Some of the major US biotech companies are currently embroiled in high-profile patent disputes, which have put revenue from their best-selling products at risk. A new patent decision crops up every other day, emphasizing the treacherous and murky nature of pharma patent law.
Biogen’s Patent Troubles
On Tuesday, the Patent Trial and Appeal Board (PTAB) decided to institute an inter partes review (IPR) of Biogen Inc.’s (NASDAQ:BIIB) top-selling drug, Tecfidera. IPR is a process used to challenge validity of a US patent before the US Patent and Trademark Office (USPTO). The review was petitioned by hedge fund manager Kyle Bass’ Coalition for Affordable Drugs (CFAD) last year, challenging a key Tecfidera patent (‘514), which protects the drug through 2028. PTAB had initially rejected the petition based on incomplete evidence of obviousness. According to the PTAB decision yesterday, it now finds the prior art introduced by the coalition to be “considerably more persuasive.”
Mr. Bass has been going after pharma patents since early last year. He shorts the stocks of pharma companies soon after petitioning against their patents, then profits from the share price decline that ensues. He claims these steps help everyone by lowering drug prices. The CFAD has targeted several major pharma firms including Celgene Corporation, Jazz Pharmaceuticals and more recently Acorda Therapeutics Inc. Just over a week earlier, the PTAB ruled in CFAD’s favor by deciding to review validity of four Acorda patents protecting its multiple sclerosis (MS) pill, Ampyra.
However, the PTAB’s decision may not be an immediate issue for Biogen, since the review is going to take about a year. Jefferies analyst Brian Abrahams expects an oral hearing on the review on November 30, with important replies expected in June, September, and October and final decision sometime in 1HFY17.
At the same time, note that Tecfidera accounted for almost one-third of Biogen’s top-line last year, with global sales of $3.6 billion, out of which $2.9 billion was derived from the US alone. A negative patent decision could cut into the drug’s overall sales. Biogen has also considerably ramped up its marketing campaign and instituted cost savings in the last quarter of 2015, to beef up Tecfidera’s declining sales. Biogen lost almost $20 billion in market cap last summer in a day, after reporting poor sales performance of Tecfidera and other MS drugs. The drug was also associated with a rare brain infection in October 2014, which had caused sales to lose momentum.
Mr. Abrahams believes that if Biogen’s 2028 patents are all upturned, it could cause a material (16-17%) negative impact on its DCF valuation. In this scenario, Jefferies expects a generic Tecfidera in the global market by 2024, almost three years earlier than previously expected. Leerink Partners analyst Geoffrey Porges predicts Tecfidera’s exclusivity to only continue through 2019 in the US and 2024 in Europe. Mr. Abrahams, meanwhile, thinks that “BIIB still has a chance to argue its case and there may be other ways they could maintain exclusivity.”
Mr. Abrahams also considers the sequence of recent events associated with Tecfidera’s patents to be a cause of risk and concern. Earlier this month, the European Patent Office revoked a method-of-use patent protecting Tecfidera through 2028. Biogen said in a statement soon after that it intends to appeal the decision and that it does not prevent it from selling Tecfidera any place in the world it is approved in. Cowen & Co. analyst Eric Schmidt said in a note to investors at the time that while an appeal could delay any threat to the drug in Europe for as many as four years, up to $1 billion in Tecfidera sales could be at risk if Biogen loses the appeal.
Jefferies’ Mr. Abrahams also said that although there is no direct link between EPO’s decision and that of PTAB, “the fact that EPO revokes patents less often than in the US yet revoked the ‘537 patent, and the prior art in question similar in both instances (though not identical), we believe today’s news highlights potential weaknesses in BIIB’s patents.”
Mr. Abrahams also proposed a way Biogen can potentially maintain exclusivity for Tecfidera, even if it loses the IPR. Biogen and Forward Pharma are currently involved in a patent interference battle relating to the same ‘514 patent. “FWP’s patent could also theoretically be at some risk of being invalidated for similar reasons as BIIB’s, but because of FWP’s earlier priority date, some of the prior art arguments used against BIIB would not apply to FWP, so FWP’s patent could potentially still stand (and be licensed by BIIB).”
Gilead & Regeneron Struggle
Also on Tuesday, a federal jury found two Merck & Co. patents valid in a lawsuit against biotech giant Gilead Sciences, Inc. (NASDAQ:GILD), over its mega-blockbuster hepatitis C drugs, Sovaldi and Harvoni. The jury is yet to decide the exact amount Gilead owes Merck as a consequence. Merck has called for over $2 billion in damages, along with a 10% royalty on all past and future sales of Sovaldi and Harvoni. Given that the drugs have pulled in over $23 billion since December 2013, Merrill Lynch believes the figure could exceed $50 billion. Merck is expected to share nearly 20% of the payout with its development partner Ionis Pharmaceuticals. Gilead plans to appeal the decision, however, which could be a lengthy process delaying the financial impact for the company.
Last week, a federal jury found Amgen, Inc.’s patents protecting its PCSK9 drug Repatha valid and enforceable. The biotech giant has sued Regeneron Pharmaceuticals Inc. (NASDAQ:REGN) and partner Sanofi SA for infringing the same patents when they launched their rival drug, Praluent, last year. The two drugs belong to a new cholesterol-lowering drug class that has been found to be significantly more effective than standard-of-care statins. Priced above $14,000 for a year’s worth of treatment, the two drugs are expected to pull in more than $2 billion by 2020, with Praluent being a major growth driver for Regeneron going forward. While Regeneron/Sanofi plan to appeal, in the worst-case scenario Praluent could be pulled off the US market. The permanent injunction decision on the case is expected this week; 5-10% (or worse, 10-20%) royalty payments from Regeneron/Sanofi to Amgen are a more likely outcome, though.
