Tag: pharmaceuticals

New Board of Pharmacy Regulations Significantly Narrow the Sole Proprietor Exemption and Impose New Compounding Standards

New regulations from the Ohio State Board of Pharmacy now require any prescriber who will possess, have custody or control of, or distribute dangerous drugs that are compounded or used for the purpose of compounding to be licensed as a Terminal Distributor of Dangerous Drugs (TDDD). This new requirement is particularly noteworthy for physicians, dentists, and others who have previously operated under the “sole proprietor” exemption from licensure as a TDDD. That exemption has been widely used in Ohio and has traditionally permitted practitioners who 1) operate as sole proprietor, sole shareholder of a corporation or professional association, or sole member of a limited liability company; and 2) are the sole authorized prescribers in the practice to be exempt from the TDDD licensure requirements. These new regulations narrow this exemption by now requiring that all prescribers who “compound” or use “compounded” drugs become licensed as a TDDD, even if those prescribers had previously qualified under the “sole proprietor” exemption.

The scope of what constitutes “compounding” is broad – likely broader than what is commonly believed. Ohio law defines “compounding” as the preparation, mixing, assembling, packaging, and labeling of one or more drugs and also includes the reconstitution of drugs in accordance with the manufacturer’s instructions.1 Under the new regulations, any “compounding” activity, possession, or administration of a compounded drug requires TDDD licensure, even by a previously exempt “sole proprietor.”

Additionally, these same new regulations impose new standards for compounding sterile products, non-sterile products, and hazardous drugs and more stringent rules governing purchase of compounded drugs from in-state pharmacies, out-of-state pharmacies, and outsourcing facilities.2 These regulations were imposed in order to bring Ohio into compliance with the 2013 Drug Quality and Security Act, a federal law passed in response to the deadly outbreak of fungal meningitis in 2012 that was linked to the New England Compounding Center.

Article By Eric J. Plinke, Sarah C. Persinger, PharmD, RPh & Daniel S. Zinsmaster

© 2016 Dinsmore & Shohl LLP. All rights reserved.

1 Hazardous Drug Compounding by Prescribers
2 http://codes.ohio.gov/oac/4729-16

Life Sciences: Protecting the Crown Jewels

Sills Cummis & Gross P.C

An innovator or owner of patent rights or other technology in the life sciences arena is often unable, because of lack of financial or other resources, to develop or commercialize a pharmaceutical product covered by such intellectual property rights. In these cases, the innovator/owner (the licensor) will frequently out-license the invention to a third party (the licensee) for development and commercialization by such licensee. The resulting license agreement can be a complicated document. In this article, I will address some of the important licensing considerations that a licensor should take into account before executing a license agreement.

Consider the Exclusivity v. Non-exclusivity of the License Grant

An initial consideration in a license agreement is whether the license grant will be exclusive or non-exclusive to the licensee. If the license grant is exclusive, then the licensor typically agrees not to grant a license to any third party. If the license grant is non-exclusive, then the licensor typically is permitted to grant further licenses to third parties. Even in an exclusive license, however, the licensor may want to retain certain rights for itself. For instance, the licensor may want to preserve for itself the right to enter into certain geographical markets or fields of use. The parties should be very clear in the license agreement as to whether or not the licensor is permitted to exercise any R&D, commercialization or other rights during the term of the license agreement.

Whether a license is exclusive or nonexclusive will set the tone for the associated rights and obligations of the parties set forth in the remainder of the license agreement. For example, an exclusive licensee is usually subject to “diligence” obligations, requiring it to exploit the licensed technology in order to maintain the license grant; a non-exclusive licensee is usually subject to limited or no such obligations. Also, an exclusive licensee usually has more rights than a non-exclusive licensee with respect to the prosecution, maintenance, defense and enforcement of patent rights.

