Industry waits for fallout from Cabilly
`
`N E W S
`
`Seibert, director of intellectual property (IP)
`at YM Biosciences in Mississauga, Ontario.
`“I think it would make sense to stop paying
`royalties. But it’s difficult for companies to
`make that call.”
`Halting royalty payments is tempting
`because it could save a bundle in fees. “It
`works just like insurance,” says William
`Scofield, a partner at the law firm Lahive
`and Cockfield in Boston. “The question is,
`Do you pay the premium on the insurance
`policy and avoid the risk?”
`The decision to take the risk or not partly
`depends on how confident licensees are that
`Cabilly II will be invalidated at the end of the
`appeals process. So far the odds seem stacked
`against the patent. Nearly all the support-
`ing arguments for Cabilly II have been laid
`out already, and without new persuasive
`evidence, the board is unlikely to disagree
`with the USPTO’s first two rulings, say legal
`experts. On top of that, a separate Supreme
`Court decision this year in the patent lawsuit
`KSR v Teleflex, which makes it easier to gen-
`erally challenge patents based on obvious-
`ness, will likely make it easier to invalidate
`Cabilly II, as well (see p. 703).
`But the fate of the patent is far from certain,
`experts caution. “You never know what the
`courts will say,” says Alice Martin, a partner at
`the law firm Barnes & Thornburg in Chicago.
`
`Adding to the uncertainty, Cabilly II is also
`embroiled in a lawsuit brought against it by
`MedImmune of Gaithersburg, Maryland,
`which has challenged the validity of the pat-
`ent (Nat. Biotechnol. 25, 264–265, 2007). The
`case is pending in a California district court
`and could be combined with Genentech’s bat-
`tle with the USPTO if that case is taken to the
`court system, say legal experts. (MedImmune
`has been acquired by the London-based phar-
`maceutical firm AstraZeneca.)
`Plus, a licensee risks a lot if it gambles and
`loses. Anyone who stops paying Cabilly II
`royalties is at risk of being sued immediately
`by Genentech. If in the end the courts declare
`the patent valid, infringers could even be
`forced to stop making their products and
`pay triple damages for willingly disregard-
`ing their contracts. The risks are especially
`high for smaller biotechs who could be con-
`sumed by the distraction of a big lawsuit. “If
`Cabilly were upheld it could put you out of
`business,” says John Morrow, president of
`Newport Biotech Consultants in Newport,
`Kentucky.
`A less risky approach is trying to nego-
`tiate with Genentech or to work through
`legal avenues. Companies that have not yet
`licensed Cabilly II could try to include in
`new contracts a clause that says that if the
`patent is found unenforceable they get their
`
`Monoclonal antibody companies are eyeing
`their license agreements with Genentech
`after the US Patent and Trademark Office
`(USPTO) in February rejected a widely
`licensed patent, called Cabilly II, held by the
`S. San Francisco, California–based biotech.
`Genentech’s appeal of the decision could
`drag on for up to a decade and many experts
`say the patent is likely to be invalidated in
`the end. The momentum against Cabilly II is
`encouraging licensees and potential licensees
`to consider ways to avoid royalty payments
`while the patent is in question.
`Cabilly is one of the most ubiquitous pat-
`ents in biotech. Nearly any company wishing
`to use host cell culture to make therapeutic
`recombinant antibodies has to obtain rights
`to the patent. There are 21 monoclonal anti-
`body drugs on the market and nearly 40 in
`either phase 2 or 3 trials, many involving the
`Cabilly technology.
`The original patent was issued in 1989
`and was set to expire in 2006. But in 2001,
`the USPTO allowed Genentech to patent a
`continuation of Cabilly, dubbed Cabilly II,
`with an expiration date of 2018. The move
`angered many people in the industry who
`had endured the royalty burden for years.
`Pretax revenues from the Cabilly patents gen-
`erated for Genentech more than $100 million
`in 2006 and $32 million in the first quarter of
`2007, or $0.02 per share (Table 1).
`In 2005, upon an anonymous request, the
`USPTO reexamined Cabilly II and rejected
`it on grounds of obvious-type double pat-
`enting—it was a blatant variant of what had
`been claimed in earlier patents, including
`Cabilly I (Nat. Biotechnol. 13, 1329, 2005).
`Genentech appealed, leading to the second
`rejection in February 2007 of all 36 claims
`in the patent (Nat. Biotechnol. 25, 272, 2007).
`Genentech can appeal one last time to a sep-
`arate board in the USPTO, and if rejected
`again, the company will take its claims to
`the court system, according to a spokesper-
`son. The process will take at least two years,
`but will likely drag on much longer, and
`in the meantime, Cabilly II remains valid.
`“Genentech has every incentive to delay this
`as long as possible,” says Michael Siekman, a
`partner at Wolf Greenfield & Sacks in Boston,
`who estimates that the appeals process will
`probably last until 2013.
`With two strikes against Cabilly II and
`many legal experts betting that in the end the
`patent will be struck down, antibody players
`are considering their options. “It’s so obvi-
`ous that it’s a double patent,” says Jennifer
`
`©2007 Nature Publishing Group http://www.nature.com/naturebiotechnology
`
`Genentech
`
`699
`
`NATURE BIOTECHNOLOGY VOLUME 25 NUMBER 7 JULY 2007
`
`Genentech (headquarters pictured here) received royalty payments based on the Cabilly patents of
`$105 million in 2006. Payments are estimated at up to $120 million for 2007.
