As a special feature of our blog, we include special guest postings by experts, clients, and other professionals—please enjoy this blog entry which includes guest author Rolf J. Haag.[1]

It has been impossible to miss the surreal volatility in Bitcoin’s per unit price—having gone from $1,000 in January 2017 to almost $20,000 (~$750B mkt. cap) toward the end of last year and retracting to under $8,000 (~$500B mkt. cap) in February 2018. Whether these G-LOC-inducing price undulations are reflective of a radical paradigm shift in the mode of financial transactions, history’s greatest pyramid scheme, or some mix thereof, remains to be seen. Continue Reading Will Blockchain Revolutionize Bio/Pharma R&D, Tech Transfer, and IP?

On December 7, 2017, the FDA announced three new policy documents geared toward advancing and properly overseeing innovative new digital health tools. The documents mark an acute recognition by the FDA that as consumers and health care providers increasingly use digital technologies as health tools to acquire information, the FDA’s policies must continue to encourage the development of such technologies.

Of the three new guidance documents, two are drafts and one is final. The guidances address the provisions of the 21st Century Cures Act and clarify where the FDA has a role in the promotion of digital health care.

The first guidance is titled “Clinical and Patient Decision Support Software” and addresses clinical decision support software (CDS). CDS technology assists health care providers in making decisions as to the course of treatment for a patient’s disease or condition. The FDA seeks to encourage software developers to create and expand CDS functionality in treating old and new diseases. The guidance identifies which types of CDS do not qualify as a “medical device” and thus do not require FDA regulation, namely, CDS that permits the health care provider to independently review the basis of the recommendation for treatment.

The second guidance addresses the FDA’s interpretation of other types of software that are similarly no longer considered medical devices, titled “Changes to Existing Medical Software Policies Resulting from Section 3060 of the 21st Century Cures Act.” In particular, this guidance sets out that digital health technologies such as mobile apps that are used by consumers to log, record, track, evaluate and make decisions on a healthy lifestyle, like dietary logs, meal planners, or activity trackers, fall outside the scope of FDA regulations.

Lastly, the FDA issued a final guidance, “Software as a Medical Device: Clinical Evaluation,” expanding the draft issued in October 2016. The guidance establishes and harmonizes global principles for evaluating the safety, efficacy and performance of Software as a Medical Device, based upon the overall risk of the product.

The three guidances issued last week seek to continue to clarify the FDA’s role and oversight in digital health technologies. As the ever-changing field of digital health technology expands, so too will the FDA’s efforts to encourage innovators to create and expand such technology.

The ability to facilitate the regeneration of parts of the human body is “no longer the stuff of science fiction” according to FDA Commissioner Scott Gottlieb.[i] According to Commissioner Gottlieb, the cell based therapies and their use in regenerative medicine is one of the most promising fields of science already producing “improbable advances.” At the current early stages of development, deceptive claims from unscrupulous actors risks “jeopardizing the legitimacy and advancement of the entire field.” In order to curb such deception while simultaneously providing a clear and efficient path for product developers, the FDA has recently published a suite of four new guidance documents related to their regenerative medicine policy framework.

These four guidance documents represent a broad policy framework by the FDA building upon the framework put into effect in 2005. In its never ending battle to ensure the safety and efficacy of medical products while simultaneously supporting innovation, the FDA’s new approach will undoubtedly entail additional requirements on those innovators in the regenerative medicine field. It is important to review the guidance documents to ensure compliance with the FDA, but also to take advantage of the various opportunities for approval for those medicines and products that meet certain criteria. For this purpose, below is a brief summary of what the guidance documents include.

As guidance documents, the information provided does not create legally enforceable responsibilities, but rather they provide a glimpse into how the FDA is currently thinking and how the FDA will likely apply the existing laws and regulations that govern regenerative medicine products. Two of the documents are final guidance documents now in effect with the remaining two documents in draft form allowing the public to provide their comments.

Final guidance documents

The first guidance document titled “Same Surgical Procedure Exception under 21 CFR 1271.15(b): Questions and Answers Regarding the Scope of the Exception”[ii] provides clarity on when cell and tissue-based products would be excepted from the current regulations if they are removed from and implanted into the same individual during the same surgical procedure and remain in their original form.

The second guidance document titled “Regulatory Considerations for Human, Cell, Tissues, and Cellular and Tissue-Based Products: Minimal Manipulation and Homologous Use”[iii] clarifies how the FDA interprets the regulatory definitions for “minimal manipulation” and “homologous use.” This guidance is particularly helpful in that these concepts establish the legal threshold for when a particular product is subject to the FDA’s premarket approval requirements. In light of the how this new interpretation will effect manufacturers, healthcare providers, the FDA plans to exercise ‘enforcement discretion’ to those products that do not pose a potential significant safety concern for 36 months.

