biotechnology report 2008 - marks & clerk · this report highlights the changing role and value...

Biotechnology Report 2008


Marks & Clerk Cover image: Conceptual image of a cell during the interphase stage of mitosis


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Foreword

Introduction

Part I: The future health of biotechnology and the role of intellectual property

1. Introduction

2. Risk aversion

3. The relationship between funding and intellectual property

4. From marketing approval to margin pressure

5. Biosimilars and generic competition

6. Emerging markets

7. The future

Biotechnology survey results

Part II: Focus on intellectual property law and policy – key developments around the world

1. Introduction

2. Europe– European Patent Office– United Kingdom– France– Germany– Netherlands– Switzerland

3. North America – United States– Canada

4. Asia

– China– India – Japan

Marks & Clerk contacts

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Contents


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Andrew Richards was the co-founder of Chiroscience, which merged in 1999 with Celltech. A serial entrepreneur and business angel, he has since gone on to provide financial investment and strategic expertise for a number of biotechnology companies, including Arakis Limited, Cambridge Biotechnology Limited, Amedis Pharmaceuticals Limited and Sirus Pharmaceuticals, all of which have been sold. Andrew Richards also holds a number of director positions for companies including Vectura Group, Biowisdom Limited and Cancer Research Technology Limited. He sits on the UK Life Science Marketing Strategy Implementation Board as well as the Biotechnology and Biological Sciences Research Council.

It seems that too often the face of modern medicine is misrepresented and misunderstood. Where the big deals of recent years (such as the acquisitions of CAT and MedImmune) illustrate for many the very obvious need for biotech innovation as traditional pharmaceutical pipelines run dry, the story of the day is frequently one of economic turbulence and investor risk aversion.

In reality, there is plenty of cause for celebration – although much of the encouraging news from the sector is taking place below the radar. Where the IPO was once the classic biotechnology exit strategy, we are now seeing the majority of private companies being quietly groomed for trade sales and this new model is attracting venture and angel investment alike. As companies are sold the significance of recycling capital, intellectual property (IP), expertise and management become critical to future success. The recycle of experienced management being key to a generation of companies that are more commercially aware, market focused and able to respond to a more rapidly changing environment.

Yet for the UK to remain a centre-stage player in the biotechnology sector, it is essential that commitment to investment remains. Somewhat alarmingly, this report identifies growing concern within the industry itself, both here and across the Atlantic, that the necessary levels of funding are becoming increasingly difficult to secure. At this point in the economic cycle, and in the grip of much more cautious drug approval processes in the US, as well as global pricing pressures, the biotechnology industry is concerned for its future. The impact that increased risk aversion may have on drug development, availability and early-stage R&D, is a sobering thought for us all.

In this climate, the role and quality of IP have never been more important, not only to attract investment and to forge strategic commercialisation partnerships but also to achieve the trade sale exits that characterise success. This report highlights the changing role and value of IP itself, with IP growing in importance as security for investment, and with changes in patent and regulatory processes creating new opportunities for entrepreneurs as frequently as breakthroughs in science.

In the UK, the pharmaceuticals and biotechnology industry is the single largest investor in R&D. In 2007, investment increased by over 10 per cent, according to the annual R&D Scoreboard, published by the UK government. This figure alone is an indication of both the scale and importance attached to future drug discovery in the UK. A future likely to be driven by smaller companies as pharmaceutical giants increasingly withdraw from internal innovation.

The globalising marketplace for both products and innovation brings new threats of competition as well as opportunities from new and expanding markets. The biotechnology industry will have to fight even harder to ensure that it markets itself attractively and commercially. It must do so not only to secure the funding it needs today, but also to ensure the success of its innovations that are so needed by the patients of tomorrow.

Dr. Andy Richards, Serial Entrepreneur and Business Angel

ForewordOne of the most significant challenges facing the biotechnology sector is its treatment in the public domain. Here in the UK, we are currently undergoing a very public debate into the role and ethical considerations of new medical technology, as the UK government’s Human Fertilisation and Embryology Bill makes it way through Parliament. Meanwhile financial press reporting of biotechnology would have us believe that the sector is entirely unpalatable to investors, bereft of funding and dogged by uncertainty.


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To this end, we have undertaken a worldwide survey of nearly 500 biotechnology executives, scientists, academics, and investors, and we present the key findings of the survey in Part I of this report (the full results of the survey are set out at the end of Part l). The survey elicits opinions on the current threats and opportunities faced by the industry, and in particular on the challenging environment for funding product development and for obtaining marketing approval for new products. Indications of how these challenges may be met also emerge from the survey, with the intellectual property system in particular playing a fundamental role in helping to ensure that development of new biotech products continues to be rewarded and to attract investment.

With the role of IP in the biotech industry highlighted by the survey results, Part II of this report takes a more detailed look at major developments in the IP world. We review issues relating to IP law and policy which we consider to be of fundamental importance to the biotech industry, and the impact which these issues will have on users of the IP system and the future health of the industry.

We would like to thank all those who responded to our survey, as well as Marks & Clerk colleagues and other associates around the world for their contribution to the review of recent developments in the various jurisdictions.

Dr. Gareth Williams Partner, Marks & Clerk

IntroductionWelcome to the 2008 Marks & Clerk Biotechnology Report. In previous reports, we have given an overview of the health of the biotechnology sector based on patent filing trends. This year, we have taken a different approach, in view of the number of threats the industry currently faces to the future development and marketing of biotech products. It is our belief that in this more uncertain and changing climate the industry itself is best placed to give opinions on these threats and how to overcome them.


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1. IntroductionThe biotechnology industry is essential to the future development of health care, from diagnostics and prevention of disease, through to new disease therapies, to life enhancing applications. Biotechnology is very R&D-intensive – the US biopharmaceutical industry spent nearly $60 billion on R&D in 2007 (Source: Burrill & Co). On top of this, the costs of getting new products through the relevant approval processes and to market are extremely high. Corporate partnering and investment, as well as venture funding, are therefore essential to the growth and evolution of biotechnology. Of the $53 billion funding raised by the global biotechnology industry in 2007, around 15 per cent came from venture funding, while around half came from partnering deals and licensing (Nature Biotechnology 2008:150).

IP plays a core role in all biotechnology companies – many early stage companies have few other assets, and depend on strong IP to attract investment or partners. The cash-intensive R&D and approval processes would not be viable without the prospect of sufficient market exclusivity to recoup the investment. IP therefore has the potential to be a significant tool whereby imbalances in the funding and approval stages of biotech drug development may be adjusted.

The development and availability of new medicines are threatened by various factors. In view of the biotech industry’s heavy reliance on investment and R&D, chief among these is a perceived lack of availability of investment, and a more challenging environment for the industry generally. The Marks & Clerk biotechnology survey set out to investigate whether these perceived challenges were seen

Part I: The future health of biotechnology and the role of intellectual property

as threatening future progress; and if so, what could be done to help the industry and ensure that the challenges of health care continue to be met.

Our survey finds that the environment for the biotechnology sector has become much more challenging over the last year. 82 per cent of respondents believe that this has encouraged risk aversion from investors, whilst 78 per cent believe that the climate for enabling biotechnology innovation has deteriorated within the last year.

2. Risk aversionConsiderable risk aversion is emerging among investors and regulatory agencies and is threatening the funding and development of future biotech drugs. This cautiousness is partly due to the current economic cycle and partly to the attitude of the regulatory authorities, notably the US Food and Drug Administration (FDA), resulting in little marketing approval and hardly any news flow. When specifically asked about the marketing approval process, 68 per cent state that the system needs to become less risk-averse to ensure that investment is maintained. Almost three quarters (72 per cent) believe that the FDA’s stance will make future drug pipelines much harder to deliver.

