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By Tony Dutra
Sept. 2 — A proposed exemption from Patent Trial and Appeal Board review of patents on federally approved drugs would cost federal programs $1.3 billion over 10 years, according to a Congressional Budget Office estimate given to Senate aides privately in July, sources familiar with the matter confirmed to Bloomberg BNA Sept. 2.
The added provision—proposed in a July 15 letter sent by the Pharmaceutical Research and Manufacturers of America (PhRMA) and the Biotechnology Industry Organization (BIO) to House and Senate Judiciary Committee leaders—would exempt patents underlying drugs approved by the Food and Drug Administration from inter partes review by the board. The Wall Street Journal reported the CBO estimate on Sept. 1. Critics of the proposal say it would unfairly shield patents on brand-name drugs and delay the entrance of generic drugs on the market.
The estimate complicates the path forward for the closely watched legislation. Tech companies in particular oppose the push to include any provision that weakens PTAB patent challenges.
If bill sponsors include it, they would likely move to cut spending elsewhere to offset the cost, to avoid potential budget issues. But the estimate also creates some dicey political optics. If lawmakers insert such a provision into the bill, they risk criticism that they are keeping drug costs for programs such as Medicare high as a favor to the pharmaceutical industry.
The Senate Judiciary Committee approved legislation (S. 1137) on June 4, with the assumption that lawmakers would need to add such a provision to address a PTAB abuse generally attributed to hedge funds: filing IPR petitions for the alleged purpose of causing the patent owner's stock price to drop (90 PTCJ 2241, 6/5/15)(108 PTD, 6/5/15)(09 LSLR 673, 6/12/15)(13 PLIR 848, 6/12/15)(109 BioTech Watch, 6/8/15)(108 DER A-12, 6/5/15).
Life sciences patent owners have been reasonably successful in recent developments in PTAB patent challenge decisions, though, potentially mitigating PhRMA and BIO's concerns. The four drug-related cases decided in July and August went against the challenger.
More importantly, hedge fund investor Kyle Bass's Coalition for Affordable Drugs lost its first challenges. Bass has filed inter partes review petitions against over 20 drug patents, but the PTAB on Aug. 24 rejected his challenges to two Acorda Therapeutics Inc. patents for the multiple sclerosis drug Ampyra (90 PTCJ 3032, 8/28/15)(165 PTD, 8/26/15)(165 BioTech Watch, 8/26/15)(165 DER, 08/26/15).
Bass counts on the IPR petition alone to cause the stock price to drop, his critics say, regardless of its chance of success. But market investors will believe that a filing alone is an indicator that the patent owner's stock should be downgraded only to the extent the board ultimately agrees, at least more often than not, that these challenges will succeed. The more Bass and other petitioners like him fail, the less likely market watchers will pay any attention to the filings.
If brand-name drug makers are seen as winning the battle at the PTAB, the CBO score could encourage a consumer group backlash against the proposed provision.
Though that Congressional Budget Office estimate is a small piece of the overall federal budget, it is significant compared to the CBO's published scoring of the House bill in total, without the provision: $3 million a year to taxpayers and $7 million a year to patent applicants and owners paying Patent and Trademark Office fees.
While the CBO estimate applies to federal program spending only, consumer groups could extrapolate the figure to the healthcare system generally and put pressure on the bills' sponsors to reject the proposal.
But PhRMA previously said it would not support the House bill—the one furthest on the way to a floor vote—without the provision (85 PTD, 5/4/15)(85 DER A-23, 5/4/15)(09 LSLR 574, 5/15/15)(90 PTCJ 1926, 5/8/15).
The group made it clear that will continue its efforts despite the CBO estimate.
“We don't believe the provision should be scored at all,” a PhRMA spokesperson told Bloomberg BNA Sept. 2. “We'll be working with the leadership in Congress to try to ameliorate any income problem [associated with] this provision.”
It's unclear at best whether either chamber will act on patent legislation this year. In early July, House Majority Leader Kevin McCarthy (R-Calif.) included an Innovation Act (H.R. 9) floor vote on his preliminary agenda for the month, but later scrapped the idea, at least in part because of PTAB issue.
But the drug patent provision is not the only sticking point for the legislation. The Senate and House versions are not aligned on several other terms, particularly a “loser pays” provision—mostly intended to allow alleged infringers to get their attorneys' fees paid if they are determined to be not liable—that aroused the trial bar.
H.R. 9 sponsor Rep. Robert W. Goodlatte (R-Va.) remains optimistic, however.
“We already have over 300 groups supporting H.R. 9,” a committee aide told Bloomberg BNA in a Sept. 1 email. “We are continuing to work with stakeholders to grow the supporters list even more.”
To contact the reporter on this story: Tony Dutra in Washington at email@example.com
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