Life Sciences Grow Up

Optimism reigns in the life-sciences sector as biologics become a major driver of market growth
Photography by Jaime Hogge
Photography by Jaime Hogge

For those following the news in the life sciences sector, one could be forgiven for thinking things were looking down. A recent sharp downturn in share prices and regulatory concerns that have shrouded companies like Valeant are what garner headlines.

However, one gets a much more positive outlook when speaking with lawyers in the area.

Vanessa Grant of Norton Rose Fulbright Canada LLP in Toronto remains “cautiously optimistic” about what’s coming. “The regulatory challenges will always be with us, and while the uncertainty in the capital markets may lead to a decrease in IPO activity in 2016, Canada still has one of the strongest research capabilities in the world,” she says. “Those companies are creating value that global acquirers recognize. And the recent announcement of McKesson Corp.’s $3-billion acquisition of Rexall has started 2016 off well.”

Deals like this are a good sign, but looking at the science can give an even bigger reason for optimism.

Much of the promise in the life-sciences sector is landing in biologics, also known as biopharmaceuticals and distinguished from chemically synthesized drugs by the fact that they are manufactured in, extracted from or synthesized at least in part from biological sources. Biologics have become a significant driver in the evolution of the industry and the law around it and at a pace that is keeping stakeholders and lawyers busy and guessing.

Grant says the life sciences group at Gowling WLG, where she pratised until just recently, had one of the busiest years ever in terms of M&A and capital markets activity. Globally, the value of mergers and acquisitions in the biopharmaceutical industry hit a new record high of more than US$300 billion in 2015. That exceeded the previous record of more than $200 billion, set in 2014, by some 50 per cent.

For its part, Canada’s Venture Capital & Private Equity Association reported that life-sciences VC investment in 2015 was up 39 per cent in deal volume and 35 per cent in deal value over 2014.

“The rise of biologics and biosimilars in life sciences is a trend that has fostered both competition and restructuring in the industry, often through M&A activity,” says Cheryl Satin of Blake, Cassels & Graydon LLP in Toronto.

No less an authority than the federal government is of similar mind. “Biologics continue to become increasingly dominant in market share and as an exceptional driver of market growth,” says Industry Canada in a report entitled Canada’s Pharmaceutical Industry and Prospects.

Among the primary drivers of Johnson & Johnson’s status as one of Canada’s biggest-selling brands, for example, were the biologics Remicade and Simponi, both arthritis treatments. J&J is the parent of Janssen, Canada’s largest pharmaceutical company. “The top two or three and about six of the top 10 pharmaceutical products in Canada are biologics,” says Andrew Skodyn of Lenczner Slaght Royce Smith Griffin LLP in Toronto.

Grant also maintains that the current distress in commodities markets, to the extent it continues, will be a boon to life sciences. “What I’ve learned over 20 years in practice is that when commodities are down, money tends to land in life sciences,” she says.

EY Global appears to be of similar mind, albeit for different reasons. “In 2016, a renewed focus on value-based drug pricing, staunch competition across key therapeutic battlegrounds and consolidated payer clout may exacerbate existing growth gaps, resulting in a continued feverish deal environment for this year and beyond,” the consultancy says in an article accompanying the release of its Firepower Index and Growth Gap Report 2016 early this year.

 

As it turns out, Big Pharma is not the sole beneficiary of this trend. Combined with multinationals’ desire to improve their pipeline productivity, the growth of biologics has meant, according to the Industry Canada report, that small and medium biopharma enterprises in Canada “have an opportunity to flourish” given adequate access to capital. Indeed, the report cites “significant infrastructure and expertise in manufacturing complex products” such as biologics on a small scale as among the Canadian industry’s advantages. By contrast, large-scale biologics manufacturing is being hindered by the uneven distribution of an appropriate skilled talent pool.

Fortunately, the promise of biologics has induced a growing degree of cooperation between Big Pharma and embryonic biotechs, a partnership boosted by increasing involvement from the public sector.

