Because fidicuary duties do not necessarily arise from this type of relationship, City of Hope's only theory at trial for claiming a fiduciary relationship with Genentech was legally invalid, and therefore the judgment against Genentech is defective insofar as it is based on the jury's finding that Genentech breached fiduciary duties owed to City of Hope. . . . .The only other ground for the jury's imposition of liability against Genentech was the jury's finding that Genentech had breached its contract with City of Hope.  Because punitive damages may not be awarded for breach of contract. . . .the award of punitive damages must be set aside.

The Recorder noted in an article that it ran last fall that the case between Genentech and City of Hope had been plagued by delays:

 Both parties [in the case] had fully briefed the case by December 2005, and 21 amicus curiae briefs had been filed and responded to by April 2006. Still, the court hasn't set an oral argument date for City of Hope National Medical Center v. Genentech Inc., S129463.

Some court watchers are baffled by how long the case has languished. . . .Other than death penalty cases, which take years to process, only two out of 135 pending California Supreme Court cases -- both criminal -- have been awaiting oral argument longer than City of Hope.

Why were there so many delays in this case?  The Recorder offered some possible explanations:

Paul Utrecht, a partner in San Francisco's Zacks Utrecht & Leadbetter who filed an amicus brief supporting Genentech for the Washington Legal Foundation, said the court's justices could be proceeding cautiously because of the money involved. . . .Utrecht also said the legal issue -- whether a breach of contract rises to despicable conduct that merits punitive damages -- is so important that the court might be examining the case from all angles. . . . .It's also possible the justices haven't decided what to do with the case, and are still trading memos in the hopes that a tentative majority will emerge.

While Genentech cannot possibly be happy with the 2005 verdict and damage award, today's ruling will at least take the some of the sting out of the verdict.  A $200 million reduction in damages is certainly not "chump change" and will surely help with the company's bottom line. 

For the rest of us in California, today's decision is similarly significant because it reaffirms that punitive damages cannot be awarded in contract cases--there must be a fiduciary relationship.  More importantly, for the biotech community (and even the high tech and medical device communities in California), we now have clarification from the California Supreme Court  that licensing relationships do not establish fiduciary relationships and therefore will not  incur punitive damages if they are breached.    

Billionaire Investor Carl Icahn has filed suit against Biogen in a Delaware chancery court in order to force Biogen to turn over documents related to its failed sale of the company last year, according to a Reuters.  Biogen was reported by Delaware Online to have lost $5 billion in market value as a result of its decision to abandon its plan to sell the company.  Icahn is a major investor in Biogen, owning shares valued at $650 million, according to Delaware Online.

Reuters described Icahn's complaint as follows:

[In his complaint] Icahn demanded the right to inspect documents and board meeting minutes to determine what the board of directors knew about the sale process, which Icahn claims Biogen deliberately sabotaged.  According to the complaint, Icahn and his associates are demanding the documents in order to alert shareholders to any non-confidential information they discover about the performance of the board.

Xconomy provided some additional insight on the complaint as well:

Icahn’s complaint, filed in Delaware Chancery Court, repeats his earlier accusations that the confidentiality agreements prospective buyers were required to sign before they could talk to two key Biogen partners, Elan Pharmaceuticals and Genentech, were too restrictive. Both companies hold some change-of-control rights on key Biogen drugs—Elan on the multiple sclerosis and Crohn’s disease drug Tysabri, and Genentech on cancer-fighting Rituxan. Biogen’s restrictions on how suitors could talk to the companies, Reuters said Icahn charged in the complaint, “prevented any potential bidders from learning where Biogen’s third-party partners stood on exercising change-of-control options on key Biogen drugs.”

Biogen refused to hand over the documents when requested by Icahn on March 28th--a move which prompted the filing of the complaint.  Xconomy reported on the reasons Biogen has given for its refusal:

Biogen refused to hand over the information that Icahn demanded in part because CEO Jim Mullen and the company already shared much of it at a JP Morgan conference in early January. . . .  What’s more. . . .Icahn himself was a potential bidder on the company, and has already received much of the information he’s now seeking. “He has the information he says he’s looking for,” [says Naomi Aoki, a spokeswoman for Biogen], To disclose anything beyond what is already disclosed, which would include confidential internal documents, “we believe would compromise and negatively affect our ability to maximize value for shareholders in any future sale process,” she said.