Biogen’s Patent Troubles
On Tuesday, the Patent Trial and Appeal Board (PTAB) decided to institute an inter partes review (IPR) of Biogen Inc.’s (NASDAQ:BIIB) top-selling drug, Tecfidera. IPR is a process used to challenge validity of a US patent before the US Patent and Trademark Office (USPTO). The review was petitioned by hedge fund manager Kyle Bass’ Coalition for Affordable Drugs (CFAD) last year, challenging a key Tecfidera patent (‘514), which protects the drug through 2028. PTAB had initially rejected the petition based on incomplete evidence of obviousness. According to the PTAB decision yesterday, it now finds the prior art introduced by the coalition to be “considerably more persuasive.”
Mr. Bass has been going after pharma patents since early last year. He shorts the stocks of pharma companies soon after petitioning against their patents, then profits from the share price decline that ensues. He claims these steps help everyone by lowering drug prices. The CFAD has targeted several major pharma firms including Celgene Corporation, Jazz Pharmaceuticals and more recently Acorda Therapeutics Inc. Just over a week earlier, the PTAB ruled in CFAD’s favor by deciding to review validity of four Acorda patents protecting its multiple sclerosis (MS) pill, Ampyra.
However, the PTAB’s decision may not be an immediate issue for Biogen, since the review is going to take about a year. Jefferies analyst Brian Abrahams expects an oral hearing on the review on November 30, with important replies expected in June, September, and October and final decision sometime in 1HFY17.
At the same time, note that Tecfidera accounted for almost one-third of Biogen’s top-line last year, with global sales of $3.6 billion, out of which $2.9 billion was derived from the US alone. A negative patent decision could cut into the drug’s overall sales. Biogen has also considerably ramped up its marketing campaign and instituted cost savings in the last quarter of 2015, to beef up Tecfidera’s declining sales. Biogen lost almost $20 billion in market cap last summer in a day, after reporting poor sales performance of Tecfidera and other MS drugs. The drug was also associated with a rare brain infection in October 2014, which had caused sales to lose momentum.
Mr. Abrahams believes that if Biogen’s 2028 patents are all upturned, it could cause a material (16-17%) negative impact on its DCF valuation. In this scenario, Jefferies expects a generic Tecfidera in the global market by 2024, almost three years earlier than previously expected. Leerink Partners analyst Geoffrey Porges predicts Tecfidera’s exclusivity to only continue through 2019 in the US and 2024 in Europe. Mr. Abrahams, meanwhile, thinks that “BIIB still has a chance to argue its case and there may be other ways they could maintain exclusivity.”
Mr. Abrahams also considers the sequence of recent events associated with Tecfidera’s patents to be a cause of risk and concern. Earlier this month, the European Patent Office revoked a method-of-use patent protecting Tecfidera through 2028. Biogen said in a statement soon after that it intends to appeal the decision and that it does not prevent it from selling Tecfidera any place in the world it is approved in. Cowen & Co. analyst Eric Schmidt said in a note to investors at the time that while an appeal could delay any threat to the drug in Europe for as many as four years, up to $1 billion in Tecfidera sales could be at risk if Biogen loses the appeal.
Jefferies’ Mr. Abrahams also said that although there is no direct link between EPO’s decision and that of PTAB, “the fact that EPO revokes patents less often than in the US yet revoked the ‘537 patent, and the prior art in question similar in both instances (though not identical), we believe today’s news highlights potential weaknesses in BIIB’s patents.”
Mr. Abrahams also proposed a way Biogen can potentially maintain exclusivity for Tecfidera, even if it loses the IPR. Biogen and Forward Pharma are currently involved in a patent interference battle relating to the same ‘514 patent. “FWP’s patent could also theoretically be at some risk of being invalidated for similar reasons as BIIB’s, but because of FWP’s earlier priority date, some of the prior art arguments used against BIIB would not apply to FWP, so FWP’s patent could potentially still stand (and be licensed by BIIB).”
Gilead & Regeneron Struggle
Also on Tuesday, a federal jury found two Merck & Co. patents valid in a lawsuit against biotech giant Gilead Sciences, Inc. (NASDAQ:GILD), over its mega-blockbuster hepatitis C drugs, Sovaldi and Harvoni. The jury is yet to decide the exact amount Gilead owes Merck as a consequence. Merck has called for over $2 billion in damages, along with a 10% royalty on all past and future sales of Sovaldi and Harvoni. Given that the drugs have pulled in over $23 billion since December 2013, Merrill Lynch believes the figure could exceed $50 billion. Merck is expected to share nearly 20% of the payout with its development partner Ionis Pharmaceuticals. Gilead plans to appeal the decision, however, which could be a lengthy process delaying the financial impact for the company.
Last week, a federal jury found Amgen, Inc.’s patents protecting its PCSK9 drug Repatha valid and enforceable. The biotech giant has sued Regeneron Pharmaceuticals Inc. (NASDAQ:REGN) and partner Sanofi SA for infringing the same patents when they launched their rival drug, Praluent, last year. The two drugs belong to a new cholesterol-lowering drug class that has been found to be significantly more effective than standard-of-care statins. Priced above $14,000 for a year’s worth of treatment, the two drugs are expected to pull in more than $2 billion by 2020, with Praluent being a major growth driver for Regeneron going forward. While Regeneron/Sanofi plan to appeal, in the worst-case scenario Praluent could be pulled off the US market. The permanent injunction decision on the case is expected this week; 5-10% (or worse, 10-20%) royalty payments from Regeneron/Sanofi to Amgen are a more likely outcome, though.
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