In January, Prime Minister Justin Trudeau announced that the government would give $20 million to the Centre for Commercialization of Regenerative Medicine to establish and operate the Centre for Advanced Therapeutic Cell Technologies in Toronto in collaboration with GE Healthcare and other industry partners.

Earlier, Ontario’s Liberals spent $19.4 million to lure JLABS, a Johnson & Johnson biotech incubator, to its MaRS discovery district in Toronto. Economic Development Minister Brad Duguid assured the public that J&J’s investment “is significantly more than ours.”

The laboratory, the first JLABS outside the United States, will be larger than the ones in Boston, Houston and San Francisco. But like its counterparts, the Toronto site will provide research facilities for small, independent biotech startups.

“Historically, pharma research was done in-house but the multinationals are now realizing that there is great research being done outside their four walls,” Grant says. “The idea is to assist that research in the development stage so they can take a closer look at it later.”

Indeed, barely one month after the JLABS announcement, the Ontario Institute for Cancer Research (OICR) revealed a $450-million collaboration with Janssen and Novera to accelerate the development of a promising biologic for haematological cancers. Novera is a new Ontario biotechnology company that is exploring novel therapeutic compounds in conjunction with OICR and Toronto’s University Health Network.

Earlier, in 2014, TVM Life Science Ventures VII fund announced its fourth investment in a start-up with plans to develop a psoriasis treatment. The fund is a collaboration between Montréal-based TVM Capital Life Science and Eli Lilly. A press release described the collaboration as an opportunity “to finance and access innovation beyond the company’s walls” and as a way to manage risk and share reward.

“What we’re seeing is very much a maturing of the Canadian ecosystem in life sciences with a renewed era of great research,” Grant says. “The fact that J&J and others want to have an on-the-ground research presence in Canada is a recognition by Big Pharma that Canadian research is the type of high-quality, value-added research they’re looking for. And what we’re going to see over the next few years is Big Pharma acquiring some of the technology in which they are now investing.”

Even beyond that, the life cycle of biologics is not likely to be truncated any time soon. “The next wave of innovation in the treatment of diseases is personalized medicine, which is to a large extent the result of innovation in biologics,” says Timothy Squire of Fasken Martineau DuMoulin LLP in Toronto.

Personalized medicine means that therapeutic pharma is now targeting smaller populations that will benefit from what have been called “orphan” drugs. “The pharmaceutical industry has realized that the sale of mass marketing and mass sales for conditions that affect many people are behind us and most of them are going after special conditions, such as specific types of cancer,” says Gunars Gaikis of Smart & Biggar/Fetherstonhaugh in Toronto.

Jamie Mills of Borden Ladner Gervais LLP in Ottawa says the proof is in the pudding. “If you look at what companies have in their pipelines, the move away from small molecules to more and more biologics becomes increasingly apparent over time,” he says. As it turns out, that changes the game in a number of significant ways, both for the industry and its lawyers.

 

Insulin, among other established drugs, is a biologic. So it’s not as if biologics are new, but their organic derivation means that they are fundamentally different in makeup and production from the “small-molecule” chemically synthesized drugs that have been the mainstay of therapeutic treatment in humans for years. Because biologics are complex molecules, they can also change in unpredictable ways during manufacturing, so much so that “the process is the product” has become their frequent descriptor.

Scientists have known how biologics work for a long time. But now they can engineer the products on a large scale, making them commercially viable. The timing’s also right: as the patent cliff matures, companies need to expand their product pipelines quickly.

Commercial viability, of course, beckons not only entrepreneurs and established businesses. It also beckons lawyers of various kinds. But it beckons lawyers much more quickly than it does the law or the courts, a reality that can present a bit of a conundrum for lawyers advising on the regulatory and intellectual property aspects of biologics.

Although Health Canada has released guidelines covering biologics in recent years, a lack of clarity continues to exist. “In many areas, it is still uncertain just how Health Canada will deal with biologics and biosimilars,” says Bill Mayo of Aitken Klee LLP in Toronto.

To make matters worse, Canadian jurisprudence relating to biologic patents is so sparse that the Patent Appeal Board has frequently commented on it.