Problems at the FDA, from the industry perspective, are highlighted by the comments submitted by BIO in February 2008 in response to the Report of the FDA Science Board Subcommittee on Science and Technology – ‘FDA Science and Mission at Risk’. BIO suggested that “chronic lack of federal funding in an era of increasing FDA responsibility has undermined the agency’s scientific base and jeopardised the agency’s ability to accomplish its core public health mission”. The Report itself supported this stance, as well

78%of survey respondents believe that the climate for innovation has deteriorated in the last year


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as noting that the “FDA’s inability to keep up with scientific advances means that American lives are at risk. While the world of drug discovery and development has undergone revolutionary change – shifting from cellular to molecular and gene-based approaches – FDA’s evaluation methods have remained largely unchanged over the last half-century. Likewise, evaluation methods have not kept pace with major advances in medical devices and use of products in combination”.

The effects of the risk-averse nature of the FDA were shown by the news in May 2008 that a proposed human embryonic stem cell based clinical trial by Geron was placed on hold by the FDA. While the reasons for the FDA’s caution were not clear at the time of writing, this action has clearly dented Geron’s – and the public’s – hope for commercial development of such stem cell therapies in the near future.

We should note here that problems at the FDA threaten not only American lives, but lives everywhere, since anything which discourages investment in new therapies will impact on all of us.

The threat to investment is starkly illustrated by the findings of the survey.

83 per cent of respondents consider reduced investor appetite and funding pressures to be a ‘significant’ or ‘highly significant’ threat to the industry, while 90 per cent believe secondary and subsequent funding will be harder to secure as market conditions deteriorate.

The loss of funding opportunities will have a dramatic effect on innovation. 90 per cent of respondents believe that investors will be increasingly drawn to later-stage drug development, while 83 per cent believe that biotech companies themselves will focus on more progressive development and/or drug

modifications. There is therefore a real risk that basic research, leading to novel treatments or novel therapeutic agents, will simply not be funded. This would be a crisis for the industry, with companies becoming more reliant on the so-called ‘evergreening’ (whereby patent protection is obtained for modifications to an original drug, or different administration routes or dosage regimes) of existing products.

Of course, public and private funding of academic research can counterbalance this to some extent. In certain fields, for example, stem cell technologies, we have seen from previous Marks & Clerk Biotechnology Reports that academic bodies still remain key drivers of innovation. However, there is still a funding chasm to be bridged in order to translate technologies from the academic laboratory to the later stage developments which will attract outside investment. This is a particular problem in Europe, as evidence suggests that European academia is less effective than US academia in transferring technology from the laboratory to commercial exploitation.

As funding becomes scarcer, investors will require a greater holding in their target company to safeguard their investment in uncertain times. As a consequence, there is a risk that the terms for funding will become simply uneconomic – companies will not accept investment if the stakes are too high. 80 per cent of our survey respondents believe key investors will require a greater equity stake and/or secure investments against IP rights. This again will restrict the innovation pipeline; 89 per cent of respondents feel that companies will either fail or be bought out at unattractive levels.

Having said that, the possibility of securing investment against IP, rather than simply demanding a greater equity stake, could be a growing trend which will reinforce the value of IP in

biotechnological innovation. Not only will obtaining IP help to attract investors, but also the IP itself could be the stake in which investment is made. While this does expose the company to greater risks if the investment fails – the IP may pass to the investor – it is a key way in which IP can help to overcome a harsh climate for investment without giving away equity in the business.

3. The relationship between funding and intellectual propertyThe issue of IP as a key driver of funding is vividly shown by the responses to the survey, and to a certain extent, is a partial solution to the crisis in terms of suitably encouraging R&D.

The importance of IP due diligence in any deal is highlighted by the fact that 88 per cent of respondents agree that investors are increasingly assessing the strength of IP portfolios in order to reduce exposure to risk. It is a truism that many (especially early stage) biotech companies are almost entirely about IP, so an increased awareness of the potential for IP to alleviate risk exposure is to be welcomed. This also ties in with the trend, noted earlier, for investors to seek security against IP for their investment, rather than merely taking equity. Should the business collapse, the IP will be retained by the investors and may be used to seed a further biotech company.

Awareness of the significance of IP is shown also by the fact that 71 per cent of respondents feel the existence of potentially blocking third party IP is a barrier to investment. In particular, the expansion of biotech patenting – and the granting of broad potentially blocking patents – is felt to make freedom to operate increasingly uncertain and difficult to ascertain. Evidence that this is correct can be

68%of respondents agree that a less risk-averse approach from regulatory bodies is needed to maintain investment


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seen in numerous publications discussing royalty stacking, the problems of patent thickets, and the possibility of patent pools for biotech, much as can be seen in the electronics world. There is some comfort to be taken from the evolution of the approach of both the US Patent Office (USPTO) and the European Patent Office (EPO) over the last decade, which has made it far harder to obtain excessively broad patents. This is particularly so for gene sequence patents, for which both patent offices require far more stringent evidence of utility than in the past.

Indeed, although one might imagine that harsher patent requirements would be disliked by an industry as dependent on IP as biotechnology, in fact this is not the case. 71 per cent of respondents agree or agree strongly that the USPTO has made it more difficult to obtain biotech patents, and that this is good for drug innovation and the reputation of the industry. The biotech industry does not suffer from the problems of patent trolls or of allegedly obvious patents found to a far greater extent in some other sectors such as telecoms and software. This is evidence of the maturity of the industry, which recognises that a poor patent system creates far more losers than winners, even though it may make it more difficult to obtain broad patent protection for innovations.

Counter-balancing this, there are two potential modifications to the patent system which are generally acknowledged to be desirable for future drug development. First, ‘evergreening’ is considered by 81 per cent of respondents as a good way of encouraging and rewarding drug development. Second, 88 per cent of respondents believe that continued drug development can be encouraged and rewarded

by speeding up the granting of biotech patents.

This latter consideration is being addressed to some extent by the various patent prosecution highway agreements – that is, agreements to take account of prosecution in one patent office when obtaining patents in other countries – which now include the USPTO, the EPO, and the Japanese Patent Office, among others.

4. From marketing approval to margin pressureIt is a commonly-held position that the long lead time for development and approval of biotech drugs, and indeed the unique difficulties in obtaining approval of such drugs, serve to deter investment.

A series of questions in the survey investigate the industry’s attitude toward the approval process, and find that the necessary protection to encourage development is being eroded at the front, middle and back end of the drug development process.

As broad early-stage patent protection and marketing approval become difficult to obtain, the reward for innovators – the patent lifetime – is itself under threat. 91 per cent believe that the time it takes for drugs to ‘get through the system’ is starting to eat into the patent lifespan. Obtaining follow-on patents, while desirable from the industry perspective, may be more difficult if the innovation threshold for patenting is set too high. Ultimately, if companies do not see a less risk-averse attitude to approval from the regulatory authorities, investment may be made in areas that are easier to gain approval at the expense of genuine innovation. 78 per cent of respondents state this could be the case.

Erosion of patent lifespan is a clear problem for the industry; this is partly alleviated by various national patent term extensions available, although

88%of respondents consider speeding up the granting of biotech patents to be a good way of encouraging drug development


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we will see more ‘me too’ drugs come to market (not least antagonised by some of the problems simultaneously being experienced during the marketing approval process, as highlighted earlier). However, any threat to longer-term investment does not yet appear to be felt as a result of generic competition. Only 58 per cent believe the emergence of strong competition would further erode the investment base, with 54 per cent believing that this, in turn, will reduce the incentive for new drug development. Meanwhile, the survey simultaneously recognises that there is a benefit to be enjoyed by the consumer from increased competition. 74 per cent deem that the emergence and approval of more follow-on biologics will have a positive price impact, improving drug affordability for the consumer.