So, you might wonder: who exactly is this billionaire investor Carl Icahn?  The Boston Globe ran a good story on Icahn last August, which provides some background on Icahn and context to his fight with Biogen:

Icahn . . . . might be best known as a corporate raider who piloted TWA in 1985 and tried to grab Nabisco in 1996, often buys large stakes in companies and pushes them to make changes or find a buyer. Icahn, a former medical student, has also shown increasing interest in rattling the cages of biotechs and drug makers. He gradually accumulated shares in ImClone Systems, Inc.., a cancer drug developer in New York linked to the Martha Stewart insider trading scandal. Last year, Icahn finally took control of the company after a raucous shareholder battle and vowed to install his own management team.

In February, Icahn revealed he had taken a 1 percent stake in MedImmune, Inc., one of the country's largest biotech firms. Shortly afterward, he threatened to start a shareholder fight to force the sale of the Maryland company, complaining about its "lackluster" performance. In April, MedImmune agreed to sell itself to drug maker AstraZeneca PLC for $15.6 billion. . . .Not all of his moves have paid off. In late 2004, Icahn disclosed he became the biggest shareholder in Blockbuster, Inc. and quickly pushed for changes at the movie rental chain to compete with online competition like Netflix, Inc. Since then, Blockbuster's stock has fallen from about $10 a share to less than $5.

I have not had the opportunity to review a copy of Icahn's complaint, but based on the reporting, it appears that the sole justification for this lawsuit is to obtain documents.  It would be interesting to know what other claims, if any, are included in the complaint. 

Will this suit succeed in forcing Biogen to be put up for sale once more?  It seems very unlikely.  So, what is Icahn going to accomplish by this lawsuit?  While it is possible he will obtain the documents he is seeking, it is difficult to come up with any other real benefits that could result from his action.  Is he hoping to come up with evidence of wrongdoing in order to take corporate decisionmakers on at an individual level? Or is this merely an act of aggression to encourage compliance with his wishes?

In all honesty, this suit leaves me scratching my head a bit.  We will follow how it develops at the California Biotech Law Blog and keep you posted, as I am certain that many of you in the biotech world will want to take notes on Carl Icahn's activites.  The knowledge will likely be useful if and when he ever invests in your biotech company. 

The recent opinion of the Federal Circuit in In re Seagate Technology (Fed. Cir. Docket No. 830; 8/20/07) imposed new limits on willful infringement by establishing a new standard: proof of willful infringement permitting enhanced damages now requires at least a showing of objective recklessness. 

This new standard overruled the prior standard set out in Underwater Devices Inc. v. Morrison-Knudsen, Co., 717 F.2d 1380 (Fed. Cir. 1983), which was that when a potential infringer has notice of another's rights, he has an affirmative duty to exercise due care to determine whether or not he is infringing.

The Federal Circuit's opinion addressed three key issues:

1. Should a party’s assertion of the advice of counsel defense to willful infringement extend waiver of the attorney-client privilege to communications with that party’s trial counsel?  See In re EchoStar Commc’n Corp., 448 F.3d 1294 (Fed. Cir. 2006).
2. What is the effect of any such waiver on work-product immunity?
3. Given the impact of the statutory duty of care standard announced in Underwater Devices on the issue of waiver of attorney-client privilege, should this court reconsider the decision in Underwater Devices and the duty of care standard itself?

On the first issue, the Federal Circuit held that "as a general proposition, asserting the advice of counsel defense and disclosing opinions of opinion counsel do not constitute a waiver of the attorney-client privilege for communications with trial counsel."  However, the Federal Circuit declined to set out an absolute rule.

On the second issue, the Federal Circuit held that "an advice of counsel defense asserted to refute a charge of willful infringement" does not extend to trial counsel's work product, absent exceptional circumstances.

On the third issue, the Federal Circuit overruled the standard announed in Underwater Devices, holding that "proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness."  The Court abandoned the affirmative duty of due care, and reemphasized that there is no affirmative duty to obtain an opinion of counsel.

 Peter Zura's 271 Patent Blog provided a good summary of Federal Circuit opinion, as did the Patent Baristas, who also provided some additional background information on the issue, such as the Underwater Devices decision and the freedom-to-practice opinions.

So what is the significance of the opinion?

The Patent Baristas reported on the significance as follows:

The Federal Circuit has demonstrated once again that it is not afraid to effect a sea change in patent law jurisprudence in a big way. . . .

