Life Sciences Legal Insights

Life Science Financings Show Uptick in Valuations in 2012 and Increased Activity by Corporate Investors

By: Matthew Rossiter

Times are tough in the life science financing environment, as underscored by numerous recent news stories as well as quarterly statistics from Dow Jones VentureSource and The MoneyTree Report.   

However, Fenwick’s First Half 2012 Life Science Venture Capital Survey highlights a few potential bright spots as well.  In particular, while the number of life science financings declined significantly during the first half of 2012, our survey indicates that valuations have improved modestly, and we also see evidence that large biopharma and medical device companies are increasing their support of startup ventures.

Fenwick’s latest survey analyzes venture financings for 186 U.S.-based life science companies over the first half of 2012. One metric used to assess the health of the life science funding environment is to look at the change in share price from one round of funding to the next.  In 2012, the trend has been positive, with average price increases of 19% and 26% for Q1 and Q2, in comparison to average price increases of 4% and 11% for Q1 and Q2 of 2011.

Another way to look at the data is to measure how many funding rounds occurred where the price per share increased (up rounds) or decreased (down rounds) from the previous round.  For the first half of 2012, up rounds outpaced down rounds 53% to 19%, with 28% flat. This is a modest improvement over results from 2011, which averaged 47% up rounds and 25% down rounds, with 28% flat.

It is important to put these valuation trends in context: fewer life science financings are occurring, and the life science valuation figures trail those of other industries covered by our Silicon Valley Venture Capital Survey.  However, the upward trend in valuations is an indication that startups are continuing to develop promising technologies that can justify a step up in valuation – in other words, there is a healthy supply of promising new ideas.

Likewise demand for new ideas with demonstrated potential, in the form of acquisitions of life science startups by large life science companies, also continues to be strong.  A recent report from Silicon Valley Bank, as well as blog posts by Bruce Booth (Atlas Ventures) and Bijan Salehizadeh (NaviMed Capital), highlight the continuing strength of the current life science M&A market.

Generic Drug Testing “Safe Harbor” Expanded by Recent Court Decision to Include Post-approval Activities Under Hatch-Waxman

By: Michael Shuster

The August 2012 decision in Momenta Pharmaceuticals v. Amphastar Pharmaceuticals, Inc. has expanded the “safe harbor” provisions of Hatch-Waxman, with serious implications for the pharma and biotech industries.

Hatch-Waxman contains a "safe harbor" provision for the use of patented inventions "reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs.” 35 U.S.C. § 271(e)(1)

Generally understood as a provision permitting companies to test or experiment with patented inventions prior to an FDA submission - such as a generic drug maker prior to submission of an ANDA - the provision's scope has expanded over the years.

The biochemical facts of the Momenta v. Amphastar case are involved, but it boils down to a conflict between two generic producers of the anti-coagulant drug enoxaparin (brand name: Lovenox). Momenta, which had received FDA approval for its ANDA on enoxaparin in July 2010 owns a patented method for ensuring enoxaparin's bioequivalence to Lovenox. Amphastar's ANDA was approved by FDA in September of 2011. Momenta alleged that Amphastar was in ongoing violation of the Momenta patents in determining the bioequivalence of its own version of enoxaparin. Without establishing bioequivalence, generics cannot be legally marketed.

Momenta was granted a preliminary injunction, but the Court of Appeals for the Federal Circuit vacated, reasoning that Amphastar's batch testing of its enoxaparin for purposes of establishing bioequivalence fell under the Hatch-Waxman safe harbor. The majority found that Amphastar's ongoing testing was part of a system of required record keeping for FDA, and thus brought the testing within Hatch-Waxman safe harbor.

A strong dissent from Chief Judge Rader suggests that we have not heard the end of this case. Perhaps further appeal and an en banc hearing may be in store. 

Are Biosimilar Names Key to Biosimilar Fates?

By: Michael Shuster

"People's fates are simplified by their names" goes the quote from the Bulgarian novelist and playwright Elias Canetti. Whether this is indeed true for people is debatable but for biological drugs names are apparently critical, or so we can gather from recent warring between branded and generic industry organizations. Last week industry organizations BIO and PhARMA issued a rare joint letter to FDA commissioner Margaret Hamburg strongly supporting the use of unique names for all biosimilar products, whether deemed fully 'interchangeable' or merely biosimilar. The Generic Pharmaceutical Industry, understandably, disagreed, in its own letter to Commissioner Hamburg.

The naming situation with biological drugs is more complicated than for small molecule drugs because even interchangeable biologics are not identical in the strict chemical sense that small molecule drugs are identical.

Thus there can only be one trastuzumab ("herceptin"), and a biosimilar version, even an interchangeable one under the law, could, at best, be called "biosimilar trastuzumab" - but BIO would prefer FDA require such a biologic to have an entirely new name. For the generics industry, the marketing burden of educating doctors (and patients) that a drug with an entirely new name is actually biosimilar herceptin would be formidable.

It will be up to FDA to decide on the naming rules, and the rest will be up to fate (or marketing genius).

PDUFA Working Its Way Through Capitol Hill

By: Jake Handy

The Prescription Drug User Fee Act (PDUFA) re-authorization wrangling is underway on Capitol Hill. Today the House of Representatives takes up its version of the FDA bill the Senate passed last week. On May 24th the Senate version of the PDUFA bill passed on a 96-1 vote. The current PDUFA will expire on October 1st and debates in the House could, potentially, take all summer. However, legislators and industry observers have expressed hope for a final bill to be presented to the President for signature in early July. We'll be closely following the progress of the reconciliation of the House and Senate bills.

Estimates vary but the present PDUFA will likely bring in around 6.4 billion dollars to FDA over its active period. Since PDUFA fees account for the majority of the FDA's drug review budget, the core PDUFA legislative mandate has broad bi-partisan support. While PDUFA itself is fairly non-controversial, the various amendments that were attached at the beginning of the week led to intense debate. Many of those proposed amendments - such as energy drink registration and Canadian drug importation - were dropped from the final version of the Senate bill.

California Supreme Court to Hear Cipro "Pay-For-Delay" Case

By: Ewa Davison, David Tellekson

The California Supreme Court will review the legality of so-called “pay-for-delay” settlements, whereby brand-name pharmaceutical manufacturers pay other companies to delay release of a generic version of a patented drug. Although the California Supreme Court will be making its determination under state law, a decision finding all such agreements illegal would have a national impact.

The “pay-for-delay” agreement at issue here settled a patent infringement lawsuit filed by Bayer AG and its subsidiary after Barr Laboratories, Inc., sought to market a generic version of the antibiotic ciprofloxacin hydrochloride, commonly known as Cipro. Under the terms of the 1997 agreement, Barr agreed not to market a generic version of Cipro until after expiration of U.S. Patent No. 4,670,444, in return for which Bayer paid Barr almost $400 million. The ’444 patent, which claims the ciprofloxacin hydrochloride molecule, expired in 2003.

Recent Cases Raise Bar for Approving Generics

By: Michael Shuster

The Hatch-Waxman Act, a federal law passed in 1984, was designed to streamline the process for bringing generic drugs to market. Under the law, generic drug manufacturers may file an abbreviated new drug application (ANDA) with the FDA toward approval for generic versions of already-approved drugs.

Such filings are founded on bioequivalence studies instead of clinical studies. In the filings, generic manufactures also must certify that the listed drug is not patented, that the patent has expired or that the patent is invalid or will not be infringed by the generic drug.