Our survey respondents also show greater concerns over the enforceability of patents against biosimilar competitors, with 76 per cent believing it is more difficult to enforce patents than in the past. Interestingly, however, when asked whether upholding validity of patents was a problem (rather than enforcing the patents against others), 58 per cent agree that the current system worked well. This ties in with the view that a higher barrier to obtaining patents in the USPTO at least is a good thing for the industry. Given that one’s view on the desirability of changes in any of these aspects is likely to depend on which side of the litigation one finds oneself, this most likely indicates that the current legal system is working well.

Another aspect of the threat to the industry from biosimilars is the spectre of compulsory licensing. Over three quarters of respondents consider that compulsory licensing would be harmful to the industry, although a lower number (58 per cent) believe there is a risk that compulsory

these are generally for a maximum of 5 years. Modification of these extensions is used to some extent as a tool for directing R&D – for example, the EU now provides an additional 6 months of extension where paediatric studies are undertaken. Further amendment may provide alternative forces to promote desired R&D, while recognising the unique problems faced by the biotech industry over the conventional pharmaceuticals industry. 73 per cent agree that prolonging the patent term, or strengthening patents, would be a practical means of encouraging more R&D investment, and offsetting the pressures facing the industry.

The problems caused by lack of marketing approval are, however, partly a reflection of the maturing field – 87 per cent of respondents believe that `the ‘low hanging fruit’ has been taken, and that there is a need for incentives to encourage R&D as drug discovery matures.

5. Biosimilars and generic competitionThe threat of generic competition is well-recognised by traditional pharmaceuticals (this despite the growing trend for big pharma to have generics arms). The biotech industry, by contrast, is not overly worried about biosimilars, or follow-on biologics, at this point in its development: only 56 per cent see this as a significant or highly significant threat. Again this partly reflects the relative youth of the industry, and partly the difficulty in demonstrating that a true ‘generic’ biologic exists.

Although key issues at this stage of industry development are funding and marketing approval, the emergence of competition from biosimilars emerges as a longer-term concern. This is clear in the 89 per cent of respondents who believe that

licensing could become widespread. The perceived risk may well be

receding as concerns over access to drugs in least developed countries are being addressed by industry and government initiatives.

6. Emerging marketsAs with many industries, growth in China and India are seen as key drivers for the future development of biotechnology. However, there has been long-standing concern over the issue of IP in these jurisdictions, which is borne out in the findings of the Marks & Clerk survey.

85 per cent of respondents believe that weak IP protection in these essential future markets would pose a significant threat to the industry. Moreover, the existence of differential IP protection gives rise to the possibility of price differentials and hence to parallel trading. This is considered to represent a serious threat to maintaining the prices of biotechnology drugs by 79 per cent of respondents, while 91 per cent feel that continued growth of global trade and new markets will only exacerbate this problem. Potentially, this could result in a reduction in availability of drugs in some areas, should parallel trade and price reduction impact profits in key, high-margin markets (73 per cent agree).

Whilst this is a concerning prospect and perhaps antagonised by the various threats the industry is currently facing to its margins, the longer-term view may be less damaging. There is evidence that China and India are taking their responsibility for IP enforcement more seriously, so reducing this threat in the long term.

Parallel trade is an issue, and will continue to be so for as long as price differentials exist. However, the EU approach – that of permitting parallel trade only within the EU and not from

91%of respondents believe that the time it takes for drugs to ‘get through the system’ is eating into the patent lifespan


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investment is desirable. Evergreening patents are one solution to this, as is further review of the patent term extension provisions.

Compulsory licensing, although a hot topic, and often threatened by governments, does not appear to be as much of a concern to the industry as other issues.

The rise of China and India as new markets presents both threats and opportunities. Weak IP protection in the world’s biggest markets is a threat to future biotech profits, and hence investment and innovation. Parallel trading and its potential growth in the face of increased global trade results potentially in the restriction of drugs in key regions.

How likely are these threats to materialise in future? The IP position in China is at least showing signs that some of the issues are being addressed, with the local market becoming more patent friendly, and offering clear avenues for enforcement against infringers. India perhaps has shown less progress toward international norms, but may improve in the future.

Ultimately, the question to be asked is what can be done to boost R&D? Providing a more secure climate for investors is imperative, which can be addressed in part through modification of the regulatory and IP systems. It is heartening that a higher bar to patentability is not seen as wholly problematic for the industry, as this could also address some of the woes of the USPTO, while the balance between enforcement and validity also appears to be about right. The key issue seems to be delays in the regulatory approval process which eat into patent lifespan.

It is encouraging, particularly for an IP firm such as Marks & Clerk, that suitable changes in the IP framework are seen by the industry as helpful in stimulating investment and R&D

outside – perhaps offers a partial solution, that of trading blocs with similar pricing levels. Ultimately, this must be addressed if affordable drugs are to be made available in the least developed countries without the risk of diversion of these drugs to more profitable markets.

7. The futureThe survey paints a mixed picture of the seriousness of the challenges facing the industry. The realities of the funding crisis are clearly apparent, with the industry concerned that funding is simply not available, or will come with too many strings attached, leading to a reduction in R&D and increased development of follow-on biologics. Likewise, problems with patent term and ever higher regulatory hurdles will discourage new developments.

However, remedies to these issues are suggested by appropriate modification to the regulatory and IP systems. The challenges of emerging competition need to be taken into account. Better recognition of secondary patents, and speeding up the patent approval process to reward the innovator and strike the right balance would be useful. Recognition of the unique problems faced by biotechnology approval, and modification of the regulatory process, and additional patent term extension, would also help address these issues.

Although ‘evergreening’ of patents – cumulative patent protection for modifications to a basic invention – may have a bad reputation in some circles, it is clearly desirable to protect innovation in drug development. Given the long research time and investment necessary to bring a drug from the lab to the clinic, and the numerous modifications to the formulation, preparation, dosage, and administration which may be necessary, protection of this

and, more importantly, in ensuring that new biotech drugs continue to be developed and to reach those patients in need of the benefits of the biotechnology industry.

85%of respondents believe that weak IP protection in emerging markets would pose a significant threat to the industry

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Agree strongly – 26.7%

Agree – 65.1%

Disagree – 8.2%

Disagree strongly – 0.0%


Agree – 60.5%

Disagree – 17.5%


Highly significant Significant Not that significant Insignificant

1. To what extent do you agree that the environment for the biotech sector has become much more challenging over the last year?

3. How significant a threat do you believe the following issues are to the sector?

2. To what extent do you agree these challenges are encouraging risk aversion from investors?

Reduced investor appetite and funding pressures

An increasingly stringent regulatory climate

The growing challenge of generic competition

Lack of appetite for R&D from big pharma

Growing discontent with pricing / margin squeeze

Biotechnology survey resultsThe full findings of the Marks & Clerk online survey are set out in the following pages. The survey of 484 respondents from around the world (see charts 19 and 20 for breakdown of type of organisation and geography) was carried out in April-May 2008.

