Freedom to Operate and the Interplay of Patent and Regulatory Exclusivity for Life Sciences

“Freedom to operate is a concept that companies often confuse with their own patent protection. A patent does not grant the company an exclusive right to practice its invention.”

https://depositphotos.com/7125982/stock-illustration-molecule.htmlWhile part one of this two-part series on intellectual property (IP) due diligence focused on a life science company’s own IP portfolio, part two will address a company’s understanding of how it fits into the market by considering its freedom to operate, as well as its competitors’, and the interplay of patent and regulatory exclusivity as it relates to the company’s product.

Competitors and Freedom to Operate

It is vital for a company to analyze the clinical development progress and patent portfolios of potential competitors. In a company’s early stages, a landscape search to understand the technology area and the patent portfolios of potential competitors is important to gain an understanding of where the company’s potential product will fit into the market and what art it will have to avoid or distinguish from. This information can also be used at a later stage to inform a company about its freedom to operate once a product is more fully developed, as well as its ability to tailor some of its own patent portfolio to block competitors developing similar, competing products.

Freedom to operate, also known as clearance, is a concept that companies often confuse with their own patent protection. A patent does not grant the company an exclusive right to practice its invention. Freedom to operate is the company’s ability to make, use or sell its product without infringing the intellectual property rights, particularly patent rights, of a third party.

As a company nears completion of its clinical development, it is imperative for the company to confirm that it does, in fact, have the right to commercialize the product without infringing the rights of others. A company should have a search of the patent literature conducted to identify whether any third party has a patent right that could dominate or cover the use, manufacture or sale of its product or components thereof. Should the search yield some relevant patents, the company should consult with its IP counsel to determine whether an opinion (e.g., of non-infringement or invalidity) is required.

During due diligence, these opinions should not be shared as it may waive attorney-client privilege and attorney work product doctrines. Instead, the company should consider other ways to communicate the search results to the client, such as identifying the patents reviewed without discussing the contents of the opinion and letting the third party arrive at its own conclusions. When asked during due diligence whether there are any freedom-to-operate considerations, the company also should consider identifying patents it licenses (if applicable to the product in question) because, absent the license, the licensor would presumably be in a position to interfere with product development.

Understanding when a potential competitor could enter the market and the effect of such an entry on the sales of a company’s product is extremely important to third-party investors or collaborators. Scoping out barriers to entry for a generic entry often can illuminate strategies to erecting barriers to entry. This strategic effort has taken on a new and more complex life in the form of the recently enacted biosimilars legislation.

Working Together: Regulatory and Patent Exclusivity

Patent and regulatory exclusivity—two areas that can provide the most value and protection to a life science product—are very interrelated. Simply identifying when a key patent naturally expires is not sufficient, because regulatory exclusivity could possibly extend the company’s ability to keep competitors off the market or allow competitors to speed up entry in certain situations.

It is important to understand regulatory exclusivities available for the company’s small molecule, biologic or medical device products in the United States as well as in any relevant foreign commercial markets. Many foreign jurisdictions, including, for example, Europe, Japan and Canada, provide their own mechanisms for regulatory exclusivity for both small molecule and biologic drug products. Regulatory exclusivity, however, is not necessarily a foolproof way to ward off competition because the different types of regulatory exclusivity may have significant limitations that enable a third party to enter the market.

For drug products, the eligibility of marketing and data exclusivity can be critical. In fact, many products have had strong commercial success wholly independent of their patent position. Even if regulatory exclusivities are available, it is imperative that the company and its counsel understand the interplay between the regulatory exclusivity and the patent exclusivity. In the United States, drug products may be eligible for New Chemical Entity (NCE), Clinical Investigation (CI) or Orphan Drug exclusivity, and additional incentives can be provided in the form of Pediatric Exclusivity and GAIN exclusivity extensions. Additionally, listing patents in the Orange Book can significantly affect the timing of when a third party can file an abbreviated new drug application. For biologics, the Biologics Price Competition and Innovation Act provides an abbreviated pathway for approval of biosimilars and both data and market exclusivity for the branded biologic product. Mapping out the anticipated exclusivity for a product, inclusive of both patent term, patent term extension, Orange Book Listing, 30 month stays and marketing exclusivity, will help to inform the company of any potential weaknesses prior to third-party diligence.

Be Proactive and Prepared

Concerns with any one of the four categories discussed in this two-part series could inhibit a potential transaction. Once the audit has been completed, a company and its counsel should take time to address potential issues and align the patent portfolio with the company’s goals and refined patent strategy. Issues must be fixed not in a piecemeal manner but in view of the overall portfolio strategy so that each piece adds value to the overall picture of the product.