[I]t appears that Seagate signals a receding of the tide of willful infringement litigation. The decision appears to be intended by the court to make a willfulness case substantially more difficult to prove. In view of the complexity and high reversal rate on claim construction issues in patent infringement cases, how can it be argued in any but the simplest and clearest of cases (is there such a thing?) that an accused infringer knew or should have known of a strong case before litigation and adjudication? This would seem to require proof that the infringer was omniscient. Whether this logical conundrum was intended by the court or not, the effect will be to remove risk for accused infringers and shift some of the burden back to patent owners.

Clearly, the Federal Circuit used this case to impose new limits on the ability to obtain willful damages in patent infringement .  Is this a case of judicial legislating?  Or is it just  a case of the Federal Circuit correcting a prior misreading of the precedent?   

The fact that the Federal Circuit issued the opinion to coincide with the consideration of patent reform legislation in the House, which has also contemplated imposing limits on willful infringement damages, certainly is an indication that the Federal Circuit could have been influenced by the political debate going on in Congress. On the other hand, perhaps the Federal Circuit really did believe that the relevant precedent had been incorrectly decided, and that this alone prompted the Court to overturn the precedent. 

Somehow I am not quite convinced.  Are you? 

A new biotech infringement decision as issued this week by the U.S. Court of Appeals for the Federal Circult, which ruled in favor of ViaCell against Pharmastem in PharmaStem Therapeutics, Inc. v. Viacell, Inc. (Fed. Circuit 2007).

The press release issued by ViaCell following the ruling stated as follows:

The Federal Circuit upheld an earlier decision by the U.S. District Court for the District of Delaware that ViaCell, through its marketing of ViaCord®, a product offering through which families can preserve their baby's umbilical cord blood at the time of birth for possible future medical use, does not infringe PharmaStem's U.S. Patent No. 5,192,553 ('553) and U.S. Patent No. 5,004,681 ('681), which relate to certain aspects of collection, cryopreservation, storage and use of hematopoietic stem cells from umbilical cord blood. The court also found the '553 and the '681 patents invalid based on prior art.

Peter Zura's 271 Patent Blog discussed the infringement issues:

One of the sticking points in the litigation was language in the claims that required that the recited composition contained stem cells "in an amount sufficient to effect hematopoietic reconstitution of a human adult."

Each of the defendants are in the business of servicing families with newborn infants in which blood from the infant's umbilical cord is collected and cryopreserved for possible later use. The problem was that PharmaStem could not show enough evidence that the defendants' cord blood contained a "sufficient" supply of stem cells to effect successful reconstitution of an adult. An expert provided testimony based on the defendants' marketing materials, but did not consider any data regarding the composition of the cord blood units. Accordingly, the expert's testimony was excluded.

In a more interesting move, the CAFC also determined that the method claims could not be infringed because all the steps were not performed by the same party - the defendants were responsible for collecting and cryopreserving cord blood samples, while transplant physicians unrelated to the defendants thawed the cord blood and used it for transplanting. Also, since the defendants never "owned" the blood, there was no contributory infringement. . .

Patent Docs further addressed the obviousness issues:

In finding there was not substantial evidence, the Federal Circuit stated that the obviousness standard required a "reason" the skilled worker would make the claimed device or carry out the claimed process, and have a reasonable expectation of success in doing so.  The Court found strong evidence in the prior art that the first prong of this test was satisfied.  As to the second prong, the Federal Circuit was not persuaded by evidence that it was unknown in the art that cord blood contained hematopoietic stem cells.  The Court cited portions (as characterized by Judge Newman's dissent, by "simply reweigh[ing] selectively extracted evidence") of the art to show that cord blood was known to contain such stem cells.  It appears that the Federal Circuit interpreted the art based on its understanding that the existence of progenitor cells in the blood was evidence for underlying stem cells, although elsewhere in the opinion the Court appears to conflate the two cell types.  The Federal Circuit's explication of the biological underpinnings suggests that it believed that a production of such progenitor cells was accompanied by persistence (and thus the presence of) stem cells in the blood.  In discounting PharmaStem's expert testimony, the Court relied upon what it considered contrary statements made by the inventors, and refused to credit the expert's explanation that the cited art used the term "stem cell" inaccurately.

Patently O described the rationale for the decision:

Invention is Obvious: When asserting obviousness based on a combination of prior art references, the patent challenger must show that a PHOSITA “[1] would have had reason to attempt to … carry out the claimed process, and [2] would have had a reasonable expectation of success in doing so.”

