1. www.fitzpatrickcella.com Eyes Wide Open: What you must do to see beyond the veil FTO In The Wider Context - Due Diligence - by Raymond R. Mandra March 29, 2007

2. 2 www.fitzpatrickcella.com Due diligence For Acquiring A Biopharma Candidate – What Is It? Due (satisfy a need, obligation or duty) Diligence (the attention and care legally expected or required) You Will Need to Know: –What am I actually getting? –What is its value? Note: Same questions if an outright acquisition or license

3. 3 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate – Overview What is being Acquired? Does the Seller have adequate protection for the candidate? Will the Purchaser have freedom to operate after acquiring the candidate by assignment or license? Note:As used herein, Seller may be a Licensor and Purchaser may be a Licensee.

4. 4 www.fitzpatrickcella.com Acquisition of BioPharma Candidate – What is being acquired or licensed? Is it a drug or biologic product? How is the candidate characterized? What is its chemical structure? Do isomers exist? What is the nucleotide or amino acid sequence? What are the scientific and/or trademarks?

5. 5 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate – What is being acquired or licensed (Cont’d)? What is the formulation? What are the indications? What is the status of any clinical trials? What are the most effective routes of administration? What are the mechanisms of action?

6. 6 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate- Does the Seller have adequate protection for the candidate? What is the scope of protection for the candidate? –What is the scope of patent claims directed toward the candidate? –What is the geographic scope of patent protection? –Is this consistent with the geographic scope of market authorization? What is the length of protection? –What is the term of each patent directed toward the candidate? –Have there been challenges to the patent(s)? –Have there been disclaimers to any of the patents? –Have any of the patents been extended? –Have the patents’ maintenance fees been paid? –Is there or Will there be market exclusivity due to regulatory approval? Does the Seller have the right of protection? –Is the Seller the owner of the patent(s)? –Was the candidate properly protected? –Was protection maximized with regulatory approval?

7. 7 www.fitzpatrickcella.com Acquisition of BioPharma Candidate- Does the Seller have adequate protection for the candidate? What is the scope of protection for the candidate? What is the scope of patent claims directed toward the candidate? –Patents are the only legally enforceable documents, but pending patent applications should also be reviewed. –Protection is determined by the claims of an issued patent, e.g., claims to »The biopharma candidate per se, e.g., either as a name, or product by process »Pharmaceutical compositions comprising the biopharma candidate »Metabolites of the biopharma candidate »Mechanisms of action »Methods of using the biopharma candidate for its indications –Remember, claims may be limited by the prosecution history

8. 8 www.fitzpatrickcella.com Acquisition of BioPharma Candidate- Does the Seller have adequate protection for the candidate? What is the scope of protection for the candidate? (cont’d) What is the geographic scope of patent protection? –Patent protection is specific to the region: –A U.S. patent entitles its owner the exclusive rights to make, use, sell, and offer for sale patented products and processes only in the U.S. and its territories, i.e., the owner does not have the right to prevent the manufacture, use, sell or offer for sale of the patented product and/or process outside of the U.S. –A PCT application is one mechanism to apply for patents in multiple regions or nations. »A regional application may have effect in a range of countries, e.g., the European Patent Office grants patents that can be validated in some or all countries contracting to the European Patent Convention. »Due diligence requires examination of designations of and validations of any such regional patents. –Patent families may be searched by INternational PAtent DOcumentation Center (INPADOC).

9. 9 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate- Does the Seller have adequate protection for the candidate? What is the scope of protection for the candidate? (cont’d) Is the geographic scope of protection consistent with the geographic scope of market authorization? –Regional market authorization may be required before the candidate may be exploited in that region –Approval in the United States is performed by the Federal Drug Administration (FDA). –Both drugs and biologic products are subject to IND regulations. –Drugs are approved under an NDA under the Federal Food, Drug, and Cosmetic Act. –Biologics are approved under a BLA according to the Public Health Services Act. –Similarly, biotechnology drugs have to be approved through the European Medicines Evaluation Agency (EMEA) –Market Exclusivity after approval is provided by, inter alia, a nonexpired patent.

10. 10 www.fitzpatrickcella.com What is the length of protection? What is the term of each patent directed toward the candidate? –Terms of a patent are set by statute. –U.S. application filed before June 8, 1995: the greater of 17 years from the date the patent issues or 20 years from the earliest U.S. filing date. –U.S. application filed on or after June 8, 1995: 20 years after the filing date of the earliest filed application –European patent: 20 years as of the filing date of the application. Have there been challenges to the the patent(s)? –U.S. patents are challenged through lawsuits, reexamination proceedings, and interference proceedings. –European patents are challenged by lawsuits and opposition proceedings. Acquisition of a BioPharma Candidate- Does the Seller have adequate protection for the candidate?

