November 14, 2018

So You Want to Buy or Sell a Biologics Company? The Impact of Vanda on Biologics IP Due Diligence

Conducting IP due diligences for biologics products can require some significant forethought. In addition to properly valuing the existing IP from a validity, infringement, and financial perspective, there's also concern regarding potential IP obstacles to commercialization that require not only a thorough freedom to operate search, but creative application and analysis of the results, as the attorney is tasked with predicting how those results might be used offensively against the target product and/or portfolio. Recently, however, the Federal Circuit made this task even more complicated in its April 13, 2018 decision in Vanda Pharmaceuticals Inc. v. West-Ward Pharmaceuticals, 887 F.3d 1117 (Fed. Cir. 2018).

In Vanda, the Federal Circuit determined that, with respect to §101 (patentable subject matter), claims reciting a method of treating a patient having schizophrenia with iloperidone, a drug known to cause a disruption of the heart's normal rhythm that can lead to health problems in patients having a particular genotype associated with poor drug metabolism, were not "directed to" a judicial exception (i.e., an area that is not considered patentable subject matter). As one might recall, the infamous United States Supreme Court decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. 66 (2012) held that claiming what amounts to a natural relationship in the body runs afoul of the §101 requirement, since it was "directed to" a judicial exception (i.e., a natural law). The Federal Circuit in Vanda distinguished the claim at issue from Mayo by noting that it was not just identifying a natural relationship, but further applying the natural relationship.

In turn, the United States Patent and Trademark Office (USPTO) issued a memo detailing the importance of this determination to examiners and current applicants looking to acquire method of treatment claims in patents. To that end, the USPTO memo highlights two of the most important takeaways: (1) The Federal Circuit evaluates claims as a whole when determining whether they are "directed to" a judicial exception, and thus are not patentable subject matter under §101. (2) The Federal Circuit drew a clear line between method of treatment claims generally and those claims found in Mayo. Although in Mayo there was a recited step to administer the drug to a patient, it was not considered a method of treatment claim because it was administered for the purpose of gathering data on a natural relationship, rather than to treat a patient for a particular indication.

Ultimately, the USPTO memo concluded that:

The USPTO' s current subject matter eligibility guidance and training examples are consistent with the Federal Circuit's decision in Vanda, with the understanding that: (1) "method of treatment" claims that practically apply natural relationships should be considered patent eligible under Step 2A of the USPTO's subject matter eligibility guidance; and (2) it is not necessary for "method of treatment" claims that practically apply natural relationships to include nonroutine or unconventional steps to be considered patent eligible under 35 U.S.C. § 101.

So how does this impact how one approaches IP due diligences in the biologics space? For one, biologics patents with method of treatment claims are by the far the most challenged claim types in inter partes review (IPR). In fact, 51% of claims challenged in biologics IPRs are method of treatment claims. (See, Oct. 5, 2018 statistics.) More importantly, of those IPRs that are instituted by the Patent Trial and Appeal Board (PTAB), 65% are found to be unpatentable. (See, Oct. 5, 2018 statistics.) Thus, the most prolific of patent claims covering biologic products may also be the most vulnerable to invalidation at the PTAB.

Clearly, if one is conducting a due diligence on the value and strength of a biologics IP portfolio, it is incredibly important to have the proper technical background to fully understand the scientific nuances of the product and appreciate how those intersect with the law. But with the Vanda decision, it becomes even more important to fully understanding the current method of treatment claims in the target portfolio and consider what available steps can be taken to strengthen or expand those claims. Although §101 arguments, like those espoused in Vanda and discussed in the USPTO memo, may not be available in IPR, they certainly are available in post-grant review (PGR), which can be brought within 9 months of patent issue (assuming your claims have priority after March 16, 2013). Biologic products in particular, being at the cutting edge of biotechnology, will certainly have IP portfolios with patents recent enough to qualify for attack via PGR. And with that threat of attack increasing over time, having the proper technical background to fully vet the product, and fully analyze associated method of treatment claims and determine whether they are truly directed to an administration to treat an indication, and not simply an administration to gather information on a natural relationship, is of the utmost importance for biologics IP diligence.