29.5%

29.1%

15.7%

13.8%

14.4%

16.4%

19.5%

39.8%

40.3%

30.1%

0.2%

0.9%

4.2%

8.3%

1.5%

53.9%

50.5%

40.3%

37.6%

54.0%

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Agree strongly Agree Disagree Disagree strongly

4. To what extent do you agree or disagree with the following statements?

5. How harmful do you think compulsory licensing would be to the biotech industry?

Very harmful – 24.5%

Harmful – 54.1%

Not harmful – 19.6%

Have no impact – 1.8%

18.4%

18.1%

38.6%

26.6%

34.6%

2 9.3%

26.7%

52.3%

20.3%

12.4%

2.3%

1.2%

0.2%

2.1%

0.9%

50.0%

54.0%

8.8%

51.0%

52.1%

It is important that the drug approval process becomes less risk-averse if investment in biotechnology is to be maintained

If the FDA’s stance is not relaxed, future drug pipelines will become much harder to deliver

The time it now takes for drugs to get through the system is starting to eat into the time drugs enjoy patent protection

Companies may start to bring more “me too” drugs to market,rather than invest in genuine innovation, if the threshold for drug approval is set too high

The falling number of drug approvals in part reflects the fact that “easy kills” have been made in biotech drug discovery. Incentives should now be provided to encourage greater R&D investment

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6. How great a risk do you think there is that compulsory licensing could become widespread?

High level of risk – 6.8%

Significant risk – 50.8%

Very little risk – 41.9%

No risk – 0.5%

Yes – 52.5%

No – 47.5%

7. Do you believe a Democrat victory in the US presidential elections will exert further pressure on price margins for biotech companies?

8. By the middle of this century, China and India are predicted to become the world’s largest, and third largest, economies. However, concern has been voiced over the perceived weakness in intellectual property protection in emerging economies. How significant a problem do you think weak IP protection in the world’s biggest markets (China and India) would pose to the protection of future biotech profits?

Highly significant – 41.6%

Significant – 43.4%

Not that significant – 14.2%

Insignificant – 0.8%

9. Biotech companies may find countries exert considerable pricing pressure by taking advantage of the “parallel trading” or price arbitrage of drugs (taking advantage of different drug prices within regions, such as Europe). How serious a threat of price reduction do you think is posed by parallel trading?

Very serious threat – 13.0%

Significant threat – 65.5%

Very little threat – 21.2%

No threat – 0.3%

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The enforceability of patents against generic competitors is proving much harder than in the past

The “bar” has become much higher in the US in terms of granting patent protection. This is good for drug innovation and the reputation of the industry

Recognising secondary patents (that help shore up new patent protection for later modifications to a drug), is a good way of encouraging and rewarding drug development

Speeding up the granting of biotech patents is required to both encourage and reward continued drug development

13.4% 23.5% 0.3%62.8%

11.9% 28.0% 1.4%58.8%

14.8% 15.1% 0.8%69.3%

33.1% 11.8% 0.6%54.5%

Agree strongly Agree Disagree Disagree strongly

11. How likely is it that biotech companies will reduce the availability of drugs in some areas, if parallel trading begins to threaten profits in key, high-margin markets?

Very likely – 19.3%

Likely – 53.6%

Unlikely – 26.0%

Not at all likely – 1.0%

10. How likely is it that this threat will increase as global trade continues to grow?

Very likely – 29.9%

Likely – 61.2%

Unlikely – 8.9%

Not at all likely – 0.0%

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13. How do you think the promotion and approval of some follow-on biologics (copycats) will affect the biotech sector?

Encourage more “me too” drugs

Reduce the appetite of investors to fund new development

Reduce the incentive for new drug development

Improve drug affordability

28.9% 10.6% 0.3%60.3%

11.7% 40.6% 1.7%46.1%

13.3% 40.6% 5.0%41.1%

24.3% 24.0% 2.0%49.7%

Very likely Likely Not that likely Unlikely

More rigorous system needed – 41.9%

System of enforcement works well – 58.1%

14. Do you believe prolonging/strengthening the patent term is a practical means of now encouraging more R&D investment, and offsetting the pressures facing the industry?

15. Do you believe the balance is being struck in the courtroom when it comes to upholding the validity of biotech patents? Would you wish to see a more rigorous process of upholding the validity of patents through the courts of your country, or does the system of enforcement work well?

Yes – 72.9%

No – 27.1%

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Agree Strongly Agree Disagree Disagree Strongly

The current pressures facing the biotech sector are making it less attractive at present in the eyes of many investors

Biotech companies will find it harder to raise secondary and subsequent funding as market conditions deteriorate

As risk aversion increases, less risky/latter-stage drug development will be seen as more attractive by investors

Investors are increasingly assessing the strength of intellectual property (IP) portfolios, in a bid to reduce their exposure to risk

The expansion of biotech patenting means that it is becoming increasingly uncertain for companies to guarantee new drug development will not be blocked by third party IP. This uncertainty is adversely affecting investment

Investors and biotech companies alike recognise that much of the future potential of the sector comes from emerging markets

Wealth from new economies (such as sovereign wealth funds) will become an important source of long-term funding

The terms for funding will become more unfavourable, with key investors requiring a greater equity stake and/or securing their investments against intellectual property rights

Biotech companies may focus more on drug modifications and latter-stage development to boost margins and attract investment

21.1% 17.0% 0.0%61.9%

27.5% 10.4% 0.0%62.1%

28.6% 9.8% 0.3%61.3%

25.2% 11.7% 0.6%62.5%

11.3% 28.4% 0.6%59.7%

16.5% 26.1% 1.5%55.9%

14.6% 24.8% 0.3%60.4%

12.7% 19.8% 0.0%67.6%

16.4% 16.1% 1.2%66.4%

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Agree – 53.1%

Disagree – 10.7%


Biotechnology company (commercial) – 51.8%

Biotechnology organisation (academic/public sector) – 12.9%

Broader life sciences / pharmaceutical organisation – 31.8%

Venture capital with biotech interest – 3.6%



Disagree – 19.8%


USA – 44.1%

UK – 34.1%

Europe (ex UK) – 19.6%

Asia – 2.1%

17. To what extent do you agree the current funding problems could see small/early stage companies fail, or be bought out at unattractive levels?

19. What type of organisation are you from?

18. In view of all the challenges outlined in this survey, would you agree that the climate for enabling biotechnology innovation has deteriorated within the last year?

20. Which geography are you from?


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1. IntroductionPart II of our 2008 report concentrates on developments in the last 12 months as well as future issues that are of fundamental importance to the biotech industry as regards patenting policy. Our predominant focus is on the European Patent Office (EPO) and the UK although we also highlight the important issues facing other countries in Europe as well as North America and Asia. We have only included countries where there have been significant developments over the last year.

This section provides an overview of the major issues on a legislative basis for key strategic territories, in addition to looking at major decisions from the courts and patent offices concerning patent prosecution and practice more generally.

As will be seen, there have been a number of important biotech related court decisions over the last year with many more expected in the coming months. These decisions, together with the various legislative changes in this sector show an increasing awareness on the part of the courts and policy makers of the key issues affecting the industry and will, we believe, impact positively on patent filing and enforcement strategies for biotech companies for the foreseeable future.

2. Europe

European Patent OfficeExclusions from patentability under the European Patent Convention (EPC) continue to be a topic of high interest for the biotech community. With many recent referrals to the EPO Enlarged Board of Appeal (EBA), opinions on areas of biotechnology steeped in ethical issues and controversy are expected very soon. Here, we highlight the most interesting referrals.

Part II: Focus on intellectual property law and policy – key developments around the world

Human embryonic stem cellsOne area of particular interest is whether human embryonic stem cells should be patentable. This issue is now in the spotlight following the referral of the Wisconsin Alumni Research Foundation (WARF) stem cell application to the EBA who, having taken written submissions from various interested third parties, will hear WARF’s own arguments at an oral hearing at the end of June 2008. The summons issued to WARF to attend the hearing provides a useful overview of the key issues which the EBA will consider. One of these issues is the correct interpretation of the EPC rule prohibiting the grant of European patents in respect of “biotechnological inventions which, in particular, concern… uses of human embryos for industrial or commercial purposes”.