Health Canada has taken the differences between biologics and chemically synthesized drugs into account in the approval process by requiring more detailed chemistry and manufacturing information from manufacturers about biologics than the regulator does from small-molecule product producers. Special regulation is necessary “to help ensure the purity and quality of the product, for example to help ensure that it is not contaminated by an undesired microorganism or by another biologic,” according to Health Canada.

“Biologics need special regulation because you’re dealing with potentially dangerous living tissues that are very difficult to make and virtually impossible to copy,” says Jason Markwell of Belmore Neidrauer LLP in Toronto.

The difference between small molecules and biologics becomes even more pronounced in the case of products that follow innovative drugs to market. “The pathway for biologic late entrants is not the same as for generics,” says Andrew Tepperman, Vice-president of Charles River Associates, a consultancy in Toronto.

While generic small-molecule drugs do not need to demonstrate safety and efficacy, subsequent-entry biologics (SEBs) – known as “biosimilars” in the European Union and “follow-on protein products” in the United States – do, albeit to a lesser degree than the innovative biologics they are following.

Generic drugs are also judged on whether they are bioequivalent to the innovative drug, in the sense that they contain the same quantity of the same active ingredient that the body absorbs in the same way to produce the same effect. But the more complex SEBs can’t be judged on bioequivalence and therefore even approved products can’t be as easily interchanged with the original.

“SEBS are not ‘generic biologics’ and many characteristics associated with the authorization process and marketed use for generic pharmaceutical drugs do not apply,” Health Canada states. “Authorization of an SEB is not a declaration of pharmaceutical or therapeutic equivalence to the reference biologic drug.”

Rather, SEBs’ approval hinges on “similarity” to the reference biologic, something that is, in scientific terms, worlds apart from bioequivalence.

“Any chemist can make the small-molecule drugs,” Gaikis explains. “But it’s hard to make identical or bioequivalent biologics because biologics have a complex chemical structure and are protein-based. So approval for SEBs depends on similarity.”

But how much similarity? “That’s the $64,000 question,” Markwell says.

Where this all ultimately plays out is in the Federal Court, either in the form of proceedings under the Patented Medicines (Notice of Compliance) Regulations (PMNOC) or in the form of classical infringement actions. In either case, understanding the unique characteristics of SEBs and their regulatory path, especially the ways in which they differ from generics, will be essential for counsel.

 

In fact, like deal activity in the life-sciences sphere, biologics is likely to be a bright spot for litigation practices as well.

According to statistics from the Generics and Biosimilars Initiative, US$67-billion worth of biologics patents will face patent expiry by 2020. “Some important biologic drugs are coming off patent in the next seven years or so, so you’ll be seeing a lot more PMNOC activity,” Squire says.

Counsel will no doubt be tilling new soil. Since 2000, there have been only two reported cases involving biologics, both released within the last three years. The first decision was from Federal Court Justice Roger Hughes in an infringement action, AbbVie Corporation v. Janssen Inc. In finding that AbbVie’s patent for a class of antibodies was valid and that Janssen had infringed it, Justice Hughes ruled that a class of biologics can be defined by broad functional characteristics as long as the claims in support of the patent are clear and meet certain other requirements. His decision was set aside by the Federal Court of Appeal on unrelated grounds, however, and it remains to be seen how the trial decision will affect future interpretations of biologic patents.

Justice Hughes was also the judge in Amgen Canada Inc. v. Apotex Inc., the first PMNOC proceeding involving a subsequent-entry biologic. The 2015 decision, currently under appeal, deals with issues related to novelty, obviousness and utility. Should the appeal go to judgment, it could shed some authoritative light on these issues as they apply to biologics.

Biologics aside, PMNOC litigation has declined steadily over the past five years. “That’s probably a result of the patent cliff that emerged leading up to that period,” Markwell says.

Also impinging on PMNOC growth is the strengthened data protection scheme for certain innovative drugs that came into effect in 2006 when the federal government amended the Food and Drug Regulations to implement Canada’s obligations under NAFTA and the Agreement on Trade-Related Aspects of Intellectual Property Rights.