Also Consider the Scope of the “Field of Use” and “Territory”

Other important initial considerations in the license agreement are the scope of the licensed field of use and the scope of the licensed territory. A “field of use” defines the field in which the licensee may exercise the licensed rights and may take one of many forms. For example, the field of use may be all encompassing (“any and all fields and applications”), may be limited to only therapeutic or only diagnostic products, may be limited to only biologics or only small molecule products, or may be limited to a specific medical indication (e.g., cardiac indications). Especially in the case of an exclusive license (and based on the nature of the licensee), it is sometimes better for the licensor to limit the field of use. Then the licensor would be permitted to grant subsequent rights to other parties in the non-licensed fields. Alternatively, if the field of use is broad, the licensor should require that the licensee actually exercise its rights in certain specified fields in order to maintain such rights. If the licensee fails to exercise its rights in a specified field of use within a certain period of time, the licensor’s remedies could include the right to terminate the license agreement in its entirety, the right to terminate the license agreement with respect to one or more specific fields and/or the right to convert an exclusive license grant in such field to a non-exclusive grant.

Considerations regarding the “territory” are very similar to the considerations regarding the field of use. Often, in order to maintain an exclusive worldwide territory grant, the licensee is required to exploit the licensed technology in specified countries. For example, the licensee may be required to develop and commercialize a product covered by the licensed technology (licensed products) in the United States and at least one other “major market country” (e.g., Japan, France, Germany, Italy, Spain and the United Kingdom). Again, the licensor’s remedies for the licensee’s failure to satisfy this obligation could be similar to the remedies set forth above for field of use.

Maximize the Royalty Payments

Pursuant to the terms of the license agreement, the licensee will most likely be required to pay to the licensor a royalty based on sales of licensed products. Although the determination of the amount of royalty is in large part a business decision and takes into consideration, among other things, the scope and strength of the licensed patent and other intellectual property rights, the breadth of the field of use and territory, whether the licensed product is a therapeutic product (typically a higher royalty rate) or a diagnostic product, and whether the license grant is exclusive or non-exclusive, there are many important legal nuances that the licensee could and should consider. One such nuance is the calculation of “net sales.”

The amount of royalty owed by the licensee is normally calculated by multiplying the royalty rate by the amount of sales of the licensed products. The royalty rate does not need to be a flat rate and could be graduated, for example, with a rate change as sales increase. In determining the “sales” portion of the royalty calculation, it is more advantageous to the licensor that sales be based on amounts invoiced (as opposed to amounts received) by the licensee, thus keeping the risk of bad debt (i.e., a sales amount is invoiced but not actually received by the licensee) with the licensee. Also, although “net sales” (as opposed to “gross sales”) is the usual royalty base, the licensor should restrict the deductions taken into account to determine such net sales. For example, although the “net sales” calculation frequently includes deductions from gross sales for governmental taxes and charges, customer credits and rebates, and transportation, storage and insurance expenses, the licensor should avoid less typical deductions such as sales commissions owed by the licensee or a catch-all deduction for “other reasonable deductions.”

Ensure That the Inventions Are Fully Exploited

Once a licensor licenses its invention to a third party in an exclusive license arrangement, the licensor will lose much control over the day-to-day use of the technology. It is imperative that the licensor requires the licensee to actually exploit the technology in a timely manner and devote sufficient time, money and resource to such exploitation. Almost all exclusive patent or technology license agreements contain a “diligence” provision requiring the licensee to employ certain efforts with respect to the research, development and commercialization of licensed products. Generally, the diligence requirement provides that the licensee must use “commercially reasonable efforts” to advance the product through the pipeline and sale process. However, the meaning of “commercially reasonable efforts” is not precise and the two parties to the contract could interpret the phrase, and the corresponding diligence requirement, quite differently.

A prudent licensor defines the diligence requirement more exactly. Ideally, the diligence requirement would be accompanied by diligence milestones, contractually obligating the licensee to reach certain developmental, regulatory or sales milestones by certain target dates or to spend a certain dollar amount on the licensed product in a given time period. Additionally, different diligence standards could apply with respect to different jurisdictions. If the licensee fails to meet its target, the licensor would be entitled to one or more remedies such as a financial payment from the licensee or a right of termination.