There are currently three different interpretations of this rule: (1) the rule merely forbids a claim which refers to use of human embryos without any need to consider what the claim is directed to, or what the description says (the restrictive view); (2) since a patent gives the right to forbid others to make or use the subject matter claimed for industrial or commercial purposes, the way in which the patent describes how to make or use the claimed subject matter needs to be considered when applying the exception to patentability, irrespective of the precise wording of the claims (the intermediate view); and (3) the rule is not limiting (the extensive view).

The decision of the EBA is eagerly awaited by the stem cell industry. If human embryonic stem cells are not deemed patentable by the EPO, this could create funding concerns and make Europe a less attractive location for stem cell R&D.


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Plant and animal breeding techniquesThe EPO has also recently considered the patentability of plant breeding techniques. The issue here is the EPC prohibition against the grant of European patents for ‘essentially biological processes for the production of plants and animals’. A process for the production of plants or animals is ‘essentially biological’ if it ‘consists entirely of natural phenomena such as crossing and selection’. The main issue for the EBA is therefore how to resolve the intrinsic ambiguity in this rule between the terms ‘essentially biological’ and ‘consists entirely’ in the light of the latest developments in plant breeding.

On this point, the EPO President recently urged the EBA to take “an evolutionary approach, in conjunction with a dynamic and harmonised interpretation… in order to escape the process exclusion an additional feature of a technical (i.e. non-biological) nature should have a technical effect, provided by human intervention, on the process as such or on the product obtained therefrom”.

One important case in this field is the referral to the EBA of the so- called ‘Broccoli Patent’ application. In this case, the EBA must decide on the patentability of a plant breeding technique that relies on marker-assisted selection, which is a controllable approach to plant modification but one that should avoid the adverse public perception of GM-marking.

Further questions on the biological process prohibition and its application to plant breeding have been referred to the EBA in a separate case concerning a new tomato breeding technique. The plant breeding of concern did not rely on marker-assisted selection but did depend on human involvement on two levels, first, to ensure crossing of two species of tomato plant to produce hybrid seed and, secondly, in timing of

harvesting of fruit produced from hybrid seed and screening to obtain fruit with reduced water content. The broadest question for the EBA in the context of that case is whether the prohibition applies to exclude patentability if the claimed method reflects phenomena that could occur in nature.

The decision of the EBA on the Broccoli Patent will also be of significance to the patentability of marker-assisted selection in animal breeding which is also attracting controversy. Notably, at the end of 2007 Greenpeace filed opposition against a patent relating to such assisted breeding to boost milk production in cows, which may in time lead to further guidance from the EBA on this controversial area.

Second medical useThe multi-party opposition to Genentech and Biogen’s anti-CD20 European patent has focussed interest on whether a patentable medical use can arise based on what might be termed ‘prophetic exemplification’. The question here is whether current EPO Appeal Board case law can be used to successfully attack claims covering a new medical use of a known therapeutic. A first answer to this question is expected from the EPO in September 2008.

What is required for a patentable second medical use is also back under scrutiny from a different perspective; can patentability reside merely in a dosage regime rather than a new purpose? The Biotech Appeal Board recently held that, in the context of second medical use, patentability may indeed lie in a dosage regime. In so doing, they heavily criticised previous EPO Appeal Board decisions which held the contrary. With the coming into force of EPC 2000, second medical use inventions are now provided with a firm legal basis for claiming in

product for use format, while methods of treatment per se continue to be excluded from patentability. Patentability of dosage regimes is also the subject of a separate referral to the EBA in Kos Life Sciences, a matter in which Marks & Clerk represents the patent applicant.

Aside from the EPO’s own difficulty in reaching a consensus on this topic, there also remains the uncertainty of how national courts will regard dosage regime claims issued by the EPO. In the UK, the leading Appeal Court decision on patentability of dosage regimes was until recently the BMS Taxol decision from 2000. That decision closely followed the approach previously favoured by the EPO Appeal Board in holding that a patentable second medical use must be based on a new therapeutic purpose. However, the UK Court of Appeal’s decision in May 2008 in Actavis v Merck suggests that dosage regime claims will now be looked on favourably by the UK courts, subject to any change in position from the EPO. The opinion expected from the EBA on this hot topic may ignite new problems nationally, particularly in the UK where litigating second medical use claims has been seriously restricted as a result of certain long standing national authorities.

Echoing views made in Part I of this report, allowing dosage regime claims would provide new ‘evergreening’ possibilities for the biotechnology and pharmaceutical industries to explore.

From our review, it is clear that there are a number of issues of direct applicability to the biotech industry that are currently the topic of great debate in the EPO and the determination of these issues will be crucial to filing strategies for biotech companies in the future, particularly given the procedural changes implemented by EPC 2000.


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dosage regimes were not patentable, a decision now clearly at odds with recent EPO case law.

The case involved a validity challenge by Actavis against Merck’s patent for ‘the use of (finasteride) for the preparation of a medicament for oral administration useful for the treatment of androgenic alopecia (baldness) in a person and wherein the dosage amount is about 0.05 to 1.0 mg’ (so-called ‘Swiss form’ claim 1). The trial judge found the claim to be invalid relying on the point of law decided in BMS Taxol, but the Court of Appeal disagreed and reversed his findings.

Following a detailed review of EPO decisions on the point, the Court of Appeal held that Swiss form claims are allowable where the novelty is conferred by a new dosage regime or other method of administration of a known substance. In the course of its reasoning, the Court did emphasise the important policy reasons in favour of granting patent protection for new, inventive dosage regimes, namely, to encourage research into new and better dosage regimes. But the Court added that although allowable, such claims will not automatically give rise to a valid claim – nearly always, said the Court, such claims will be obvious given the standard practice to investigate appropriate dosage regimes for any new medicinal compound. Luckily for Merck, this was not the case here.

Following the Court’s reasoning, Merck’s claim was held to be valid, being both a new and inventive dosage regimen, and not subject to the general exclusion from patentability for methods of treatment.

Shortly before the Court was due to hand down judgment, Actavis learned of the recent referral to the EBA in the Kos Life Sciences matter. The questions referred concern the same general issue of patentability of dosage regimes and in particular

time and there is an absolute ban on implantation into an animal or human womb.

Scientific research should always be free to progress without being fettered, especially by those who may not fully understand the proper scientific context. However, it is also important that ethically contentious areas of scientific research should be properly supervised. The UK is already at both the scientific and regulatory forefront in this highly complex and emotive area. In the HFEA, the UK has a sophisticated, impartial and internationally respected organisation with experience of the difficult job of balancing scientific and social factors. It is encouraging too that the government is attempting to update the legislative framework so as not to inhibit the advance of scientific research.

What is clearly needed is a better public understanding, including an understanding by political and religious leaders and by the media, of the real issues so that headline-grabbing soundbites do not obscure or replace the important underlying debate on the issues.

As discussed, the EPO has still to decide on the patentability of human embryonic stem cells, but the UK Intellectual Property Office (UK IPO) has allowed claims to human pluripotent stem cells for a number of years. This perhaps shows the UK’s recognition that ethical considerations are best addressed by legislation outside the patent system.

