Teva: Seeing both sides of the coin

In 2012 the company launched its own version of Seroquel XR (quetiapine fumarate), an extended-release drug that treats major depression, bipolar disorder and schizophrenia, in Germany.

It provoked the ire of Seroquel XR’s maker, AstraZeneca, which subsequently secured a preliminary injunction against Teva’s generic version (called Quetiapine ER) based on a formulation patent. But the patent was later revoked in an action involving Teva, before Germany’s Federal Court of Justice confirmed the revocation in January 2015. Teva had a “substantial” damages claim against AstraZeneca for the seven months Quetiapine ER was off the market and the claim has since been settled on confidential terms.

“Damages claims such as this are very important for the generic industry as they demonstrate to the branded industry that there are serious financial consequences for them
in enforcing invalid patents,” says Gonen.

“We hope that cases like this will encourage judges to really consider the validity of patents at a preliminary injunction stage.

“It is not just the patentee that stands to make a loss if a preliminary injunction isn’t granted: the generic industry, payers and patients also suffer very significant losses if preliminary injunctions are granted on the basis of invalid patents,” she adds.

Headquartered in Israel, Teva is one of the biggest players in the global generics industry. The company says it is the world’s largest generic producer and that its products, which cover nearly every therapeutic area, comprise more than 1,000 molecules. Teva produces 73 billion tablets a year and claims that 2.7 million prescriptions in the EU and 1.5 million in the US are filled with its products daily.

Earlier this year the company made a significant stride towards cementing its dominance in the field, agreeing to buy Allergan Generics for $40.5 billion. Following the deal, Teva said it had approximately 320 pending Abbreviated New Drug Applications in the US and a commercial presence in more than 100 markets.

Gonen explains some of the legal challenges of developing and bringing to market a generic medicine.

“The legal landscape is complex, and certainty cannot always be achieved. For example, pending patent applications are difficult to assess as they have uncertain scope and may change until they have been granted as patents, and may not even be granted. Therefore, it is difficult to know whether to design the product around these patents or not—sometimes designing around is not possible or involves significant costs.”

Legal review is becoming more tricky and nuanced, she adds, with litigation costs, long or uncertain litigation timelines and uncertain outcomes just a few of the complicating factors.

Jurisdictional disparities

“Differing court decisions in different countries confuse things even further. One could definitely identify disparities between jurisdictions in Europe as a challenge. For sophisticated parties this may in fact also be an opportunity, assuming they know their way through the complicated, fragmented European landscape.

“Some countries have non-specialised judges dealing with highly technical issues, which at times creates unpredictability of results,” she explains.

Moving back to discussing preliminary injunctions, Gonen says that in some countries they are regularly granted without any assessment of patent validity, whereas in other jurisdictions validity is considered, creating varying risks between countries.

One of the biggest impediments to launching a generic product is the requirement in a number of jurisdictions to ‘clear the way’ of patents potentially relevant to the generic product in question, Gonen comments. In these situations the generic company must litigate patents in advance of launch and, she says, courts will favour preliminary injunctions without necessarily assessing the technical merits of a patentee’s case if the generic company does not ‘clear the way’.

“In no other industry sector are competitors required to give notice to all their competitor companies that they are interested in a product by signalling their intent to revoke a patent on a particular product. The current approach of many courts therefore ignores the commercial reality of competition within the generics industry and greatly disincentivises the proactive launch of a generic medicine in the face of patent rights.

“Furthermore, in the UK for example, litigation is quite expensive and you don’t always get a return on investment because you clear the way for everyone to come to market,” Gonen argues.

Worsening the problem is that increased competition results in having to factor the intentions and possible participation of multiple players into a litigation strategy

“For example, when deciding whether to clear patents out of the way, it should first be noted whether competitors have initiated or are likely to initiate actions. Multiple actions are more difficult to coordinate for the simple reason that all generic companies are competitors. It might be the case that commercially it makes more sense to simply wait and monitor third party patent litigations or initiate them in another country.”

One of the most significant issues concerning market entry comes where litigation has been initiated and a settlement is considered with the patentee, Gonen adds. There is an uncertainty in Europe about the permissible boundaries of patent settlements, she explains, which sometimes creates an obstacle to settlements and an uncertainty about market entry date.