Reason to attempt: In view of the prior art references, the first part of that test is plainly satisfied here. The idea of using cryopreserved cord blood to effect hematopoietic reconstitution was not new at the time [of filing]. Two of the prior art references…suggest using cord blood for that purpose. Two others…suggest cryopreservation and storage of the cord blood until needed. Accordingly, this is not a case in which there is any serious question whether there was a suggestion or motivation to devise the patented composition or process.

Expectation of Success: The inventors appear to have conclusively proven that umbilical cord blood is capable of hematopoietic reconstitution.  Unfortunately for them, completing a proof is not necessarily inventive. Rather, prior scientists strong suspicion of the capability creates an expectation of success so strong that “no reasonable jury” could find the patent valid.

While the inventors may have proved conclusively what was strongly suspected before—that umbilical cord blood is capable of hematopoietic reconstitution—and while their work may have significantly advanced the state of the science of hematopoietic transplantations by eliminating any doubt as to the presence of stem cells in cord blood, the mouse experiments and the conclusions drawn from them were not inventive in nature. Instead, the inventors merely used routine research methods to prove what was already believed to be the case. Scientific confirmation of what was already believed to be true may be a valuable contribution, but it does not give rise to a patentable invention.

The Medimmune v. Genentech case has received extensive media coverage since the Supreme Court decision earlier this year, but if you still have questions about the case and its anticipated impact, you should check out the recap published on IP Frontline by attorney Dennis Fernandez and college student Brian Bensch.

In their article "The Impact of MedImmune v. Genentech," the authors describe the potential implications of MedImmune as follows:

The major implication of MedImmune is that potential and current licensees will find it incredibly easier to file a declaratory judgment action. . . . After MedImmune, licensees will be able to recklessly challenge contracts knowing that the worst possible consequence is that the contract is upheld. . . .

[T]he implications of MedImmune are already taking shape. Since the MedImmune ruling only four months ago, the Federal Circuit Court of Appeals has begun to clarify the impact of MedImmune by dropping the "reasonable apprehension" clause of its subject matter jurisdiction test in its decision in SanDisk Corporation v. STMicroelectronics, Inc. . . .

 [I]n its decision on March 26 of this year, the CAFC established a new test that "holds that "where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without license," the party may bring a declaratory judgment action."

In the end, the authors conclude that the impact of the ruling will be as follows:

[T]he Supreme Court's MedImmune decision weakened the stability of both future and current licensing agreements. While the federal circuit's precedent had been rather unambiguous, the Supreme Court accepted the circularly reasoning and exaggerated risk claimed by MedImmune and allowed it to file for declaratory judgment relief against its licensor without first ending their licensing agreement. The decision gives a blank check to licensees to challenge their licensor on patent invalidity charges if they feel they have any chance at success.

As a licensing attorney looking at this case and the subsequent San Disk ruling, I can't help but wonder if the impact of these decisions is really going to be as severe as legal commentators are predicting.  While certainly this line of cases enables licensees to challenge licenses more easily, I question whether this will really happen with the kind of frequency you might expect from the commentary.  Is it possible that they are looking at these cases from litigator's perspective rather than considering the business realities that would often caution against souring an otherwise cordial business relationship?

The vast majority of licensing negotiations are not done at the end of a big stick, and that there are generally sound business reasons to maintain a good relationship with the other side of the negotiating table.  While it is true that these cases make it easier for licensees to challenge a licensing relationship, I question whether it will make good business sense for licensees to do so as frequently as it has been suggested they will do.  Will licensors really want to do deals with licensees who have challenged other licensing agreements with third parties?  Will licensors really want to develop relationships with licensees who have challenged  other licensing arrangements with prior licensors? 

In the end, I suspect that the application of these cases will depend largely on the realities of the business world.  I find it hard to believe that regularly challenging license agreements will ultimately prove to be a good business strategy as the dust settles on these decisions.  I anticipate that in the end declaratory judgments will be used a little more judiciously to challenge relationships that have already soured, in much the same way that litigation and the threat of litigation have been used prior to the MedImmune ruling.  When a relationship can be managed outside of the courtroom, I continue to believe that, despite the hype to the contrary, the average licensee is going to stick with negotiation and stay away from the courts. 

Business Wire reported that the United States District Court for the District of Delaware returned a verdict in favor of Affymetrix in its patent infringement suit against Illumina Inc.

According to Business Wire, the jury found that Illumina’s arrays, scanners, software, and related products infringed on one or more claims of all five of Affymetrix’ (5,535,531, 5,795,716, 6,355,432, 6,399,365, and 6,646,243) patents-in-suit. The jury found that the proper royalty rate was 15 percent, and awarded total damages of more than $16 million for the period of 2002-2005.

