[Ip-health] JD Supra: NIH May Own Gilead's Blockbuster Hepatitis Drug Due to Misstep

Andrew Goldman andrew.goldman at keionline.org
Tue Mar 27 17:18:24 PDT 2018


NIH May Own Gilead's Blockbuster Hepatitis Drug Due to Misstep
March 27, 2018

Every year, the National Institutes of Health (NIH) spends billions of
federal dollars on research and development of new drugs and therapies for
treating and preventing serious illnesses. Drugs to combat everything from
pandemic flu to cancer, pain management and chronic, debilitating diseases
like hepatitis have resulted, at least in part, from NIH funding. Funding
is often awarded in the form of contracts and grants to universities,
pharmaceutical companies and cutting-edge life sciences companies.

NIH funding can mean the difference between success and failure for many
companies. However, there can be a dark side to the federal funding
rainbow: failing to comply with NIH regulations. NIH, like all other
agencies, is subject to the Bayh-Dole Act (BDA), Pub. L. 96-517, 35 U.S.C.
202, which imposes affirmative duties on funding recipients to (1) report
the development of “subject inventions,” (2) formally elect to retain title
to such inventions, and (3) file for patent protection of those inventions.
When recipients file patent application(s), they are obligated to disclose
whether their invention was federally funded. Virtually all NIH R&D grants
and contracts include these obligations, and overlooking them can have
disastrous consequences.

>From time to time, NIH-funded R&D gives rise to blockbuster treatments like
sofosbuvir, the active ingredient in Harvoni, Sovaldi, Epclusa and Vosevi –
revolutionary hepatitis C drugs. Sofosbuvir-based drugs have few side
effects and have so far achieved a nearly 100 percent cure rate in affected
patients. Of course, that cure comes at a steep price; Harvoni, for
example, costs $100,000 per patient for several rounds of treatment. These
drugs, in turn, have drawn billions of dollars annually in combined sales.
In 2017, Gilead reportedly earned $9.1 billion on its four products to
treat hepatitis C, including Harvoni and Sovaldi.

On March 14, 2018, Knowledge Ecology International (KEI), a nonprofit
organization, asked the Secretary of the Department of Health and Human
Services (HHS) to investigate a failure to report NIH funding in U.S.
Patent No. 7,964,580, which is listed in the FDA Orange Book for all Gilead
sofosbuvir-based hepatitis C drugs.1 If HHS finds a failure to disclose NIH
funding in the patent, KEI has further requested that the government take
ownership of the patent based on the BDA’s reporting and disclosure
provisions. Gilead, therefore, could be forced to forfeit its title to the
patents — a boon for patients and insurance companies, and a bust for
Gilead.2 Of course, with billions at stake, Gilead is likely to defend
itself aggressively.

This is not the first time NIH has considered taking ownership of patents
due to noncompliance with the BDA requirements. In Campbell Plastics v.
Brownlee, 389 F.3d 1243 (Fed. Cir. 2004), the Court of Appeals for the
Federal Circuit held that failure to meet the BDA’s obligations can cause a
federal funding recipient to lose its patent rights, even absent any
particularized harm to either the funding agency or the public. In
Campbell, the federal contractor failed to disclose the “subject invention”
within the requisite two-month timeframe. Campbell Plastics did not
disclose its patent application to the U.S. Army until after the patent was
issued and long after the specified time periods had passed. After learning
of the patent, the Army determined that Campbell Plastics had forfeited
title to the patent by failing to elect title using the forms and timing
the contract specified. The Federal Circuit upheld the decision, and the
contractor forfeited the patent. The Campbell outcome cost the company
dearly, and the potential for loss in Gilead’s case is much larger.

The new Gilead controversy is an important reminder that inventions
resulting from federal R&D funding have significant strings attached. Many
recipients assume, without confirming, that they are compliant. That
high-risk assumption carries with it the very real prospect that the
company could later be stripped of its patent ownership and suffer a host
of associated legal and business setbacks.

Instead, each funding recipient should develop and rigorously adhere to
internal policies and procedures — with appropriate training — to ensure
that it timely (1) identifies subject inventions internally, (2) discloses
those inventions to the funding agency, (3) formally communicates its
election to retain title, and (4) discloses the source of federal funding
in any patent application, all while generating the necessary written
records to prove that it timely complied with the applicable BDA
requirements. Internal policies and procedures should be reviewed
periodically to ensure continued compliance.

Recipients should also periodically review the status of government-funded
inventions, even after the funding agreement has been completed. Any
identified issues should be reported at once to the funding agency to
mitigate any forfeiture risk. The subsequent sale of the patent assets and
inventions to a third party may not prevent the government from taking
title to the invention. Accordingly, third parties interested in acquiring
a government contractor should thoroughly investigate the contractor’s
compliance with BDA mandates.

Internal compliance measures and periodic reviews can greatly reduce a
recipient’s exposure, and companies should consult with legal counsel to
ensure their policies are comprehensive and up to date. The Gilead issue
illustrates the importance of implementing such measures — they may mean
the difference between success and failure for federal R&D funding


1 The ’580 Patent has been the subject of other battles as well. In
February 2018, a federal judge in Delaware reversed a previous $2.54
billion jury verdict that resulted from a finding that Gilead’s
sofosbuvir-based drugs infringed a patent owned by Idenix Pharmaceuticals
Inc., a Merck subsidiary. Additionally, another nonprofit group, Initiative
for Medicines, Access & Knowledge, has filed petitions with the U.S. Patent
Trial and Appeal Board seeking to challenge Gilead’s Orange Book-listed
patents covering Sovaldi.

2 Once notified, the government must elect to take title within 60 days.
See 37 C.F.R. § 401.14(d)(1). However, proposed changes to the BDA were
published in the Federal Register in November 2016 with a request for
public comment. One important proposed change is the removal of the 60-day
time during which the government can request title after learning of an
unreported or unelected invention. Under this proposed change, if the
initial disclosure and election of title requirements are not timely met,
the government has the opportunity to request, at any time, title to the
invention and any associated patent rights. Consequently, the title to the
patent rights may be permanently clouded if the initial disclosure or
election was not timely made. This proposed rule change has not yet been
made final.
Andrew S. Goldman
Counsel, Policy and Legal Affairs
Knowledge Ecology International
andrew.goldman at keionline.org // www.twitter.com/ASG_KEI
tel.: +1.202.332.2670 <(202)%20332-2670>

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