Maintain Control over Patent Prosecution

In an exclusive patent license arrangement, the licensee usually pays for the costs associated with patent prosecution and maintenance. Even in a non-exclusive arrangement, the licensee could be required to pay for a portion of such amounts. Though the licensor bears some or all of the patent prosecution and maintenance expenses, the licensor should ensure that it ultimately has control. Ideally, the license agreement should provide that the licensor controls the prosecution and maintenance, perhaps with counsel reasonably acceptable to the licensee. The licensor could allow the licensee to provide input into where (which jurisdictions) the licensor will prosecute and maintain the patents. However, the licensor should have the final say as to the scope and jurisdiction of the patent filings. In order to address a licensee’s concern that it would be required to pay for expenses in jurisdictions where the licensee does not deem patent coverage to be necessary or desirable, the license agreement could provide that the licensee may notify the licensor that the licensee will not pay the patent costs in a particular jurisdiction – in which case the licensee would probably lose its license rights (or at least its exclusivity, in the case of an exclusive license grant) with respect to such jurisdiction.

Carefully Consider Termination Provisions

A license agreement includes customary termination provisions. For example, each party usually has the right to terminate the agreement in the case of an uncured material breach by the other party. Additionally, the licensee typically has the right to terminate the license agreement for convenience (without cause) following some notice period (e.g., 90 days). Following termination of the license agreement, the licensor may want to either resume R&D or commercialization efforts on its own or re-license the technology to another suitable third party. In order to avoid the need to duplicate efforts (and expenditures) of the first licensee, the licensor should give careful consideration to the termination provisions in the license agreement. Ideally, if the licensee terminates the license agreement for convenience (i.e., the licensee walks away from the technology) or the licensor terminates the license agreement because of an uncured material breach by the licensee, the licensee would be required to automatically assign to the licensor, for no additional consideration or for some agreed upon payment, all of the results, know-how and intellectual property generated by or on behalf of the licensee under the license agreement and all regulatory files, regulatory approvals and other rights related to the licensed product. Thus, the licensor or its new licensee would be able to capitalize on the past work performed by the licensee, expedite timelines and reduce expense.

All or some of the points described above could be very important to a licensor. Although the interrelation of these and various other provisions in a license agreement are complex, by understanding the unique issues and concerns that arise when analyzing and negotiating a license agreement, the licensor is better able to protect its invention and ultimately increase its profit.

ARTICLE BY

Lori M. Waldron
OF
Sills Cummis & Gross P.C.

This article appeared in the February 2015 issue of The Metropolitan Corporate Counsel.  The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect those of Sills Cummis & Gross P.C.   Copyright © 2015 Sills Cummis & Gross P.C.  All rights reserved.”

New Jersey Pharmaceutical Company Agrees to Pay $39 Million to Settle Alleged Anti-Kickback Violations

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On January 9, 2015, the Department of Justice (DOJ) announced that pharmaceutical company Daiichi Sankyo, headquartered in New Jersey, agreed to pay the Government $39 million to settle claims that it violated the Anti-Kickback Statue and the False Claims Act (FCA) by allegedly incentivizing physicians to prescribe Daiichi drugs by providing kickbacks to those doctors.  The drugs prescribed as a result of those alleged kickbacks were billed under the Medicare or Medicaid Program, and thus paid for, at least in part, by the government.  This lawsuit was filed by former Daiichi sales representative Kathy Fragoules under the qui tam whistleblower provision of the FCA.  Fragoules will receive an award of $6.1 million, which represents approximately 15 percent of the settlement amount, for exposing Daiicho Sankyo’s alleged illegal practices.

