Retroactive inter partes reviews (IPRs) of patents granted before the implementation of the America Invents Act (AIA) are not an unconstitutional taking under the Fifth Amendment, the U.S. Court of Appeals for the Federal Circuit ruled last week in Celgene Corp. v. Peter, answering a question the Supreme Court raised a year ago.

In its 7-2 decision last year in Oil States Energy Services LLC v. Greene's Energy Group LLC, the Supreme Court defined patents as a public right or franchise, adding that an IPR is simply a reconsideration of the grant of that right. In other words, an IPR is a way of correcting mistakes made in granting a patent in the first place.

Writing for the majority in that opinion, Justice Clarence Thomas stressed the narrowness of the court's decision, saying it "should not be misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause." He also noted that Oil States hadn't challenged the retroactive application of an IPR, even though the procedure was not in place when the patent in question was issued. Thus, that issue remained for a subsequent case.

Celgene raised the retroactive challenge when it appealed a Patent, Trademark and Appeal Board's (PTAB) IPR determination that all the claims of the company's '501 patent and all but one of the 32 claims in its '720 patent were obvious. Both patents protected Celgene's risk evaluation and mitigation strategy (REMS) the FDA required for the marketing of thalidomide.

In its appeal, the Summit, N.J.-based company argued that subjecting its pre-AIA patents to an IPR, a procedure that didn't exist when the patents issued, unfairly interfered "with its reasonable investment-backed expectations without just compensation," according to court documents. If true, that could violate the Fifth Amendment's Takings Clause.

But the Federal Circuit wasn't swayed by Celgene's argument, finding that the IPR didn't significantly differ from the ex parte examinations that the Patent and Trademark Office (PTO) had been using since 1980 to reevaluate the validity of issued patents. "The validity of patents has always been subject to challenge in district court. And for the last forty years, patents have also been subject to reconsideration and possible cancellation by the PTO," Chief Judge Sharon Prost wrote in the court's unanimous opinion.

Celgene's argument "was a long-shot defense that was worth trying," but no one really expected it to succeed, Aziz Burgy, a partner and patent attorney at Axinn, Veltrop & Harkrider LLP, told BioWorld.

However, the Federal Circuit ruling doesn't close the door on AIA post-grant challenges. There's still the possibility that the Supreme Court could grant cert should Celgene appeal, Burgy said. For that reason, he advised other companies to preserve the retroactive constitutional argument as they defend pre-AIA patents in IPRs.

There's also another question that has yet to be answered: Is there a viable constitutional challenge to covered business method (CBMs) reviews, which, like IPRs, were created under the 2012 act? While CBMs are not as prevalent as other patents in the biopharma sphere, Burgy said they could be used to protect intellectual property such as REMS. However, since the CBM reviews are scheduled to sunset next year, their constitutionality may not be tested, he added.

As the issues surrounding IPRs have played out in the courts, the IPR landscape has normalized, Burgy said. Once seen as patent killers, the PTABs that rule on IPR challenges are today much more in line with the courts in terms of their invalidation rates. And the threat of an IPR petition doesn't have the stock shock that it once did.

Determining clinical need

In another court case last week, a lower federal court clarified that outsourcing facilities are there to "fill gaps left by FDA-approved drugs," not act as alternative drug manufacturers. The U.S. District Court for the District of Columbia ruled against Buffalo, N.Y.-based Athenex Inc., which had challenged the FDA's refusal to place vasopressin on the list of bulk substances that can be compounded. Vasopressin is the active pharmaceutical ingredient (API) in Endo International Co.'s Vasostrict, an injection used to increase blood pressure in adults with vasodilatory shock.

Athenex's challenge centered on the definition of the "clinical need" that's required for a substance to be listed for compounding under the Drug Quality and Security Act (DQSA). To determine clinical need, the FDA asks whether a "bulk drug product fills a gap of medical unsuitability left by an approved drug and, if so, whether that gap cannot be filled by compounding with the approved drug," the court noted.

Athenex argued for a broader definition – one that would require only that the bulk substance itself demonstrate a therapeutic value. That definition would enable compounding of every active pharmaceutical ingredient, regardless of the availability of approved drugs containing those substances and their ability to meet patients' needs, the court said.

Acting FDA Commissioner Ned Sharpless called the court's decision in the first such test of the DQSA "a victory for public health." He also used the opportunity to highlight new steps the agency is taking to modernize and clarify its policies to ensure the quality of compounded drugs.

The agency is facilitating research efforts on bulk drug substances with the National Academy of Science, Engineering and Medicine and through the FDA's Centers of Excellence in Regulatory Science and Innovation with the University of Maryland and Johns Hopkins University. Those efforts will help in developing the bulk substances list, Sharpless said.

Later this year, the FDA plans to finalize a memorandum of understanding with the states to ensure coordinated safety actions and to maximize joint resources in inspecting and overseeing drug compounders.