Despite the Affymetrix victory, the battle is not yet over.  Forbes reported that Illumina plans to appeal, and that the verdict will affect the market for genotyping and genetic sequencing.  Forbes further reported that:

New customers -- chiefly corporate labs -- could balk until the case is settled, [UBS analyst Derik] De Bruin said, benefiting Affymetrix.  The analyst also said that by awarding Affymetrix a better than expected royalty rate of 15%, the company may now have better price flexibility in a "very price-sensitive" market.  The patents in question are from 2002 to 2005, and thus the higher than expected royalty rate also bolsters Affymetrix's case for a similarly high rate "in claiming damage awards from 2006 and beyond should Illumina decide to settle," said De Bruin.  The analyst did, however, add that "unless Ilumina is blocked from the genotyping market, an outcome we continue to believe is unlikely, many customers may still choose Illumina's products on expectations of better performance and ease of use despite potentially higher prices."

 

 

St. Louis-based Monsanto Company agreed today to pay the University of California more than $100 million to settle a claim that the company infringed on a University of California patent related to a hormone that makes cows produce more milk.

According to AP Business Writer Christopher Leonard, Monsanto agreed to pay the University of California $100 million in upfront royalties and 15 cents a dose, or at least $5 million annually, to license the patented technology, commonly called BST. The University's patent rights expire in 2023.

Leonard describes the issues at the heart of this dispute as follows:

At issue is the genetically engineered bovine somatotropin hormone, sold under the brand name Posilac. Monsanto says injections of the hormone help dairy cows produce 10 percent to 15 percent more milk.

The university alleges in its lawsuit that three researchers at UC-San Francisco first isolated the DNA that is used to make the hormone. The lawsuit said that Monsanto knew about the research as early as 1985, but sold the product anyway.

Under the settlement agreement reached today, Monsanto will receive an exclusive commercial license to use the university's patented hormone, while the University of California will have the right to use the hormone in noncommercial research and the U.S. government will also retain some rights.

Foster City-based Gilead Sciences, Inc. has resolved its dispute with Roche, which arose out of the companies' 1996 Development and License Agreement for the flu drug Tamiflu. The settlement, which resulted in an amendment to the 1996 Agreement, provides for Gilead to accept a revised royalty structure, with a co-promotion option, and $80 million in additional royalty payments for prior Tamiflu sales. The new royalty rate will be 14% for the first $200 million in Tamiflu sales, 18% for the next $200 million, and 22% for sales above $400 million.

The dispute arose in June, 2005 when Gilead delivered a notice of termination to Roche for the 1996 Agreement, seeking to gain back all rights to Tamiflu. The biotech company had alleged that Roche had failed to pay Gilead some $18 million in royalty payments incurred pursuant to the 1996 Agreement. The companies had entered into arbitration proceeding to resolve the dispute.

As a result of Gilead's resolution of this dispute, Forbes reports that Gilead may look for an acquisition for the pulmnology, pediatric, or specialty infectious disease markets. Forbes author Kerry Dolan wrote in today's article Biotechnology: Gilead's Half-Empty Pipeline :

[T]he Foster City, Calif., company also has a problem shared by much of Big Pharma--an awfully thin pipeline. . . . For Gilead to keep growing between now and then, several analysts are betting that it will make an acquisition--either of a whole company or of specific drugs in development from other companies. . . . The challenge here: Gilead competes not with biotech companies but with deep-pocketed Big Pharma. So it may have to pay richly for any acquisition it undertakes.

Clearly, the challenge for Gilead in the coming months will be how to enhance its current pipeline that has very new products on one end of the spectrum and massive products on the other. Thanks to this settlement, Gilead now has new funds to take its pipeline to the next level--the real test will be what Gilead will be able to do with its windfall.

In "The Impact of a Brand Generic Launch on the Recovery of Patent Damages" published in the Summer 2005 IPL Newsletter, James D. Veltrop and Chad A. Landmon explore the positive and negative effects of a brand name drug company making the decision to also launch a brand name generic. In light of the extensive litigation between brand and generics drug companies, the authors' discussion raises some interesting issues to consider.