The qui tam lawsuit, originally filed on behalf of the government by Fragoules, claims that for a period of six years, from January 1, 2005 to March 31, 2011, Daiichi Sankyo allegedly devised a scheme to promote several of its drug products by offering monetary kickbacks to physicians that prescribed Daiichi drugs to their patients.  The Physician Self-Referral Statue and the Anti-Kickback Statue prohibit anyone from knowingly and willfully offering, paying, soliciting, or receiving remuneration in order to induce business reimbursed under the Medicare or Medicaid programs.  However, according to the government, Daiichi allegedly orchestrated kickback compensation to physicians in the form of speaker fees by allegedly funneling payment to health care providers through the Daiichi’s Physician Organization and Discussion programs known as PODs.  In doing so, the government claims that Daiichi knowingly and willfully violated the FCA.

Physician drug ordering and prescribing decisions continue to be influenced by the drug industry.  Last year, the DOJ reported billions in settlements in connection with the pharmaceutical industry arising out of violations of the Physician Self-Referral Statue and the Anti-Kickback Statue.  The government also paid out millions in awards to individuals and whistleblowers that exposed these alleged illegal practices through the filing of qui tam lawsuits under the FCA.  A whistleblower who files a case against a company that has committed fraud against the government, may receive compensation of up to 30 percent of the amount ultimately recovered by the government.

ARTICLE BY

Jonathan Tycko
OF
Tycko & Zavareei LLP

First Written Decision Pertaining to Pharmaceuticals

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Practitioners monitoring the use of inter partes review (IPR) proceedings to challenge pharmaceutical patents may want to note what appears to be a pair of first-time events.  The Patent Trial and Appeal Board (PTAB) recently issued the first Final Written Decision in an IPR proceeding involving a pharmaceutical-related patent. In addition, the first petition for covered business method review challenging an Orange Book-listed patent for a marketed drug was recently filed.

On June 20, 2014, the PTAB issued Final Written Decisions in four related IPR proceedings (IPR2013-00116; IPR2013-00117; IPR2013-118; and IPR2013-00119)  involving U.S. Patent Nos.  5,997,915; 6,011,040; 6,673,381; and 7,172,778, respectively. The patents generally disclose compositions for supplementing dietary folate and the challenged claims were directed to compositions comprising natural isomers of reduced folates and corresponding methods of using such compositions.  Petitioner Gnosis SpA initiated the IPR proceedings after it was sued for infringement of the patents by a group of plaintiffs including Merck KGaA (licensee of three of the patents) and Merck & Cie (owner of the remaining patent).  The decision to challenge the patents in an IPR proceeding was a successful one for Gnosis as the PTAB found all of the challenged claims to be unpatentable, holding that certain claims were anticipated and the remaining claims were obvious.

Several days later, on June 24, 2014, Amneal Pharmaceuticals, LLC, Par Pharmaceutical, Inc., and Roxane Laboratories, Inc. (Petitioners) filed a petition for covered business method of a patent listed in the Food and Drug Administration’s Orange Book for the prescription drug product Xyrem®, which is marketed by Jazz Pharmaceuticals, Inc. The patent, U.S. Patent No. 7,895,059, generally discloses methods for controlling the distribution of, and access to, hazardous or abuse-prone drugs and the challenged claims are directed to “[a] computerized method of distributing a prescription drug under the exclusive control of an exclusive central pharmacy.”

Each of the Petitioners had previously filed an Abbreviated New Drug Application with the Food and Drug Administration seeking approval of a generic version of Xylem and been sued by Jazz for infringement of several Orange Book-listed patents including U.S. Patent No. 7,895,059. In their petition for covered business method review, the Petitioners asserted that the challenged method claims involve the verification of an insurance payment for the drug and therefore are related to a “financial product or service” (a requirement for covered business method review). Should the PTAB accept this argument and grant the petition, that determination could potentially encourage others to file petitions for covered business method review of additional Orange Book-listed patents containing similar “Risk Evaluation and Mitigation Strategies (REMS)”-type claims.

Article By:

B. Scott Eidson
Of:
Armstrong Teasdale