A Brief Overview of Pharmaceutical IPRs and Statistical Outcome

By: Jeffrey Kuo and Afia Naaz
Edited by: Margaux Savee

Patent invalidation is a high stakes game for the pharmaceutical industry. Patented drug sales account for about 70% ($244 billion) of pharmaceutical sales in the US,[1] and invalidation of patents at the Patent Trial and Appeal Board (“PTAB”) has an impact on pharmaceutical share prices.[2]

Comparing IPR with District Court Litigation of Pharmaceutical Patents

In contrast to Hatch Waxman, Biosimilars, and other litigation options at the federal court, Inter Partes Review (“IPR”) before the PTAB may be more favorable to pharmaceutical patent challengers for a number of reasons. Petitioners can invalidate a patent in a PTAB proceeding at a fraction of cost of a Hatch Waxman or declaratory judgment proceeding. IPR is a speedier process compared to a district court proceeding. By statute, the time from institution to final decision should be within 12 month, and so a typical IPR proceeding from petition to decision takes no longer than 18 months.[3] By contrast, a patent litigation case may take an average of 1-2 years to reach a claim construction hearing, and 1.8-3.3 years to trial.[4]   The PTAB has a lower standard of proof, requiring a reasonable likelihood to prevail with respect to at least one claim for institution, and preponderance of evidence standard to prove invalidity; compared to the higher clear and convincing evidence standard at the district court. Also at the PTAB, the claims are given their broadest reasonable construction, making invalidation easier, compared to a narrower construction using the Phillips standard by the district court.

Moreover, an IPR petitioner does not need Article III standing.[5] For example, a generic pharmaceutical company that has no actual injury, or risk of triggering an infringement suit, may file an IPR petition against a brand pharmaceutical patent. The caveat is, however, the petitioner may not have standing to appeal at the federal court.[6]  While the majority of pharmaceutical IPR petitioners are generic drug manufacturers taking the opportunity to enter the market before the end of patent term, the other types of petitioners may include financial speculators. [7]  The lack of need for standing to file an IPR before the PTAB has been famously exploited by a hedge fund manager, Kyle Bass, who filed petitions against pharmaceutical patents, while shorting the pharmaceutical company stock, expecting the stock prices to fall in response to the IPR challenges and presumed risk of invalidation at the PTO.[8]

Furthermore, an IPR challenge can be brought in parallel with a Hatch Waxman proceeding in a district court, as long as the IPR petition is filed within 1 year of service of complaint alleging patent infringement.[9] Hatch Waxman is a statutory procedure used by generic drug manufacture to enter the market before expiration of brand pharmaceutical patents.   An FDA-approved drug receives up to 5-years exclusivity period, during which the generic manufacturer cannot file an Abbreviated New Drug Application (ANDA). At the expiration of this period the generic manufacturer may file an ANDA that states the patent is invalid or not infringed, and may receive a Paragraph IV FDA-certification. The patent owner may bring an infringement suit against the ANDA filer within 45 days of paragraph IV certification. The patent owner receives a 30-month stay over the generic drug manufacturer. There may be multiple ANDA filers, but the first filer receives a coveted 180-day market exclusivity period. 

In contrast, the petitioner at the PTAB may be filed at any time during the life of the patent. There are no constraints of the 5-year data exclusivity period or 30-month stay. But, the petitioner does not also receive the 180-day market exclusivity period, when the first ANDA filer could be the sole generic manufacturer in the market. If and when the patent is invalidated by the PTAB, it opens it the door to all competing generic manufacturers.

Statistical Outcomes of Pharmaceutical IPRs

Pharmaceutical patents have fared slightly better compared to patents of other technologies at the PTAB. Petitions (both IPR and PGR) in the PTO technology center for biotechnology and pharmaceutical patents, TC 1600, account for approximately 9-13% of total petitions per year (212 petitions in TC 1600 out of total 1683 petitions in 2016).[10]  61% of biotech/pharma petitions are instituted, which is lower than the approximately 70% institution rate in the chemical, electrical, or mechanical field. Only 39% of biotech/pharma patent claims were held unpatentable by a final written decision at the PTAB, compared to 64% of claims in the chemical field, 56% of claims in the electrical field, and 47% of claims in the mechanical field.[11]

In conclusion, IPR is a strategy for generic manufacturers to consider. Although pharmaceutical petitioners have been slightly less successful in instituting and invalidating challenges compared to petitioners in other fields, IPR provides a cost-effective and time-efficient method to invalidate pharmaceutical patents, thereby allowing industry innovators to enter the market early. Choosing to file an IPR is a process that needs to be made after a thorough case analysis, taking into consideration factors including the strength of patent claims, whether the petitioner is a first ANDA filer, and the amount of money at stake.

[1] US Department of Commerce. 2016  ITA Pharmaceuticals Top Markers Report.
[2] CNBC. Teva shares fall after US patent office invalidates two patents. Christine Wang. 24 August 2016.
[3] 37 C.F.R. §§ 42.101(c); 42.200(c).
[4] Lex Machina. 2014 Patent Litigation Report at pages 7- 8.
[5] Id.
[6] See Phigenix, Inc. v. Immunogen, Inc., 845 F.3d 1168 (Fed. Cir. 2016)
[7] PTAB Bar Association. View from the Life Sciences Industry. PTAB Bar Association Inaugural Conference, March 2, 2017.
[8] See Attack on Pharma Patents: Checking In on the Kyle Bass IPRs.(This Posinelli article provides an in depth analysis of Bass IPR filings)
[9] 35 USC § 315(b)
[10] USPTO. AIA statistics. February 28, 2017.
[11] Id.