Dosage regime claims now allowable and enforceable in the UKMarking a clear U-turn in approach, the UK Court of Appeal held in May 2008 that Swiss form dosage regime claims will no longer automatically be held invalid. Until now, the UK courts were bound to follow an earlier Court of Appeal decision given in 2000 (BMS Taxol) which held that new

United Kingdom Human Tissue and Embryos BillThe UK Parliament is currently debating the draft Human Tissue and Embryos Bill. It aims to update the Human Fertilisation and Embryology Act 1990 which, amongst other things, laid down legal limits on the use of embryos and ensured that all IVF treatment and research involving embryos was properly licensed by a body independent of both government and scientists: the Human Fertilisation and Embryo Authority (HFEA).

The introduction of the Bill follows a consultation process which included scientists and the UK public at large. Its purpose is to revise and update legislation for assisted reproduction and make changes to the regulation and licensing of the use of embryos in research and therapy.

King’s College and Newcastle University have recently applied to the HFEA for licences to pursue research using ‘enucleated animal ova’, animal eggs that have had their nuclear genetic material removed. Such research is contemplated by the Bill. However, the passage of the Bill through parliament has attracted much attention with some opponents referring to ‘Frankenstein research’. In order to clarify their use of language, previous government references to ‘hybrid’ and ‘chimera’ embryos are being avoided and the more precise term of ‘cytoplasmic hybrid embryo’ has been adopted. Cytoplasmic hybrid embryos are created through the transfer of genetic material from one cell, such as a human skin cell, into an egg from which the main source of genetic material has been previously removed. Cells from people with genetic disorders might be used to study the progressive development of genetic diseases. However, the cell culture can be kept for a very limited


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whether Swiss form claims to a new dosage regime for use of a known medicament in the treatment of an illness for which it is already known to use that medicament are patentable under the EPC. Actavis relied on this referral in arguing that the Court’s decision should be given on an interim basis only as the EPO position on patentability of dosage regimes was not settled, but this was rejected by the Court who said that it was unlikely that the EBA would rule that the EPO’s earlier decisions on dosage regimes were wrong. However, the Court did agree to extend permission to appeal their decision to the House of Lords until 28 days after the EBA gives its decision in Kos Life Sciences. That decision is not expected until at least early next year.

Patentees will welcome the decision which provides long needed clarification on the UK position on dosage regimes and helps set a common European approach to the issue.

Patent inventorship and entitlement clarified The law on inventorship and entitlement has been clarified in the UK following the House of Lords decision in Yeda v. Rhone-Poulenc Rorer (2007). The substantive law concerning who is entitled to the grant of a patent is found in section 7 of the UK Patents Act 1977. Under this provision a patent for an invention may be granted to the inventor or joint inventors. However, where there is some other rule of law (such as the employer’s right to his employee’s invention), or an agreement to the contrary, the invention may be granted to the person whose rights take precedence under the rule of law or under the agreement. Put simply, under section 7 as drafted, in order to make good a claim to a patent or application that is otherwise registered

in another’s name, the applicant needs to show that he is the inventor or co-inventor and that he contributed to the inventive concept that underlies the claimed invention.

Confusion in the law on entitlement arose following an earlier Court of Appeal decision (Markem v. Zipher 2005) which introduced an additional principle. It held that where a person applies to have a patent transferred from a third party, as well as demonstrating that the applicant was the inventor (or joint inventor) of the patent, he must also demonstrate that he is entitled to the patent by virtue of some other rule of law such as a breach of confidence or breach of contract.

In the Yeda case, the applicants had applied to the UK IPO to determine the issue of their entitlement to an invention which was the combination of a monoclonal antibody and a neoplastic agent for the treatment of cancer. They had disclosed the concept to Rorer in confidence and Rorer had filed the patent to which Yeda believed they were entitled. When the applicants brought their case, the Markem decision had not been given, so they cited only their status as inventors. They did not raise the issue of the breach of confidence. Following the decision in Markem, it became clear that Yeda needed to amend their case. Unfortunately, the limitation period for amending their claim and introducing a new cause of action had passed. The issues were referred to the House of Lords.

In clarifying the position, the House of Lords set out the correct approach for determining issues of inventorship and entitlement:

(1) identify the inventive concept in question;

(2) identify who came up with the inventive concept;

(3) identify whether someone other than the actual inventor is entitled to the invention through some rule of law or agreement.

Section 7 of the Patents Act sets out the provisions that need to be satisfied by the applicant for a successful claim to entitlement. This concerns who is the actual inventor. It is not a requirement that the inventor demonstrate some other rule of law is engaged or contravened when he brings his claim.

The House of Lords decision has simplified the issues to be considered in relation to questions of entitlement and inventorship. This will provide greater certainty to all interested parties in the future, particularly in cases of collaborative research which is the mainstay of R&D in the biotech sector.

Court of Appeal guidance on stay of parallel UK and EPO proceedings In January 2008 the Court of Appeal provided guidance on the circumstances in which the Patents Court may exercise its discretion to stay patent revocation proceedings pending the final outcome of parallel opposition proceedings in the EPO in respect of the same patent. Such duplication of proceedings is inherent in the European patent system, a key factor underlying the court’s guidance, and it is therefore common for the validity of a European patent and its national designation to be challenged at the same time in different fora. The case involved Glaxo and Genentech.

Genentech were the owners of a second medical use European patent for ‘use of an anti-CD 20 antibody in the manufacture of a medicament for the treatment of rheumatoid arthritis in a mammal’ (claim 1 of the patent). Glaxo were developing their own monoclonal anti-CD 20 antibody and wished to clear Genentech’s patent out of the way to allow clinical trials


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protection which starts from when the date marketing authorisation was first given in respect of the active ingredient, in whatever form (Pfizer v Sandoz, 3 April 2007).

In this case, the first SPC was granted for pills comprising the active ingredient and the process to obtain such active ingredient, while the second SPC protected an injectable solution and the drugs comprising the active ingredient. The additional period of protection conferred on the patentee was set by the first SPC. This decision underpins the approach to SPCs in the EU, namely that an SPC will only be granted in relation to the first marketing approval given for the active ingredient.

Biotech cases begin to reach the French courtsIn one of the first patent infringement cases in France in the field of molecular biology, the Paris District Court dealt with an allegation of patent infringement relating to a claimed method for in vitro detection of viral infection caused by the LAV virus. The Court took a narrow approach to claim construction for the purposes of infringement when, in the context of this case, a broader construction would entail the invalidity of the claim (Institut Pasteur v Chiron, 7 February 2007). Whether or not such a narrow approach is adopted by other French courts remains to be seen.

Germany Further support for second medical use claims The German Patent Act (PatG) was amended in December 2007 to provide purpose-limited product protection for the second medical use of substances already used in medicine. Prior to this amendment only the use of the substance for the treatment of a particular disease could

The guidance offered by the Court suggests that in future a stay of parallel UK revocation proceedings will, as a general rule, be refused. Again, in the biotech field where it is common to have litigation pending at the same time as an EPO opposition, the clear approach now is that those proceedings will generally be allowed to proceed. It will be interesting to see if more revocation actions are now filed through the UK courts even when there may be a parallel EPO opposition.

France EU ‘Bolar’ provisions implemented in FranceIn February 2007, French patent laws governing the experimental use exemption were brought into line with other EU states following the implementation of EC Directive 2004/27. The Directive introduced a simplified marketing approval procedure for generic medicinal products and, more importantly from the patent law side, introduced an exemption from patent infringement for parties complying with that procedure. The exemption as implemented in France is extremely broad, in line with existing French case law on the subject, and would appear to cover all studies and trials necessary for applying for marketing authorisation.

France, along with Germany, now appears to provide a relative safehaven for those wishing to conduct clinical trials in the EU.

