What is Regeneron’s exposure from Novartis’ patent case against blockbuster Eylea®?
Novartis ($NVS) has filed a patent lawsuit against Regeneron ($REGN) seeking damages for sales of Eylea® and Zaltrap®. On March 19, 2018, Novartis sued Regeneron in the Southern District of New York, White Plains Division, for infringing U.S. Patent No. 5,688,688. The ‘688 patent claims gene expression constructs for the expression of polypeptides in mammalian cells. How strong is Novartis’ case, and what is Regeneron’s exposure?
Regeneron’s blockbuster Eylea® may face competition in the future, including from Novartis. Both Novartis and Roche recently presented data in connection with Novartis’ brolucizumab and Roche’s RG7716. Novartis’ patent case against Eylea® may be explained, at least in part, as part of Novartis’ strategy of edging in on sales of Eylea® with its own competing drug.
What damages can Novartis collect?
Novartis’ ‘688 patent is an expired patent. The patent is a continuation in a long line of patents and patent applications claiming priority all the way back to 1984. The priority date for the asserted claims appear to be at least as far back as 1987. At first blush, this may seem strange. Can Novartis really assert a patent that claims to have been invented over 30 years ago? Even so, can Novartis really assert a patent that has already expired? These questions help contextualize Regeneron’s exposure in this case.
Turning to the second question first, just because a patent expires, that does not bar the patent owner from suing for patent infringement. But it does put limits on the scope of damages that can be recovered. First, an expired patent asserted in litigation cannot recovery any future damages—that means, Novartis cannot seek future royalties on Eylea® or Zaltrap®. Thus, future sales are safe. Instead, Novartis can only claim past damages that fall within the statute of limitations, which is six years. Thus, Novartis can only claim past damages within that are both six years before Novartis filed its complaint, and before the patent expired.
Here, the ’688 Patent expired in November 2014. The patent was filed in August 1994. At that time, the expiration dates for patents was calculated seventeen years from the date the patent issued. (For patents filed after 1995, the calculation is now 20 years from the priority date.). The ‘688 patent issued on November 18, 1997. Thus, barring any other non-apparent extensions of time, the ‘688 patent expired seventeen years from that issue date, i.e., November 18, 2014.
Accordingly, Novartis cannot claim any damages for infringement of the ‘688 patent after November 18, 2014 (expiration date), and it cannot claim any damages six years before filing its complaint, March 19, 2012 (six year statute of limitations). Thus, the best that Novartis can do in this case is collect past damages between March 19, 2012 and November 18, 2014. That’s about two-and-a-half years of damages.
According to the complaint, Regeneron launched Eylea® in November 2011, and it launched Zaltrap® in August 2012. Thus, Novartis’ damages will be based off of the early years for both drugs, during which time their sales were likely ramping up. Novartis should not likely be able to reach into the recent sales years for Eylea®.
Can Novartis boost the damages somehow?
Even though Novartis’ damages are limited to the two-and-a-half year period between March 2012 and November 2014, Novartis is attempting to boost those damages in two ways. Novartis appears to be seeking lost profits and it also alleges willful infringement.
Novartis’ complaint alleges that Lucentis® is a competing product to Eylea®. Novartis claims that it manufactures Lucentis®, even though the FDA license for the drug is to Genentech, which also performs the labeling and packaging of the drug. Novartis also alleges that it manufactures Lucentis® for distribution in the EU as well. Novartis claims that Lucentis® and Eylea® are competing products for vitreoretinal eye disorder therapies. At best, Novartis appears to be laying the groundwork for claim that it lost profits on Lucentis® due to sales of Eylea®. (Novartis does not appear to be claiming lost profits in connection with Zaltrap® because Zaltrap does not appear to compete with Lucentis®.)
Damages for past infringement of a patent typically come in two forms, a reasonable royalty or lost profits. Lost profits are typically greater than a reasonable royalty. Here, Novartis may have a claim to lost profits, to the extent it was involved in the manufacture of a competing product. But the critical question is whether lost “profits” will be that big. Novartis does not appear to market or sell Lucentis®. Rather, the FDA license belongs to Genentech. Thus, at best, Novartis’ lost profits should likely be limited to its “profits” in connection with the manufacture Lucentis®. And that depends on the deal it has with Genentech. If Novartis shares profits with Genentech for Lucentis®, that may be material. If Novartis acts only as a contract manufacturer, for fixed service fees and the like, the lost “profits” may not be that material.
Novartis is also claiming willful infringement. Willful infringement always has the prospect of being a game changer when it comes to damages. If infringement is shown to be willful, then courts have discretion to triple the size of the damages. While the standard for showing willful infringement was recently lowered (see greater discussion here), willful infringement still typically requires showing at least knowledge of the patent and some circumstantial evidence that the defendant intentionally copied it. The more you can bring to the complaint the better. Here, Novartis alleges that Regeneron willfully infringed the ‘688 patent, but it includes no specific factual allegations to show that.
That does not necessarily mean that Novartis will not be able to show willfulness, eventually, through discovery. Indeed, these biologics patents are typically in niche fields, worked on by a limited group of scientiests, where the competing companies do, typically, keep an eye on each other’s patents. But even with that said, Novartis’ claim to willful damages appears to be speculative at this point, at best, rather than rooted in something concrete.
Can Novartis get an injunction against Regeneron?
No. Novartis has not requested an injunction against Eylea® or Zaltrap® in its complaint, and it there is no threat that this lawsuit will remove those drugs from the market. Novartis makes out a case that it manufactures a competing product, which is typically a pre-requisite for seeking an injunction. But the ‘688 patent is expired, and because of that, Novartis is not entitled to any future relief for infringement of this patent, either in the form of future royalties or an injunction. This is not an injunction case.
How strong is Novartis’ case?
Both Eylea® and Zaltrap® include the same active ingredient, namely, the recombinant fusion protein aflibercept. To show infringement, Novartis relies upon one of Regeneron’s own patents, U.S. Patent No. 7,070,959. Regeneron appears to have applied for a patent term extension for the ‘959 patent based upon the FDA’s regulatory review of Eylea®. The FDA, in conjunction with the Patent Office, will extend the term of a patent up to five years for delays due to FDA review and approval of a licensed pharmaceutical drug. Regeneron’s application for patent-term extension appears to have acknowledged that the ‘959 patent discloses a method of production of Eylea®. Regeneron’s ‘959 patent discloses production of aflibercept and that that production utilizes the Lonza GS Express System™. Novartis’ complaint explains that Lonza Group, which is not a party to the case, has sold a gene expression system called Lonza GS Express System™. Novartis claims that system purportedly infringes the ‘688 patent. Putting these things together, Novartis alleges that Regeneron’s production of aflibercept for both Eylea® and Zaltrap® infringes the ‘688 patent. If all of these facts check out, then Novartis appears to have a comparatively tractable case that Eylea® and Zaltrap® infringe the ‘688 patent.
The validity of the patent also appears to be relatively strong. This is not the first time that Novartis has sued for infringement of the ‘688 patent. In 2011, Novartis sued Biogen, Alexion Pharmaceuticals and MedImmune for infringement. By 2014, all three parties appear to have settled with Novartis before any substantive determinations regarding infringement or invalidity. Right before settling, the defendants moved for summary judgment of non-infringement and invalidity. Novartis cross-moved for summary judgment of “no invalidity.” That type of motion, while not conclusive, is at least suggestive that Novartis’ validity theories are strong enough for summary judgment.
In sum, Novartis does not seek an injunction, and its case is limited to damages within the two-plus years after Eylea® launched, but Novartis’ own competing product may be behind its strategy for this case.