11. 11 www.fitzpatrickcella.com What is the length of protection? (cont’d) Have there been disclaimers to any of the patents? –A patentee may make a disclaimer of any complete claim. –In view of such a disclaimer, the patent is viewed as though the claim never existed. »Notice of such a disclaimer is attached to copies of the patent. –Also, a terminal disclaimer leading to the premature expiration of a patent may be filed. –Terminal disclaimers are often filed when a common inventor/owner has a later filed patent application to claims, e.g., formulations of the candidate, which would be obvious in view of an earlier filed patent claiming, e.g., the candidate per se. »Due diligence requires ascertaining that ownership of the terminally disclaimed patents has been commonly maintained. Acquisition of a BioPharma Candidate- Does the Seller have adequate protection for the candidate?

12. 12 www.fitzpatrickcella.com What is the length of protection? (cont’d) Have any patent terms been extended? –35 U.S.C. 154: extension for delay in prosecution of the patent, e.g., due to interferences, government secrecy order, and appeals. –35 U.S.C. 156 : extension equal to a portion of the regulatory review period, e.g., by the FDA for market authorization, occurring after the patent is issued. An example is included in the written materials. –This extension cannot exceed 5 years. –The patent term cannot be extended beyond 14 years from the time of FDA approval. –Supplementary Protection Certificate (SPC): extension of a European patent for up to five years for regulatory review. Acquisition of a BioPharma Candidate- Does the Seller have adequate protection for the candidate?

13. 13 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate- Does the Seller have adequate protection for the candidate? What is the length of protection? (cont’d) Have the patents’ maintenance fees been paid? –Maintenance fees for U.S. Patents are due at 3 years, 6 months; 7 years, 6 months; and 11 years, 6 months calculated from the date the patent is granted. –Payments may be made without a surcharge during a “window- period” of 6 months preceding each due date. –Payments may be made with a surcharge during the 6 month window immediate following each due date. –Failure to pay maintenance fee within the prescribed window periods results in expiration of patent, unless delay is deemed unintentional or unavoidable. –Furthermore, annuities must be paid for the maintenance of an SPC at the beginning of each year of the SPC duration.

14. 14 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate- Does the Seller have adequate protection for the candidate? What is the length of protection? (cont’d) Is there or will there be market exclusivity due to regulatory approval? –A drug candidate may have non-patent related market exclusivity as enforced by the Federal Food, Drug, and Cosmetic Act. –A drug candidate that has not been previously approved by the FDA in another NDA will be provided 5 years of exclusivity during which the FDA will not approve or accept an abbreviated new drug application for a generic drug candidate. –A drug candidate that contains an active moiety that has already been approved but was approved under a second NDA that reports new clinical investigations that were essential for the approval of the second NDA will receive 3-year market exclusivity. –Other examples are exclusivity provided for orphan drugs, NDA’s directed toward treating children, and 180-day generic drug exclusivity. »The exclusivity for orphan drugs also applies to biologic products. –Due diligence requires determination of whether these FDA-enforced exclusive periods are still active and when they expire.

15. 15 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate – Does the Seller have adequate protection for the candidate? Does the Seller have the right of protection? Does the Seller have ownership of patents covering the candidate? –Why ownership is important. – Any owner of a patent may exercise his or her right to use, sell, and granting licenses to the invention without another co-owner’s consent, and such use does not constitute infringement. Such right impacts the Purchaser’s or Licensee’s exploitation of the candidate. –How is ownership determined? –In the U.S., ownership of a patent protecting an invention belongs to the inventor. A patent may have joint inventorship, and thus joint ownership. »Joint inventorship occurs “when collaboration or concerted effort occurs – that is, when the inventors have some open line of communication during or in temporal proximity to their inventive efforts”

16. 16 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate – Does the Seller have adequate protection for the candidate? Does the Seller have the right of protection? (cont’d) Does the Seller have ownership of patents covering the candidate? (cont'd) –Seller may have ownership over patents directed toward inventions created by Seller’s employees by –express agreements, e.g., written assignments, »Assignment formalities: the assignment must be in writing. Additionally, while recording the assignment is not required, it protects the assignee against subsequent assignments for value without notice. –implied-in-fact contracts »For example, where the employee was specifically hired to perform certain activities and was fully compensated for those activities. –shop rights. »An implied license to practice, not own, the invention. –Due Diligence requires that the Seller has secured the right of protection by recorded assignments.