Away from generics, Teva produces specialty pharmaceutical products, focusing particularly on drugs that treat central nervous system and respiratory problems, as well as pain and migraine. One of its best known products is Copaxone (glatiramer acetate), used to treat patients with relapsing forms of multiple sclerosis. In 2014, the company’s total net revenues reached $20.3 billion, and amounted to nearly $5 billion in the first quarter of this year. Speciality revenues accounted for about 40% of the overall Q1 net earnings, while the figure for generics was 53%.

"It might be the case that commercially it makes more sense to simply wait and monitor third party patent litigations or initiate them in another country.” Galit gonen

Teva’s dual role of producing generics and speciality products allows it to view the market from both angles. One of the problems for companies considering enforcing their patents is that it can be difficult to get information/samples to test for infringement until a generic product is on the market and “already eroding your market”, Gonen says.

While she admits that the expense of the litigation is less of an issue than on the generic side because it involves defending a product that is on the market and more profitable than a typical generic market entrant, “you have to pick your battles well, taking account of the peculiarities of the national legal systems”.

“It is important to monitor generic marketing authorisation (MA) activity because I learned from our litigations on the generic side that courts in the EU are often generous to patent owners when considering generic MAs obtained in advance of patent expiries,” she says.

The nature of litigation is not straightforward, she adds.

“Today there is more brand-to-brand patent litigation as often more than one company is working in a particular space, and patents may be broad enough to cover a competitor’s product as well as your own.”

Using the UPC

Looking ahead, Gonen says successful innovators will have to be completely prepared for the Unified Patent Court (UPC) system, in which she thinks drugs companies are likely to account for a sizeable chunk of litigation.

However, she concedes that particularly in the initial phase of the UPC’s implementation, many drug companies will tend to use the existing route into the national courts rather than litigating their European patents before the UPC, and opt-out these patents from its jurisdiction.

“The prime reasoning for this is that as attractive as a pan-European patent infringement injunction via the UPC may be, it has not been tested, and there are some concerns—rightly or not—about the quality of judgments and the course of procedure.

“Other reasons may also play a role, such as the characteristics of the pharma/biotechnology market,” she adds.

She compares this market with that of electronics, “which is deemed to be an important first mover in the UPC”.

“For electronic products, there is little regulation, and prices are determined via normal market mechanisms. New electronic product launches may therefore be made easily on a pan-European scale.

“It is completely different for pharma/biotech products. Market entry and prices are highly regulated, and the market conditions for, say, generic market entry—the prime source of patent litigation in the pharma market—may differ considerably on a country-by-country basis. New generic product launches may therefore start at a much more local level, in one or a few EU jurisdictions, in time followed by others.

“So, contrary to patent disputes in electronic cases, which may often require a pan-European approach (as offered by the UPC), the drug company may find appropriate recourse via patent litigation in one or more national courts,” she explains.

If in the initial stage the UPC does prove itself as an attractive venue, with high-quality judgments and procedures, “then we will definitely see an increase in UPC use by drug companies”, Gonen says, but that this could take a couple of years.

Second medical use

Gonen identifies patent protection for second medical use patents as another current hot topic. There have been problems surrounding the enforcement of these patents, she notes.

“Assume that product X, the reference product, has two indications: one for the treatment of disease Y (20% market share for product X’s use), and one for the treatment of disease Z (80% market share). Use of product X for the treatment of disease Y is not protected by any patents in Europe. However, use of product X for the treatment of disease Z is protected by a second medical use patent. Party A wants to bring a generic version of product X onto the market in, say, Germany, but wants to do so only for the treatment of disease Y. How should it proceed?” she asks.

She notes that regulatory agencies have permitted generic companies to ‘carve out’ of their product labels the patented uses and then come to the market with product literature only possessing the old, non-infringing use, but in Europe this situation is being challenged at the moment.

“Pfizer is pushing a significant action in the UK arguing that generic companies cannot only rely on ‘carved out’ labels and must demonstrate proactive avoidance of infringement in a number of other ways. Novartis is also pushing this agenda through similar litigation in the Dutch courts.

“I expect these actions to increase, partly because patent protection in the area of second medical uses is likely to expand as companies seek to repurpose old active substances through new research.

“This is an important avenue of product development which is highly beneficial to patients,” Gonen argues.

There is no doubt that the protection and enforcement of second medical use patents, like so many other IP issues in the pharma industry, will continue to affect Teva as both an innovator and a generics company. The dual perspective that allows the company to see things from both sides of the coin will surely provide Gonen with many more stories in the future.