SPC period of protectionThe French Supreme Court has confirmed that where two Supplementary Protection Certificates (SPCs) have been granted in relation to the same active ingredient, but for use in different forms and at two different dates, the second SPC could not extend the time limit of the

to proceed. As part of that strategy, Glaxo issued opposition proceedings against the patent in the EPO and, a few months later, issued revocation proceedings against the UK designation of the patent in the Patents Court. Genentech sought a stay of the UK proceedings pending a final decision in the EPO proceedings, but were unsuccessful.

In setting its general guidance on the issue of stays, the Court of Appeal held that the most significant factor is the likely length of the requested stay of proceedings. If there is evidence that some commercial certainty would be achieved at a considerably earlier date in the case of the UK proceedings than in the EPO, then that would be a justifiable reason to refuse a stay provided there is no unfair prejudice to the legitimate interests of the other party. In short, commercial considerations, and in particular the need for commercial certainty, should be given priority. In the words of the Court of Appeal ‘some certainty, sooner rather than later, and somewhere, such as in the UK, rather than nowhere, is in general preferable to continuing uncertainty everywhere’. As EPO opposition proceedings can take a notoriously long time (commonly well over four years), a stay of parallel UK revocation proceedings is unlikely to be granted where the revoking party can show a genuine commercial interest in early resolution of validity.

The Court also outlined various other factors, such as duplication of costs, to be considered when exercising the discretion to grant a stay, though these will generally be treated as subordinate to the benefit of having commercial certainty somewhere sooner. This is to be contrasted with commercial cases where such factors play a more important role making the presumption in favour of a stay harder to overcome.


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be claimed. The amendment brings German patent law into line with the revised EPC provisions on this issue, namely article 54(5) EPC and should avoid the need to file second medical use claims in the Swiss form.

Nevertheless, the actual interpretation of these new style of claims in relation to infringing activities has yet to be decided by the German or indeed other national EP courts and so for the time being at least and as discussed in our previously published EPC2000 briefing note, we consider that it is prudent to provide both styles of claim in any relevant patent application.

Patentability of embryonic stem cells and dosing regimes in GermanyOn 5 December 2006 the Federal Patent Court (Bundespatentgericht) decided to maintain in amended form a patent containing claims directed to neural precursor cells derived from embryonic stem cells with the limitation that cells are excluded which are derived from embryonic stem cells prepared from human embryos. Cells derived from human embryonic stem cells prepared from other sources such as human oocytes or human embryonic germ cells were, however, found to be patentable.

The Patentee has filed an appeal against the decision with the German Supreme Court (Bundesgerichtshof), which is still pending. Given the interest and ethical issues concerned with such patent claims over embryonic stem cells, the Supreme Court judgment is eagerly awaited.

In the case of Carvedilol II, the German Supreme Court held that a dosage regime, as a feature of a second medical use claim, could not by itself confer novelty or inventive step. The Court held that the mode of administration, as such, of a medicament intended for the treatment of a disease – a dosage regime – is a method of treatment

of a human being. However, the Court did not decide whether the inclusion of a dosage regime feature in a claim renders the claim as such unpatentable.

The Court went on to consider a differently worded second medical use claim that incorporated a dosage regime (claim 1 of the second auxiliary request). That claim was also a second medical use claim but one that linked the dosage regime to the method of manufacture of the claimed medicament – ‘…with said medicament being formulated for administration purposes at an initial dose containing…’. In other words, the feature now defines the manufacture of the medicament but not the actual dosage regime in which it is administered. The Court held that such a claim was patentable.

The Carvedilol II case was followed by the UK courts and is hopefully a sign of a newly consistent approach to Swiss form dosage regime claims in Europe which will provide greater certainty for patent applicants in this field.

Netherlands Claims to DNA sequences – questions referred to the European Court of JusticeIn a dispute between Monsanto and Cefetra over ‘Roundup Ready’ (RR) soy beans, a Dutch court referred certain questions to the European Court of Justice (ECJ) in March 2008 on the scope of protection afforded to patent claims to a DNA sequence.

Monsanto is the proprietor of a patent covering a DNA sequence, plants comprising the sequence and methods for producing the plants. The DNA sequence offers tolerance to the glyphosate herbicide, ‘Roundup’. Monsanto developed a ‘Roundup Ready’ soy bean containing the patented DNA sequence. The defendants are soy meal traders who

imported soy meal from Argentina, allegedly produced from RR soy beans which contain the claimed DNA sequence.

The District Court of The Hague considered whether the mere presence of a patented DNA sequence in soy meal constitutes infringement even though it does not fulfil its function at the time of infringement but has performed its function or could again perform its function.

The case concerned the interpretation of Article 53a(3) Dutch Patent Act corresponding to Article 9 Directive 98/44/EC on biotechnological inventions. The Directive provides that the protection conferred by a patent on a product containing or consisting of genetic information shall extend to all material in which the product is incorporated and in which the genetic information is contained and ‘performs its function’. How this provision is to be interpreted is unclear. In particular, whether this provision also protects material where the function of the genetic information is not or no longer ‘performed‘ at the time of the alleged infringement.

The District Court accepted that the DNA sequence claimed in Monsanto’s patent was present in the imported soy meal, but did not follow Monsanto in its opinion that the soy meal also infringed the claims covering isolated DNA sequences and methods for obtaining the DNA sequence. On this issue, the District Court considered that the relevant provisions were unclear and sought guidance on their interpretation from the ECJ and has referred a number of questions to the ECJ on the following issues:

1. Whether Article 9 of the Directive should be interpreted as providing patent protection where the product (the DNA) is incorporated into a substance and does not


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3. North America

United StatesThere are two legislative/administrative matters that are likely to be of significant importance to the biotech industry in the US.

US Patent Reform ActThe first matter relates to the continuing debate of the US Patent Reform Act. The second relates to the introduction of a Bill to clear the way for biosimilar drugs to come on to the market in the US as quickly as possible.

As regards the Patent Reform Act, this important piece of legislation was first proposed in 2005 following the recommendations set out in reports published by the Federal Trade Commission and National Academy of Sciences. The current Bill (which substantially reproduces the 2005 version) was introduced in the House of Representatives and the Senate in 2007.

The key amendments to the US patent system proposed by the Act are the conversion of the current first-to-invent to a first-to-file system, the introduction of a post grant review procedure, the re-consideration of the approach to damages to take into account the contribution that the patent has made over the prior art and a reconsideration of the principles

research does not fall under the research privilege. However in certain cases, Article 40b does provide for an entitlement to a non-exclusive licence to the user.

Another new provision clarifies the situation with regard to so-called Bolar exemptions. This is intended to allow the production of an amount of product necessary for the marketing authorisation procedure. Thus, it will not be permissible to stockpile product and flood the market as soon as the patent expires.

The experimental use provisions and the Bolar-like exemptions will come into force on 1 July 2008.

Finally, in December 2007, the Swiss Federal Council also submitted to Parliament a number of further proposals for amending Federal Patent Law. One of the most interesting issues is the question of exhaustion of patent rights. Presently the law is silent. The government takes the view that Switzerland should continue to follow the principle of national exhaustion, as ruled by the Federal Court in the Kodak case in 1999. This view is shared by pharma and other technology and IP-focused industries, but is strongly rejected by consumer organisations. Lively discussion in the Swiss Parliament is anticipated and the final decision may fall due in a few years’ time by a referendum.

perform its function at the time of the alleged infringement, but which has performed its function or could perform its function again after it is isolated from that substance and brought into the cell of an organism.

2. Whether the Directive sets the limits of protection offered by a patent for biological material or can national legislation extend the protection to cover the product (the DNA) as such, regardless whether the DNA performs its function.

3. Whether there is any difference to the above issues if the patent in suit was applied for and was granted before the Directive was adopted.