17. 17 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate – Does the Seller have adequate protection for the candidate? Was the BioPharma Candidate properly protected? Were patents properly acquired? –Proper acquisition involves a duty to disclose to the PTO any material information that a reasonable examiner would consider important in making a determination of patentability, e.g., novelty, nonobviousness, and showings of unexpected advantages. –Inequitable conduct before the PTO results in a unenforceable patent –Due diligence requires inquiry into the file history and a review of all corresponding foreign applications to ensure all material information was provided accurately to the Examiner.

18. 18 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate – Does the Seller have adequate protection for the candidate? Was the BioPharma Candidate properly protected? (cont’d) Were patents properly enforced? –Proper Enforcement of patent rights against infringement –Statute of limitations is 6 years in the U.S. –Laches: The six-year period creates a laches defense against a damages award for any infringing activity prior to the filing of an infringement suit. –Implied licenses and estoppel: Additionally, a patent owner may be precluded entirely from enforcing its patents under implied licenses and estoppel doctrines. –Enforcement misuse: bringing a lawsuit despite knowledge of the unenforceability of the patent will result in the patent vulnerable to the patent misuse defense. –Proper marking of patented drugs – absent proper marking with the word patent and the patent number, i.e., a presumption of notice to alleged infringer, damages may only be recovered for infringing activity if it is shown that the alleged infringer had notice and only for infringing activities after such notice.

19. 19 www.fitzpatrickcella.com Was the BioPharma Candidate properly protected? (cont’d) Are patents properly being exploited (from a Licensor’s point of view)? –Licenses should have terms that maximizes the value of the biopharma candidate –Misuse in licensing practices (e.g., licenses that lead to tie- ins, tie-outs, price fixing) makes the licensed patent vulnerable to a patent misuse defense. Acquisition of a BioPharma Candidate – Does the Seller have adequate protection for the candidate?

20. 20 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate – Does the Seller have adequate protection for the candidate? Was the BioPharma Candidate properly protected? (cont’d) Was protection maximized with regulatory approval? –Once FDA approval is granted for a drug candidate, patents covering the candidate (e.g., have claims directed toward the candidate, formulations containing the candidate, and approved methods of treatment) may be listed in the Orange Book, which provides certain protective measures against generic competitors. –It is also important to note that assignment or license of patent rights does not have an effect on the right to use trademarks or copyrights associated with the candidate. –Due diligence requires determination that appropriate patents have been listed in the Orange Book and that rights to certain trademarks and/or copyrights, where appropriate, have been acquired.

21. 21 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate – Will the Purchaser be free to operate? Will the Purchaser be free to operate after obtaining an assignment or license? Are there any blocking third party patents and/or applications? Does the Purchaser need any third party licenses?

22. 22 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate – Will the Purchaser be free to operate? Are there any blocking third party patents and/or applications? Purchaser should search for third party patents. Also, Purchaser should search for published applications which give provisional rights. –Databases: www.uspto.gov; http://ep.espacenet.com, etc. –Search for key words –Search patent classifications:

23. 23 www.fitzpatrickcella.com Acquisition of a BioPharma Candidate – Will the Purchaser be free to operate (Cont’d)? –Considering types of claims that might cover the biopharma candidate: –Chemical name/product by process –Pharmaceutical compositions/formulas comprising the biopharma candidate. –Methods of delivering the biopharma candidate –Metabolites of the biopharma candidate –Mechanism(s) of action of the biopharma candidate –Methods of making the biopharma candidate –Methods of treatment with the biopharma candidate What is the strength of any existing third party patent/application

24. 24 www.fitzpatrickcella.com Does the Purchaser need any third party licenses? Insure that any third party license previously acquired by Seller may be transferred, e.g., assigned, to Purchaser and/or the effect of Purchaser’s interest in the candidate on renewal terms and conditions. Evaluate the terms each third party license: –Duration –Exclusivity –Assignability –Scope Purchaser should also request all FTO opinions prepared by or on the behalf of Seller relating to the biopharma candidate. Purchaser should be mindful of the Patent Misuse Reform Act of 1988 when evaluating third-party licensing practices. Acquisition of a BioPharma Candidate – Will the Purchaser be free to operate?

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