Certain issues, however, may not be adequately addressed before due diligence. In these situations, understanding the nature of the problem will ensure that the company is not blindsided and will allow the company to proactively prepare answers to questions regarding the issue and provide potential mitigating strategies.

An internal audit allows a company to prepare for a diligence on its intellectual property portfolio with a better understanding of its patent portfolio, a chance to fix any issues identified, and an opportunity to refresh and refine its intellectual property strategies. Understanding the interplay of regulatory and patent exclusivity as well as a company’s competitors will help the company better communicate how its product will fit into the market, including when generics or biosimilars will be able to come on to the market. Additionally, being aware of issues that cannot be fixed or where the law is still in flux, such as the ones identified above, will allow companies to better field questions regarding these issues.

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The Author

N. Nicole Stakleff

N. Nicole Stakleff is a partner with Pepper Hamilton LLP, resident in the Pittsburgh office and member of the Health Sciences Department. Ms. Stakleff also is a member of the firm's Executive Committee. A registered patent attorney since 2002, she concentrates her practice in intellectual property law, including developing product exclusivity strategies, strategic patent prosecution and counseling, due diligence and transactional support in the pharmaceutical, biologic, nutraceutical, cosmeceutical, medical device, and other health and life sciences fields.

For More information or to contact N. Nicole, please visit her Firm Profile Page.

N. Nicole Stakleff

Aparna Nemlekar is an associate in the Health Sciences Department of Pepper Hamilton LLP, resident in the Pittsburgh office. A registered patent attorney and member of the Intellectual Property Department, Ms. Nemlekar works with well-established and nascent companies, universities, and independent inventors to identify and protect their intellectual property.

For More information or to contact Aparna, please visit her Firm Profile Page.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 5 Comments comments.

  1. xtian February 4, 2019 12:29 pm

    “As a company nears completion of its clinical development, it is imperative for the company to confirm that it does, in fact, have the right to commercialize the product without infringing the rights of others”

    I would probably suggest that FTO’s start early than clinical development. They should be run in parallel with the non-clinical studies. Entering clinical development is extremely expensive and it would be good to have a picture of potential IP liabilities before making this investment.

  2. Anon February 4, 2019 7:45 pm

    xtain,

    How do you feel about the possession requirement (specifically the aspect of having possession vis a vis utility at the critical date of filing)?

    Clinical development may well be expensive, and heaven knows the number of items that FAIL that phase (that do not have a utility).

    Mere “potential” takes the form of just liabilities if all that you have at the time of filing is a “study plan.”

    Having possession at the time of filing in every other single art apparently means somethine else. (not to confuse constructive reduction to practice, which as a topic has generated this issue anew recently).

  3. CP in DC February 4, 2019 9:40 pm

    Anon

    As I have explained to you before, utility and safety and efficacy are two different issues. Clinical trials are not necessary to establish utility. Read Edwards Life Sciences and stop equating the two. the cite 99 F3d 1305 Fed Cir 2012. The section cites to In re Brana and Scott v Finney. Read all of them.

    Clinical trials are to meet the FDA requirements for human consumption, not for utility under the PTO standards.

  4. Anon February 5, 2019 7:35 am

    Your prior explanation did not suffice CP in DC.

    But thanks for the cases.

  5. xtian February 5, 2019 9:20 am

    @Anon

    Regarding when to file on your compound, compounds have demonstrated utility when pre-clinical models (e.g., certain gene knock-out mice models for certain cancers) shows reduction in tumor growth, e.g., “I claim compound X” or “a method for reducing tumor growth in a mammal comprising administering compound…” You can also establish utility though binding assays. “A method of agonizing/antangonizing receptor x, comprising administering…” The name of the game is the claim.

    Now a claim to a method of treating a human disease using a compound is different. For example, if I have a compound that in pre-clinical trials shows efficacy in a cuprizone mouse model (a quick Google search will explain this test), this may be indicative that the compound may treat a neurodegenerative disease. Notice how many “mays” I’ve said. Now, would this data be sufficient to enable a claim to treat the human disease Alzheimer’s? Probably not. So in some cases, human clinical trials are needed.

    Now I’m going to jump on my soapbox. The rub with needing clinical trial data to support your application in the pharma space is complicated by the fact that the FDA mandates that clinical trial information be made public when the trial commences. So, pharma must disclose that it is studying compound X for disease Y on CTtrials.gov. Most clinical studies take longer than 1 year to complete. So pharma is caught in a bind where mandatory disclosure of the trial may render obvious a later-filed method of using the compound, but an earlier filed application with the same claim is not enabled.

    Jumping down from my soapbox.