`
`Mylan v. Genentech
`IPR2016-00710
`Genentech Exhibit 2126
`
`

`

`N E W S
`
`Table 1 Major products for which Genentech receives Cabilly II patent royalties
`
`Company
`Hoffmann La-Roche
`(Basel, Switzerland)a
`
`Drug
`Rituxan (rituximab)
`Herceptin (trastuzumab)
`Avastin (bevacizumab)
`Synagis (palivizumab)
`
`Remicade (infliximab)
`Humira (adalimumab)
`Enbrel (etanercept)
`
`MedImmune (now acquired by
`AstraZeneca, of London)
`Centocor
`Abbott (Abbott Park, Illinois)
`Wyeth (Madison, N.J.)/
`Amgen (Thousand Oaks, CA)
`Erbitux (cetuximab)
`Imclone (New York)
`aHoffmann La-Roche has rights to these antibodies outside of the US.
`CD, cluster of differentiation; EGFR, epidermal growth factor receptor; HER, human epidermal growth factor receptor; RSV, respiratory syncytial virus; TNF, tumor necrosis factor; VEGF, vas-
`cular endothelial growth factor.
`Source: Genentech SEC filings.
`
`Type of monoclonal antibody; target
`Chimeric; CD20
`Humanized; HER2/ErbB2
`Humanized; VEGF
`Humanized; F (fusion) protein on surface
`of respiratory syncytial virus
`Chimeric; TNFα
`Human; TNFα
`Human; TNFα
`
`Indication first approved
`Non-Hodgkin’s lymphoma
`Breast cancer
`Colorectal cancer
`Prevention of RSV infection
`
`Crohn’s disease
`Rheumatoid arthritis
`Rheumatoid arthritis
`
`Chimeric; EGFR
`
`Colorectal cancer
`
`FDA
`approval year
`1997
`1998
`2004
`1998
`
`1998
`2002
`1998
`
`2004
`
`money back. Licensees could also try to
`set up an escrow account where their pay-
`ments for Cabilly II would be directed until
`a final validity decision is made. Companies
`with IP may have some bargaining power if
`Genentech is interested in their technologies.
`Also, existing licensees should double-check
`the language of their contracts to see if there
`is any way their royalties are contingent upon
`the validity of the patent.
`For companies that have licensed Cabilly II
`but have not yet brought a product to mar-
`ket, the best solution may be to do noth-
`ing, and hope the questions are resolved
`quickly. Inhibitex of Alpharetta, Georgia,
`for example, already shelled out $500,000
`in an upfront fee to license Cabilly II for its
`phase 2 candidate, Aurexis. Inhibitex does
`not owe Genentech further payment until it
`receives FDA approval, and by then Cabilly
`II may be struck down. “That’s the price you
`pay to be in the game,” says Joe Patti, CSO of
`Inhibitex. “We could have waited [to take a
`
`license] until closer to market but the price is
`usually higher then, plus we wanted to have
`our licenses in place during our IPO [initial
`public offering],” he says.
`Having licenses in place at the right time is
`crucial. Investors and potential acquirers want
`to know that a company has the proper IP and
`the freedom to operate, so for some, it may be
`best to pay the fees and move on. “It’s always
`simpler if you can tell a pharma that you have
`the license,” says Michael Braunagel, director
`of IP and licensing at Affitech in Oslo.
`So far, at least, it is not apparent that anyone
`has made a move to halt royalty payments.
`The top Cabilly licensees have remained
`tight-lipped about their strategy going for-
`ward. “I think it comes down to people being
`risk averse,” says Siekman. “There is a whole
`industry that hates this patent yet no one
`is willing to stick their neck out.” There are
`disincentives for biotech executives to take
`such risks, adds Thomas Kowalski, a partner
`at the New York law firm Frommer, Lawrence
`
`and Haug. “Middle managers get dismissed if
`their decision results in being sued, and they
`do not necessarily get advanced or a raise if
`they save license and royalty fees.”
`Bringing down Cabilly II may mean more
`than just royalty fees to some. One worry is
`that Genentech might discriminate who can
`receive the Cabilly II license so that it may
`block out competitive products. Genentech
`has in the past been fairly consistent in hand-
`ing out licenses, say experts, but there’s noth-
`ing forcing the company to be evenhanded.
`On the other hand, although most people
`in the field are rejoicing at the potential
`downfall of Cabilly II, the overthrow of a pat-
`ent is a little disconcerting to biotechs with
`their own IP. Says Michael Zwick, vice presi-
`dent of business development at Neoclone in
`Madison, Wisconsin: “If you’re a technology
`development company, you’re looking at this
`and going, Why did this happen and could it
`happen to me?”
`
`Emily Waltz, New York
`
`700
`
`VOLUME 25 NUMBER 7 JULY 2007 NATURE BIOTECHNOLOGY
`
`©2007 Nature Publishing Group http://www.nature.com/naturebiotechnology
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`