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Insight & Intelligence : Sep 22, 2009
Market Exclusivity—Paramount in Evaluating Target Companies
The main related factors are relevant facts, freedom to operate, IP, third-party agreements, and regulatory exclusivity.
Companies of interest to big pharma tend to be those that have one or two late-stage clinical programs with NCEs or biological entities. Several primary business screens require an entity to occupy a therapeutic niche supplementary/complementary to the suitor’s therapeutic portfolio, an annual prospective market of at least $500 million, and a credible prospect of FDA approval.
Certain critical facts are necessary and are always required before evaluation of current and prospective market exclusivity of the target entity can materially begin. Counsel first need to know the exact chemical structure of the compound, salt and/or polymorph characteristics if applicable, exact method of manufacture, intermediate forms, the exact drug substance, formulation, dosage, and administration. Counsel also need to know exactly how the entity works mechanistically at the pharmacological level and what human condition(s) the entity is intended to control.
The most substantive issue is whether any third parties own current or prospective patent claims relevant to the ability to make, use, sell, offer for sale, or import the entity. Types of patent claims that could preclude FTO include claims to structurally defined genera that encompass the target entity, combination of structural and functional characteristics that together are properly construed to cover the target entity, methods of use of a structural or functional genera that covers the target entity, combination therapy, formulations, dosage, and/or administration.
The patent claim aspect of market exclusivity is frequently the driving force, particularly those involving small molecule compounds. Decision makers in the industry know too well that patents listable in the FDA Orange book, i.e., drawn toward the compound, formulation, finished dosage form, and approved method of use, are fundamentally the sole barriers to generic entry.
The company will ultimately need to prevail in patent litigation to maintain market exclusivity during the peak of the product life cycle in several paragraph IV ANDA litigation matters. Therefore relevant small molecule patents are king in the industry. These are carefully evaluated and confirmed to be valid and enforceable under current authoritative interpretation of the statutory requirements for patentability (as well as to have substantial term remaining particularly in the U.S., Europe, and Japan).
Fundamental factors of IP exclusivity include:
Term. This refers to the amount of time remaining on current and prospective relevant patents, particularly the therapeutic substance. In many instances carefully managed portfolios can enhance the term of IP exclusivity by claiming relevant methods determined in the clinic that may ultimately be used on the approved label. A single patent term extension under 35 USC §156 is usually available in cases where relevant patents have been issued prior to regulatory approval. In many cases, deciding which patent to extend (with a maximum extension of five years) requires careful evaluation.
Jurisdiction. Business focus is on the largest commercial markets, i.e., U.S., Europe, and Japan.
Ownership. The chain of title to each patent must be complete and exclusive to the target company. Facts to present issues and concerns of inventorship should not be present.
Validity and Enforceability. Claimed relevant subject matter must be patentable under the current and prospective authoritative interpretation of the statutory requirements for patentability (Title 35 of the United States Code). The inventors or applicant(s) must have cited all presentation materials relevant to the patentability of the claimed subject matter. These factors are comprehensively evaluated in the diligence process.
Many target companies have collaboration or exclusive in-licensing agreements in place concerning origination of the target entity. All agreements concerning the target entity are closely evaluated to confirm that the target company has exclusive and transferable rights to make, use, sell, offer for sale, and import the entity. The ultimate focus of this evaluation is to comprehensively confirm that no residual rights may exist wherein a third party could commercialize the entity.
Small molecule compounds and biopharmaceuticals each have their own attributes that ultimately contribute to market exclusivity. For example, NCEs obtain five years of initial regulatory exclusivity in the U.S. compared to biopharmaceuticals, which currently enjoy the fact that no regulatory tool yet exists for an abbreviated BLA. We are, however, at a similar crossroads today with respect to follow-on biopharmaceuticals legislation as we were in 1984 (Hatch-Waxman Act) with respect to generic small molecule compounds.
The key aspect of market exclusivity in the drug-discovery industry to keep in mind is that everybody will want a piece of the pie when the therapeutic entity commands $1 billion in annual sales. As a corollary, target companies that emphasize their understanding of market exclusivity and are able to present and address issues raised with clear relevant facts, indeed exude value and appeal most to cautious suitors in the industry.
Patrick H. Higgins is a member in the intellectual property group at the law firm of Eckert Seamans Cherin & Mellott in Philadelphia. Phone: (215) 851-8533. Email: firstname.lastname@example.org.
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