Biogen Buys $1.25B ‘Insurance Policy’ to Save MS Drug

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By John T. Aquino

Biogen has a simple strategy to keep and even enhance patent protection for its MS treatment Tecfidera: pay another biopharma $1.2 billion, an analyst said Jan. 19.

The Cambridge, Mass.-based company will make that upfront payment to Forward Pharma (FWP), which is headquartered in Copenhagen, Denmark, for an irrevocable license for all of FWP’s intellectual property, Biogen announced Jan. 17.

Biogen and FWP are currently arguing before the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (Interference No. 106,023) and the European Patent Office over which of them has priority of invention for a multiple sclerosis treatment that has dimethyl fumarate (DMF) as an active ingredient. The licensing agreement doesn’t affect those actions, which could reach decisions soon.

Asthika Goonewardene, Bloomberg Intelligence’s senior biotech analyst, told Bloomberg BNA in a phone interview, “The $1.2 billion payment is basically an insurance policy the company has taken out to make sure that Tecfidera, with its $4 billion in annual sales, stays alive in the marketplace, regardless of the ultimate outcome of the patent dispute between the companies.”

Goonewardene added, “Another way of looking at it is that Biogen is basically giving up its lunch money so Tecfidera can go forward. The $1.25 billion amount is a very large one in this space, especially up front. So, that’s an indication of Biogen’s estimate of the downside if the patent dispute goes against it. But Biogen’s plan, if Forward Pharma’s shareholders approve the licensing agreement on Feb. 1, is to not only ensure Telfidera will continue to be protected by patents but that the protection will be enhanced due to the license.”

Tecfidera Stays Alive

The licensing agreement is designed to predetermine the aftermath of the PTAB and EPO actions, Goonewardene said.

If the PTAB and EPO grant Biogen priority of invention and these decisions survive any appeal, then an infringement claim by FWP, such as the one currently pending in the regional court of Dusseldorf, Germany, will be moot and Tecfidera’s revenue stream will be unscathed, although it will have to worry about future competitors.

However, the PTAB designated FWP the senior party in the dispute, which means it is presumed to have conceived the invention first. This places the burden of establishing the priority of its invention and reduction to practice on Biogen. In Europe, Biogen has appealed the EPO’s decision. If FWP prevails before the PTAB and EPO or if neither party prevails, which has been known to happen, Biogen’s license for FWP’s patents will allow it to keep Tecfidera on the market.

Global sales of Tecfidera reached $3 billion for the first three quarters of 2016, according to Biogen’s financials, and are expected to reach $4 billion for the year. Goonewardene noted that growth was driven by price increases.

Preserving Crown Jewel

There’s some uncertainty about the immediate impact of the agreement, Goonewardene said, noting the $1.25 billion payment to FWP will potentially reduce Biogen’s net income in 2017 from $4.5 billion, according to a consensus of analysts’ estimates, to $3.3 billion. “The company hasn’t provided any 2017 guidance,” he said.

In a Jan. 9 posting on the Bloomberg Terminal, Goonewardene described the importance of Tecfidera to Biogen, noting that it accounts for 17 percent of all MS treatment sales, making it the second most prescribed agent for the disease after Israel-based Teva Pharmaceuticals’ Copaxone.

“Biogen has developed the most comprehensive multiple sclerosis franchise, with options for most stages of the relapsing-remitting form of the disease,” he wrote, adding Telfidera, “a convenient pill with strong efficacy,” is “the jewel in its crown.”

Royalties Deferred

Without the licensing agrement, if Biogen lost the challenges to its patent’s priority, it would have been faced with the prospect of paying FWP royalties of 10 percent plus back payments. Under the agreement, any royalties will be deferred until 2021 and no back payments are due.

Once the agreement becomes effective, Biogen will provide FWP a cash payment of $1.25 billion. Biogen will only be obligated to pay FWP royalties in the U.S. if FWP prevails before the PTAB and, in countries other than the U.S., if FWP prevails in the European proceeding against its patent.

Another twist to the story is that the validity of Biogen’s patent is also being challenged in a separate inter partes review (IPR) action before the PTAB by hedge fund manager Kyle Bass’s Coalition for Affordable Drugs (IPR2015-01993). The coalition has filed 33 petitions for IPR actions against biopharma patents with the alleged intention of making money by short selling the company’s stock.

The PTAB granted CAD’s IPR petition challenging the Tecfidera patent, and the proceedings are underway. If CAD should prevail, Biogen still would have its FWP license to keep Tecfidera alive.

To contact the reporter on this story: John T. Aquino in Washington at jaquino@bna.com

To contact the editor responsible for this story: Randy Kubetin at RKubetin@bna.com

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