With respect to the two sides of the debate, the authors write:

On the one hand, the launch of the brand generic significantly reduces the profitability of the launch by the first generic competitor, who otherwise is often entitled to a six-month window of exclusivity before other generics can enter the market. In addition, the launch of its own generic allows the brand company to increase sales, albeit potentially at the expense of significant profits on its brand product. On the other hand, if the brand company also has patent claims against the generics, its launch of a brand generic might generate additional costs because any damages it might be entitled to recover could be substantially less than it might have recovered had it refrained from launching the brand generic in the first place. Because the brand generic would be a noninfringing alternative to the generic product, lost profits damages could be wholly or partially unavailable and the brand company would have to rely on a lower measure of damages than lost profits. . . . the launch of a brand generic might suggest that the brand company lacks confidence in either the merits of its patent claims or its ability to collect the full measure of damages from generic companies. Alternatively, it could suggest that the brand company is at least partially motivated by other factors, such as reducing the incentives of generic companies to challenge brand company patents.

According to the authors, the practice of launching brand name generics is thought by many generics companys to undermine the Hatch-Waxman Amendments, which made generics more widely available. Passed by Congress in 1984 in order to shorten the generics approval process,
the Hatch-Waxman Amendments enabled generics companies to launch a generic product simply by filing an Abbreviated New Drug Application ("ANDA"), which demonstrated that the generic product is bioequivalent to the brand drug that was already approved. In this manner, generics companies were able to quickly launch generics products, without having to bear the expense of producing safety and efficacy data. The authors go on to say, however, that

[H]aving recently passed the Medicare Modernization Act, it is doubful that Congress will take up again soon the Hatch-Waxman Amendments. Thus, the practice of launching authorized generics during the 180-day exclusivity period likely will remain a key brand company strategy for some time to come.

While the authors present an excellent summary of the issues involved with this debate, as a consumer myself, I wonder why brand name drug companies are pursuing this strategy at all, despite the litigation that is arising out of the generics-brand name disputes. How can companies think it makes good business sense to launch an expensive and then a cheaper version of its own products? While it is true that once a generic is available, some consumers will choose to buy the generic over the brand name product automatically, others will be reluctant to go with a generic simply because it was manufactured by a different company. However, if one company manufactured both versions of the drug, the majority of consumers would without a doubt simply purchase the cheaper version of the medication. In my mind, this practice seems to be a lousy business strategy that is out of sync with common sense. Although from a patent perspective, it may have some valid rationales, but from a business perspective, the brand generics strategy seems to undermine the company's investment in the brand product.

As for the brand generics strategy itself, I can see why the generics companies dislike it, but I am conflicted as to whether or not it really undermines Hatch-Waxman. Certainly the practice has antitrust implications, but I suspect Congress intended to protect the public with Hatch-Waxman more so than the generics companies. Since the public receives a generic, regardless of whether or not it is a brand product, I don't see how this undermines Hatch-Waxman. Apparently, however, my view is not a popular one among generic companies. Thus, the debate continues.

Mountain View-based Alza Corporation, a subsidiary of Johnson & Johnson, suffered a blow this week with the ruling by the Northern District of Virginia that Mylan Laboratories's generic version of the overactive bladder treatment Ditropan XL did not infringe an Alza patent and that the Alza patent itself was invalid as anticipated and obvious.

Mylan was the first generic pharmaceutical company to file an Abbreviated New Drug Application ("ANDA") for 5 mg and 10 mg of Oxybutynin, the active ingredient in Ditropan XL. Mylan will be eligible for 180 days of market exclusivity after it receives approval from the Food and Drug Administration ("FDA"). Earlier this year, Mylan received tentative approval for the drug from the FDA, which generally means that approval will be granted upon the resolution of any outstanding patent issues.

Alza has already announced that it intends to appeal the decision to the Court of Appeals for the Federal District in Washington, D.C.

The decision comes after Alza initiated another suit earlier this month, along with McNeil-PPC, Inc., against Hayward-based Impax Laboratories, Inc and Andrx Pharmaceuticals LLC in the United States District Court for the District of Delaware, alleging that defendants infringed their patents by seeking to make generic versions of Concerta prior to the expiration of the patents. Concerta is marketed as a treatment for attention deficit disorder ("ADD") and attention deficit hyperactivity disorder ("ADHD"). The patents were issued in 2005 and cover the administration of the drug methylphenidate hydrochloride in an increasing concentration over a period of time. Plaintiffs argue that defendants' drugs also cover the administration of the drug in an increasing concentration over a period of time, therefore infringing their patents. Genetic Engineering News has reported that sales of Concerta were $770 million in the 12 months ended in July, 2005.