Double Whammy for Genentech as Company Loses Key Patent, Gets Black Box Warning for Xolair

Key '405 Patent is Revoked

Genentech announced on Wednesday (21 February) that the USPTO has decided to revoke the company's U.S. Patent No. 6,331,415 (the '415 patent), which is also known as the Cabilly patent after lead inventor Shmuel Cabilly. The decision is a final action by the USPTO in response to a request to re-examine the patent's validity. According to the New York Times, the request was issued by a Chicago lawyer, presumably representing one of the companies that pay royalties on product sales to Genentech. There are four major products relying on the Cabilly patent for which Genentech receives payments: Abbott's (U.S.) rheumatoid arthritis drug Humira (adalimumab), Johnson & Johnson's (U.S.) cancer drug Remicade (infliximab), MedImmune's (U.S.) respiratory syncitial virus (RSV) vaccine Synagis (palivizumab) and ImClone's (U.S.) cancer drug Erbitux (cetuximab). The highest share of royalties comes from Humira, a Genentech spokesperson told the New York Times, while total royalty payments related to this patent last year totalled US$105 million.

The Cabilly patent has been the subject of a long dispute, initially between Genentech and British biotech Celltech (now part of Belgian pharma company UCB). Both companies were issued with patents covering similar monoclonal antibodies technology in 1989. When Genentech tried to secure a second patent using some of Celltech's patent claims, the USPTO had to consider the validity of the two companies' patents. It ruled in favour of Celltech as the original inventor in 1998. However, in 2001 the two biotech companies agreed that Genentech would be recognised as the original inventor—presumably because Genentech had found a draft patent application that pre-dated the Celltech patent. Although terms of the settlement deal were never disclosed it raised a lot of eyebrows, particularly because Genentech used the settlement to obtain a new patent, the so called Cabilly II, which was valid until 2018.

MedImmune, which has been paying royalties on its Synagis sales to Genentech, sued in 2003, claiming that patent protection should expire in 2006, which was the term of the original Cabilly patent. A 2005 preliminary ruling by the USPTO indicated that the '405 patent should be revoked because Genentech appeared to be double-patenting the same invention. However, MedImmune was not free to take on Genentech in the courts because it was paying royalties. Under U.S. law, a company that pays royalties for use of a patent is held to be implicitly recognising the patent's validity. However, this long-held legal tenet changed last month. In January 2007, the U.S. Supreme Court ruled that the holder of a patent license may challenge the patent's validity in court without having to refuse to pay royalties and break the license agreement, the San Francisco Business Times reported. The change in the law now allows MedImmune to proceed with legal action against Genentech without breaking the license agreement first.

FDA Requires Black Box Warning for Xolair …

On the same Wednesday, the FDA ordered Genentech to include a so-called black box warning in the labelling of its asthma drug Xolair, to highlight the risk of a potentially life-threatening allergic reaction known as anaphylaxis. The latter had been observed in about 1 in 1,000 patients in clinical studies and the FDA was aware of it when it reviewed and approved Xolair in 2003. However, the risk of anaphylaxis was thought to exist mainly at initial use of the drug and to be present for two hours after the Xolair injection had been administered. The agency has now said that it has continued to receive anecdotal evidence of anaphylaxis reactions after initial use of Xolair, and that the risks remain for much longer than the two-hour period after administration, reports the Associated Press (AP). As a result of the new evidence, the FDA has ordered the addition of new warnings on Xolair's labelling (see box).

Xolair is approved for the treatment of asthma in adults and children over the age of 12 with allergies, whose asthma is not adequately controlled by inhaled steroids. The drug is co-marketed in the United States by Novartis, under an agreement with Genentech.

… Amid Other Worrying News

The Xolair black box warning order came in what has been a particularly bad week for Genentech in terms of product news. As Global Insight reported yesterday (see United States: 22 February 2007: The Lucentis-Avastin Showdown: Will the Pharma Industry Ultimately Lose?), the U.S. authorities are initiating a head-to-head clinical trail to compare the safety and efficacy of two of Genentech’s drugs—Avastin and Lucentis—for the treatment of age-related macular degeneration (AMD; the leading cause of blindness in the United States). Only Lucentis is approved for this indication, but doctors are using small doses of cancer drug Avastin off-label to treat AMD. If the two drugs are found to have similar safety and efficacy profiles for AMD, the government could favour the much-cheaper Avastin for reimbursement under Medicare Part D plans.

Meanwhile a Phase III trial found that Avastin, in combination with gencitabine and cisplatin chemotherapy, prolonged progression-free survival in patients with previously untreated, advanced non-squamous, non-small cell lung cancer (NSCLC). The only worrying—and unintended—result of the study for Genentech was that the effectiveness of Avastin was the same whether it was used in a high or low dose (15 mg/kg or 7.5 mg/kg). The finding has sent the stock of both Genentech and its majority owner Roche (Switzerland) down on fears that doctors will begin to prescribe lower doses of Avastin. The monthly price of Avastin in NSCLC is US$4,400 in the lower dose, compared to US$8,800 in the high dose, Reuters reports.

Outlook and Implications

In response to the USPTO ruling, Genentech said in a statement that ”the '415 patent remains valid and enforceable through the appeals process” . The entire appeals process could take one-to-two years or longer, according to the company's estimates. While the appeal is going through the court Genentech will continue to receive royalties in relation to this patent. With the increased risk of MedImmune litigation—which is now possible without a prior termination of the licensing contract—Genentech is more likely to seek a compromise. Loss of royalties related to the ‘405 patent will have a limited impact on Genentech—after all, these royalties accounted for only US$0.06/share, equivalent to 3% of Genentech’s adjusted earnings per share of US$2.23 in 2006.

The Xolair black box warning represents a more significant risk to Genentech, especially as it is coupled with the risks to Lucentis and Avastin. On the positive side, the risk to Lucentis is some way off, as the government-sponsored clinical trial will take two years to complete. The risk to Avastin revenues if a lower dose is prescribed, on the other hand, is palpable and more immediate. The impact will depend on whether the lower dosing benefits are limited to NSCLC or if they are found in the treatment of other cancers, for which Avastin is being investigated. In 2006, Genentech’s sales of Avastin were US$1.7 billion (54% higher year-on-year), sales of Xolair were US$425 million (33% higher year-on-year) and sales of Lucentis were US$380 million (following a 30 June launch).