Given the usual ECJ caseload, a response is unlikely to be given for several years. Once the ECJ decision is handed down, it will provide valuable guidance on the relevant provisions of the Biotech Directive.

SwitzerlandSwiss Parliament clarifies experimental use exemptions and Bolar exemptions and considers patent exhaustionIn June 2007, the Swiss Parliament decided on a number of amendments to the Federal Patent Law which will be of particular interest to the biotech community.

Until very recently, Swiss law had no provisions on experimental use exemptions. However, it was widely recognised that acts for the purpose of research and experiment should not constitute an infringement of patent rights. Consequently, under the revised law, there is now a new provision to regulate experimental use.

However, the research privilege is not boundless and is clearly limited to gaining information on the subject matter of the invention, as such. Use of a patented biotechnical invention merely as an instrument or tool for


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relating to selecting the appropriate venue for patent disputes. All of these key amendments to the current US system will be of profound importance to businesses, prosecuting patent attorneys and litigators alike.

It is highly unlikely that the Act will make any further progress during this session of Congress as it has been removed from the Senate schedule. What is certain, however, is that reform of the US patent system is on the agenda and will be closely followed to assess the potential impact on industry. It should be noted that many industry groups, including BIO, have opposed the introduction of the Bill in its current form. BIO’s concerns were particularly directed at the post grant amendment procedures and the new approach to the calculation of damages. This is a clear recognition of the potential impact that these changes may have to the biotech industry.

Pathway for Biosimilars ActTurning to the Pathway for Biosimilars Act, this Bill was introduced to the House of Representatives in March 2008. The Bill sets out to promote competition, price reduction and increased patient access to potentially life saving biologic treatments. In its current form, the Bill proposes changes to the stringent regime for approving follow on and bio similar products. It provides safeguards for branded biologics manufacturers by proposing a 12 year data exclusivity period. It also seeks to set out procedures for dealing with patent infringement issues prior to obtaining approval. However, the proposals have already received criticism. Biogeneric industry representatives have described the reforms as not going far enough by firmly putting the profits of brand biologics manufacturers ahead of patient interests.

It remains to be seen if those debating the draft legislation share this view. If the biogeneric voice is listened to, there will be serious cause for concern to brand biologics manufacturers where the route to market is already paved with uncertainty and regulations. Removing some of the incentives to get to market by depleting and undermining monopolies (be they patent or data exclusivity) may lead to a reduction in interest and investment in critical areas of research. Our survey has indicated that this is an area of key concern amongst respondents. The balancing of the two interests is critical but where the line in the sand is drawn, if indeed one is drawn, will be keenly watched by all involved in the biotech field.

It is unclear as to what the legislative route map and timetable is likely to be for this Bill. However, it is clear that if it passed in its original, or even in amended form, it will be of significant impact to the biotech industry in the US.

CanadaClarification on biotech patent applications The most important recent development in Canada has been the publication in late 2007 of a draft update to Chapter 17 of the Manual of Patent Office Practice relating to all aspects of biotechnology subject matter.

The draft is still subject to review, and certainly with respect to cells and multicellular organisms some debate remains. In this area, the most important points are:

1. Based on case law, claims to an animal or plant per se are not considered allowable, while claims directed to an ‘animal cell’ or a ‘plant cell’ are patentable and such claims should be enforceable against an infringing animal or plant containing the claimed ‘cell’.

2. The Patent Office considers that certain specific cells, namely totipotent stem cells and fertilized eggs, do not qualify as patentable subject matter given their inherent ability to develop into animals, and considers that they fall within the proscription against the patenting of animals at any stage of development.

3. The Patent Office draws a distinction between lower life forms and higher life forms by equating these to unicellular and multicellular organisms, respectively. In examples of organisms considered to be ‘lower life forms’, the Patent Office has included ‘unicellular fungi, moulds and yeasts’.

The Patent Office position in points 2 and 3 above is disputed by the patent profession. The final version of Chapter 17 is eagerly awaited by the biotechnology community, as it will set the tone for the prosecution of biotechnology patent applications in Canada for the foreseeable future.

As per the debates in Germany regarding the patentability of stem cells and the questions being raised in the ECJ, this is a further example of the concern regarding the patentability of living cells.


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support and protect internationally competitive technology.

According to reports, the Japanese Patent Office intends to start this new system for patent applications in fields of cutting-edge technology on a trial basis from October 2008. Under the proposed system, when an applicant requests a super accelerated examination, a first opinion on patentability will be issued from the Patent Office within two to four weeks of filing the request. If the system does come into effect, it will provide one of the fastest examination procedures of any major patent office and may provide significant advantages for biotech companies active in the Japanese market.

However, given the findings of our survey results in relation to the accepted level of examination and breadth of claims currently being granted, there may be concern in the biotech industry if such accelerated examination leads to a reduction in the quality of examination.

refused to restrain Cipla from manufacturing and selling anti-cancer drug Tarceva, alleged to infringe the Hoffman La Roche patent for Erlotinib.

In reaching its decision, the Court said that the public interest in allowing Cipla to continue manufacture of Tarceva at a much lower price than offered by Roche far outweighed Roche’s patent rights. The decision follows renewed reliance in the Indian sub-continent in compulsory licensing provisions which permit national governments to by-pass patents over key drugs in certain situations. Roche have appealed the decision.

Biotech companies involved in the development of life-saving drugs against high profile diseases such as bird flu, AIDS and malaria keenly await the outcome of this case as it will undoubtedly impact on their manufacturing and licensing strategies in India.

Japan Super fast examination for biotech patent applicationsIt was reported in May 2008, that the Japanese Patent Office intends to introduce a system for super accelerated examination specifically aimed at patent applications in fields of cutting-edge technology, such as biotechnology and nanotechnology.

Under current Japanese patent practice, accelerated examination can be requested resulting in a first opinion from the Patent Office within two to three months on average from filing the request. However, research institutes and companies involved in areas of fast moving technology, such as Professor Shinya Yamanaka’s team at Kyoto University and their work on induced pluripotent stem cells (iPS cells), are looking for even faster examination so that patent protection can be obtained for such important inventions as soon as possible. The policy reason behind this is to

4. Asia

China China considers protection for traditional knowledge and genetic informationChina is in the process of updating its patent laws and has so far published three drafts for comments from interested parties. One new provision of interest to the biotech community is a new requirement for patent application documents to identify the direct and original source of any genetic material forming part of the invention. The latest draft also includes a similar provision requiring the identification of the source of any claimed traditional knowledge, a step towards preventing the ‘theft’ of China’s traditional medicine. However, there remains some doubt as to whether the new provisions in their current form will comply with the PCT and China’s obligations under the World Trade Organisation (WTO), an important consideration in light of China’s wish to play a key role in world trade. The drafts are still subject to further review and again highlights the debate on patentability of live cells.

India Public interest defence to interim injunction application in patent infringement caseIn a judgment handed down in March 2008 on an interim injunction application, the Delhi High Court


Marks & Clerk

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Dr. Gareth WilliamsUK & European Patent AttorneyMarks & Clerk Patent and Trade Mark Attorneys62-68 Hills Road,Cambridge CB2 1LATel: +44 (0)1223 345520Email: [email protected]

Mike GilbertSolicitorMarks & Clerk Solicitors90 Long Acre,London WC2E 9RATel: +44 (0)20 7420 0250Email: [email protected]

Dr. Claire Irvine UK & European Patent Attorney Marks & Clerk Patent and Trade Mark Attorneys4220 Nash Court, Oxford Business Park South,Oxford OX4 2RUTel: +44 (0)1865 397900 Email: [email protected]

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