Inability of Patent Examiner and Board to Correctly Read Prior Art Reference Necessitates Intervention by Federal Circuit

One of the challenges in prosecuting patent applications is dealing with patent examiners who reject claims based on clearly erroneous misreading of a prior art reference. And sometimes appeal to the Board of Patent Appeals and Interferences does not rectify the situation, forcing the applicant to make a “federal case” out of it. An example of this can be seen in the recently decided case of In re Chapman, where the patent applicants needed to appeal all the way to the Federal Circuit in order to correct an examiner’s misreading of a prior art patent.

Chapman's patent application claims divalent antibody fragments comprising two antibody heavy chains covalently linked by means of a polymer molecule (e.g., polyethylene glycol, or "PEG") through linkage to the sulfur atom in cysteine residues located outside the variable region domain of each chain. The use of the polymer to link the chains increases the antibody fragments’ half-life in the body, which can be beneficial in therapeutic and diagnostic uses of antibody fragments. PEG is often used to extend the half-life of protein biologics, and more generally to modify the pharmacological characteristics of these molecules - Roche's PEGylated version of erythropoietin MIRCERA, the subject of the recently resolved Amgen v. Roche litigation, is a good for example.

The patent examiner rejected Chapman’s claims as obvious in view of a prior art patent (the “Gonzalez" patent) that disclosed, inter alia, linking antibody fragments to a polymer through a cysteine residue in order to increase antibodiy's circulating half-life and thus improve the antibody's therapeutic characteristics. The Federal Circuit vacated this rejection based on its determination that the examiner and the Board of Patent Appeals and Interferences had clearly misread the Gonzalez patent, and this misinterpretation of the reference could have resulted in an erroneous finding of obviousness.

For example, the patent examiner and the B oardboth concluded that Gonzalez described a divalent antibody formed by linking light and heavy antibody chains by means of a polymer linker. In fact, as noted by the Federal Circuit, Gonzalez actually describes attachment of a polymer to either the light or the heavy chain - critically, the polymer is not serving as a link between the chains. Even the government attorney representing the patent office conceded during oral argument that the Board and examiner had misread the reference.

The Board also held that Gonzalez only disclosed three types of antibody fragments, when in fact, as conceded by the government attorney during oral arguments, the reference discloses six different possible antibody fragments. The Federal Circuit held that either of these errors could have led the patent office to erroneously reached its determination of obviousness. Because Gonzalez does not disclose linking the fragments, there is less suggestion of making the linked antibody fragments claimed by Chapman. Particularly since KSR, the number of possible alternate choices presented by the prior art can be critical in assessing the obviousness of invention, so the availability of six types of fragments (rather than the three erroneously cited by the examiner and board) frm which to choose could affect the determination of obviousness.

Biologic Innovator's Lost Profits Won't Necessarily Translate Into Lower Costs for Consumers

In our recent article on follow-on biologic legislation, David Adelman and I make the somewhat counterintuitive argument that the loss in profits experienced by a biologics innovator due to market entry by a follow-on competitor (as the result of a short data exclusivity period) will not necessarily end up in the pockets of consumers. Some have expressed skepticism on this point. For example, one of our fellow law professors emailed us the following comment:

“I don't understand how you can argue that 12-year data exclusivity won't substantially reduce prices for biologics, and yet is critical for biotech R&D incentives. It either reduces biotech profits substantially, in which case it benefits consumers substantially, or it doesn't have much effect either way.”

On its face, his point seems eminently reasonable, and I'm sure many have had the same thought. However, on closer inspection it becomes apparent that the market for biologic drugs is not that simple. It is not the case that there is a pot of "profits” out there that can either go to "biotech" or to consumers, in a zero-sum game. In fact, it is possible, at least in principle, and probably in fact, for a biologic innovator to experience substantially reduced profits without a concomitant drop in the cost to payers. This is our concern; a short period of data exclusivity could reduce the return on investment for biologic innovators, thus dampening the incentives for innovation, without a compensating benefit to consumers.

Part of the problem with the way the comment is framed is that it focuses on "biotech profits," when in fact the focus should be on the profits of innovators, the companies that take the risk and invest the resources in discovering and commercializing life-saving new biologic drugs. Market entry by a competing follow-on biologic clearly has the potential to divert sales from the innovator, but that does not necessarily mean that consumers will benefit, particularly if the price of the biologic drugs does not drop significantly as a result of competition. In effect, the loss in innovator profits is diverted to the follow-on manufacturer rather than consumers.

To illustrate this point, consider Amgen v. Roche, a case involving Amgen's attempt to block Roche's attempt to enter the US market with MIRCERA. MIRCERA is essentially a pegylated version of recombinant erythropoietin, which would compete with Amgen's erythropoietin products EPOGEN and ARANESP. Although MIRCERA was not approved under an abbreviated follow-on regulatory process, it would compete with Amgen's innovator products in the same manner that follow-on biologics are envisioned competing after passage of FOB legislation.

I wrote several blog posts commenting on the case, but the most relevant for the present discussion was one reporting on the reason the district court decided to enter a preliminary injunction blocking market entry by MIRCERA (post available here) To summarize, the judge initially seriously considered not entering an injunction, based on his perception that the public would benefit from market entry by the competing Roche product. However, ultimately he was persuaded by the expert testimony of an economics professor who studies the economics of drug pricing, to the effect that because of the incentives provided by Medicare compensation, and the manner in which biologic drugs are distributed to patients, market entry by Roche would likely not lead to reduced prices, but would quite likely lead to higher prices for consumers. In other words, while the innovator Amgen would lose profits, the money would shift to Roche rather than drug purchasers. This result, i.e., competition leads to higher prices, is definitely counterintuitive, but I agree with the judge that it is at least plausible, based on the nature of the market.

The FTC Report on follow-on biologics predicts that competition in the market for follow-on biologics will not be based primarily on the price of the drug, as it is for conventional generic drugs. It is my understanding that the introduction of follow-on biologics in the European market has not resulted in any major drop in prices, as has been the experience with conventional generic drugs.

In any event, proponents of a shortened data exclusivity period are fighting hard for it, and thus they must believe it will have an impact on the price of biologic drugs, which will cut into innovator profits. Let us assume this comes to pass. If it does, it will reduce the incentive for investment in innovation, which after all is based on an expectation of profits. Arguably, the current level of investment in biologic innovation is already suboptimal, and it appears to be decreasing, based on the recognition that historically investment in biotechnology has suffered from an overall low rate of return, albeit with a number of notable exceptions. A shortened data exclusivity period will further reduce the incentives for investment, which ultimately translates into a suboptimal pipeline of new biologics.

The point that David Adelman and I are making is that while a shortened data exclusivity period will likely reduce incentives for investment in innovation, it might very well have minimal impact on the cost of healthcare. We argue that more energy should be directed towards finding and implementing other means for reducing the costs of bringing new biologics to market, without unduly harming incentives for innovation.