Patents: Deal or No Deal?
Until a recent key decision, if you outlicensed a piece of patented technology to another company, the deal brought with it
a bonus piece of protection for your intellectual property: The company you licensed it to wasn't allowed to ask a court for
a declaratory judgment holding the patent invalid. The Federal Circuit interpreted a license as a settlement between parties
and said a licensee cannot challenge a patent held by its partner without first breaching that contract—a risky action, to
That rule has changed, thanks to a Supreme Court decision over one of the most controversial of biotech patents—a decision
that seems likely to change the playing field for both licensing and at-risk launches of generics.
The suit involved Genentech's so-called Cabilly patents, (named for inventor Shmuel Cabilly), which protect the company's
method for developing antibodies. The original Cabilly patent was filed in 1983. The same year, a company called Celltech
filed a similar patent in the UK. After long and complicated proceedings before the patent office and the courts, Genentech
ended up with a new patent, Cabilly II, granting it a full 17 years of protection—for a total of 29 years of patent life,
expiring in 2018. This was great news for Genentech, but bad news for companies that licensed the technology, including MedImmune,
which paid royalties to use the Cabilly technology on Synagis, a drug for pediatric respiratory viruses.
MedImmune had few options. With 80 percent of its revenues wrapped up in Synagis, the company couldn't risk breaching the
contract. But if it didn't breach the contract, there could be no suit. The Supreme Court saw things differently. "Where threatened
government action is concerned, a plaintiff is not required to expose himself to liability before bringing suit to challenge the basis
for the threat," wrote Justice Antonin Scalia in the majority opinion. He argued that the same should hold true in private
disputes as well.
The decision now gives licensees the best of both worlds. "The issue has always been: you would have to give up your license
to challenge the patent, which meant if you lost, you'd be stuck," says Stephen Albainy-Jenei, an attorney with Frost Brown
Todd, and the editor of the "PatentBaristas" blog. "That has really put a damper on anyone challenging. It's going to make
licensees to take a harder look. Are they paying a bunch of money where they don't need to?"
While MedImmune may destabilize thousands of existing patent settlements and license agreements, a more immediate effect,
as shown in Teva v. Novartis and Caraco Pharmaceutical Laboratories v. Forest Laboratories, seems to be the wider opening for generic companies to seek the court's decision on a patent's status.
And by the way, acting on its own, the Patent Office voided Cabilly II. Genentech is appealing, which should take a couple
of years. The patent remains enforceable in the meantime, but Genentech and MedImmune have settled, terms undisclosed.
False Claims: The Price Is Wrong
Ever wonder why the federal government is so relentless in pursuing pharma companies for violations of the False Claims Act?
It could be a matter of return on investment. Every dollar invested in FCA healthcare investigations brings in a return of
"I would like to say the explosion in growth and dollars is capping off, but unfortunately, I don't think we've reached the
peak," says Paul Kalb, MD, head of Sidley Austin's healthcare group. "This has been a major priority for the government."
While off-label promotion has been the focus of some of the highest profile investigations and settlements, some important
recent cases focus on different aspects of pricing.
One approach involves "nominal pricing." Under federal law, the government is supposed to pay the lowest price manufacturers
offer any customer. It makes just one exception: to encourage companies to sell its drugs cheaply to charity, it doesn't count
products that are discounted 90 percent or more.
Many pharma companies offered nominal prices to hospitals to encourage use of their drugs. That may have been legal, but it
stuck in the craw of many critics. "It's heroin-dealer economics," said Patrick Burns, spokesperson for Taxpayers Against
Fraud, in an interview with The Washington Post. "Your first shot is for free, and after that it becomes more expensive—not to the hospital but to Medicaid, which is paying
the bill." In 2005, when the Deficit Reduction Act rewrote the rules, nominal pricing was limited to institutions such as
intermediate-care facilities for the mentally retarded, state-owned nursing facilities, and other "safety net" providers.
In the meantime, state and federal prosecutors started putting together a case against Merck, arguing that the nominal prices
it offered hospitals weren't really nominal because they were tied to conditions—giving the drug preferred status or hitting
market-share goals. That theory might or might not have persuaded a jury, but it didn't need to. Why? Because drug companies
found guilty of Medicare fraud can be banned from all federal programs—the "pharma death penalty"—so such cases rarely if
ever go to trial. This February, Merck agreed to pay $650 million to settle the case.
And litigation continues over one of the key numbers used for years in calculating Medicare and Medicaid reimbursement and
rebates: Average Wholesale Price. AWP may have been intended to reflect actual wholesale prices, but in practice it was always
a "sticker price" set by the companies. Many states, however, have argued that AWP was supposed to be what the name implied,
and that by reporting anything else to the government, pharma companies were gouging Medicaid programs. In June 2007, Judge
Patti Saris heard a nationwide, multi-district class action case involving AWP and came to some fairly temperate conclusions.
She didn't buy the idea that AWP meant just what the name implied, but she determined that government and payers expected
a fairly standard "markup" in AWP. She shot down companies that had exceeded it. In March, 11 companies paid $125 million
to settle their part in the case.
But the multi-state suit was hardly the last gasp of AWP cases. Alabama is suing 79 companies it accuses of defrauding the
state's Medicaid program. The first suit resulted in a $215 million fine against AstraZeneca. The second, against Novartis,
was getting under way as this article went to press. Similar cases are in the works in Mississippi, South Carolina, Utah,
Hawaii, and Alaska. Alongside the Merck case and others, these investigations illustrate how states are stepping up to the
plate. "[The states ] are responsible for paying for a substantial chunk of the drug bill, and for that reason, they have
a strong interest in this area," says Kalb.
Advertising: Settling for Less
If the industry has been aggressive in attempting to self-regulate advertising practices, it's partly in hope of fending off
onerous legislation and FDA regulation. But as a recent legal case illustrates, there are more ways to impose limits on advertising
than pharma may have imagined.
The case was a multistate action accusing Merck of using aggressive and deceptive advertising to conceal the cardiovascular
risks associated with Vioxx. The company ended up paying 29 states and the District of Columbia $58 million—the largest consumer
protection settlement to date involving the promotion of a prescription drug, but a small number compared with nine-figure
Yet the money is only part of the settlement. Merck also agreed to have the FDA review all DTC television advertising for
the next seven years (ten years for painkiller ads). FDA can also delay the launch of advertising. Merck promised not to present
misleading data to physicians, and—the surprise addition—not to use pro-company "ghost writers" to craft medical papers for
Ghostwriting, long a target of industry critics, gained notoriety from the suit. Joseph Ross, MD at New York's Mount Sinai
School of Medicine, led the team that combed through documents provided by Merck in discovery. In the April 2008 issue of
the Journal of the American Medical Association, described in excruciating detail the guest authorship and ghostwriting that took place at Merck on journal articles about
The ghostwriting clause may be a sign of things to come. "Two months ago, if you asked what the big issues confronting promotion
were, this would not have made the list," says Pines. "Because Merck agreed to a legal settlement, it can set a trend and
become much more institutionalized."