The provisions protect undisclosed test or other data necessary to determine the safety and effectiveness of a pharmaceutical product that utilizes a new chemical entity. Under the scheme, innovative drugs get market exclusivity for eight years.

“There’s about 150 of these drugs with respect to which the generics can only engage the NOC process after six years,” Markwell says. “That’s also part of the reason for the decline in applications.”

Given the importance of process in the development of biologics, traditional infringement proceedings may also get a boost. “Many patents for biologics are process patents, which are not eligible for the Patent Register and therefore not subject to PMNOC proceedings,” says Marie-Hélène Rochon of Norton Rose Fulbright Canada LLP in Montréal.

Traditional infringement litigation requires a completely different strategy than PMNOC proceedings. “It’s a longer cycle, because innovators can’t bring an infringement action until the new drug enters the market,” Rochon explains. “By contrast, PMNOC proceedings are part of the statutory market approval process.”

 

Volume aside, however, the evolution of the life-sciences market could augur a dramatic change in how patent litigation takes place.

Traditionally, law firms represented either innovators or generics. “Counsel are in quite separate camps,” says Rochon’s partner Brian Daley in Montréal.

But a recent upsurge in non-PMNOC intellectual property litigation, mostly patent infringement cases that pit innovators against innovators, is complicating the landscape. “The drugs involved here are often blockbusters and involve companies who want to access the market for new therapeutic uses for existing drugs before the generics come in,” Markwell says.

The difficulty, in Canada’s relatively small legal market, is that conflicts are more likely to arise. Complicating this in the biologics era is the fact, referenced earlier, that Big Pharma is increasingly forming alliances with start-ups.

“For the most part, it’s Big Pharma that wants to bring SEBs to market,” Markwell says. The result is that over time Big Pharma could as likely be proponents of SEBs as they are of innovator biologics, which could lead to more innovators challenging innovators and more conflicts for law firms.

“There are only a handful of large firms practising in this area alongside some smaller shops,” Gaikis says. “So practical issues are developing and boutiques that don’t have conflicts are starting to flourish.”

It’s not, however, as if Canadian law firms are on the verge of representing all comers. “Clients are still very cautious, and for the most part law firms are firmly on the brand side or the generic side,” Rochon of Norton Rose says.

History suggests the battle lines won’t bend easily. “For the most part, pharma battles have been hard fought and some of the scars and animosities are quite deep,” Gaikis says.

Quite apart from conflicts, the emergence of the Innovator v. Innovator scenario presents personal challenges. “People who have acted for innovators have a certain mental perspective on patent law that comes from repeatedly defending patents,” Gaikis says. “Attacking a patent requires a modified perspective, and that might not come so readily.”

As well, the evolving landscape raises strategic challenges. “In the old days, a generic company trying to invalidate a patent could come up with any attack it wanted to,” he says. “But when you get two brand-name companies clashing, they may each have their own portfolios to protect and could be wary of having their patents attacked on the same basis that has been successful for them in an infringement case against another brand.”

As well, extra-territorial considerations continue to gain significance. “This type of litigation is becoming ever more international in scale, with litigation in various countries occurring simultaneously,” Daley says. “That’s where you really need to ensure that a company is co-ordinating its efforts and ensuring that it’s taking consistent positions throughout.”

But the co-ordination can’t simply be a product of the litigation. “It’s equally important to co-ordinate patent prosecution strategy to facilitate protecting the patent in as many jurisdictions as necessary,” Daley says.

As Gaikis sees it, it all bodes well for IP practitioners in the life sciences. “Ultimately, we’re talking about health care and there’s always money to be made because either people will pay or the government will pay,” he explains. “As long as someone is willing to pay, the researchers will be there, and so will prosecuting and defending patents.”

What’s good for life science lawyers, Gaikis opines, is good for society.

“As long as patent law remains a busy, lucrative space, it’s a sign that science and medicine are advancing, and that’s in the public interest,” he explains.