Draft guidance documents

The first draft guidance document titled “Evaluation of Devices Used with Regenerative Medicine Advanced Therapies”[iv] attempts to clarify how the FDA will evaluate devices referred to as “regenerative medicine advanced therapies” or “RMATs” in accordance with the regenerative medicine provisions in the 21st Century Cures Act. These devices include medical devices used in the recovery, isolation, or delivery of RMATs. It is the goal of the FDA to simplify and streamline the application of the regulatory requirements of RMATs.

The second draft guidance document titled “Expedited Programs for Regenerative Medicine Therapies for Serious Conditions”[v] describes, unsurprisingly, various expedited programs to sponsors of RMATs. In addition, the guidance also describes the new RMAT designation process to be used.

The two draft guidance documents were posted to the Federal Register on November 17, 2017, with a comment period ending February 15, 2018. There is ample time for interested parties to assist the FDA in finalizing the draft guidance documents by submitting a comment by the February 15, 2018, deadline.

These guidance documents may provide new opportunities or new requirements for those operating in the field of regenerative medicines. They should be reviewed to ensure compliance with existing laws and regulations while also looking to take advantage of the programs to accelerate FDA approval.


[i] “Statement from FDA Commissioner Scott Gottlieb, M.D. on FDA’s comprehensive new policy approach to facilitating the development of innovative regenerative medicine products to improve human health” posted November 16, 2017, available at https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm585342.htm; see also, “FDA announces comprehensive regenerative medicine policy framework” posted November 16, 2017, available at https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm585345.htm.

[ii]  Available at https://www.fda.gov/downloads/BiologicsBloodVaccines/GuidanceComplianceRegulatoryInformation/Guidances/Tissue/UCM419926.pdf.

[iii] Available at https://www.fda.gov/downloads/BiologicsBloodVaccines/GuidanceComplianceRegulatoryInformation/Guidances/CellularandGeneTherapy/UCM585403.pdf.

[iv] Available at https://www.fda.gov/downloads/BiologicsBloodVaccines/GuidanceComplianceRegulatoryInformation/Guidances/CellularandGeneTherapy/UCM585417.pdf.

[v] Available at https://www.fda.gov/downloads/BiologicsBloodVaccines/GuidanceComplianceRegulatoryInformation/Guidances/CellularandGeneTherapy/UCM585414.pdf.

BioLoquitur has reported on legislative developments in the past, but never did we expect to discuss a tax bill. Last week, however, the U.S. House of Representatives passed the “Tax Cut and Jobs Act” Bill (H.R. 1) and H.R. 1 deserves a spotlight. After all, one of our goals is to provide the life science industry with the latest news that could affect the industry.

Below are a few provisions that could affect U.S. pharma and biotechnology companies and others investing in those companies.[1]

  • Section 3001 reduces the U.S. corporate tax rate from 35% to 20%. If the bill goes into law, the reduction will be the largest corporate tax cut in over 100 years.
  • Under Title IV, the U.S. will only tax the U.S. income of a corporation and exempt most or all foreign income. Currently, a corporation headquartered in the U.S. pays corporate income tax on all income, both U.S. and foreign income that has been brought back into the U.S.
  • Section 3401 eliminates the Orphan Drug Tax Credit (“ODTC”). Currently, the U.S. provides an orphan drug manufacturer a tax credit of 50% of qualified clinical research costs incurred between the date of approval for the drug and the date that the U.S. Food and Drug Administration (“FDA”) designates the drug as an orphan drug. According to the U.S. Department of the Treasury, the tax expenditures attributable to the ODTC credit are expected to be $2.3 billion in 2017 and would grow substantially over the next ten years; eliminating the credit would thus generate billions in revenue for the United States.
  • After December 31, 2022, Section 3315 provides that research and experimental expenditures are not deductible unless they are charged to a capital account, where they must be amortized over a five year period. Currently, the tax code allows such research and experimental expenses as a deduction without requiring amortization under 26 U.S.C. § 174(a).
  • Section 3312 changes the tax treatment for self-created patents, taxing the gains from sales of such patents as ordinary income rather than capital gains.
  • Section 3307 narrows the ability to deduct certain business expense, eliminating deductions for membership dues, any payments relating to “entertainment, amusement, or recreation,” and on-premises athletic facilities, among others.
  • Section 1308 repeals the deduction for medical expenses. The tax code provides for the deduction of medical expenses that exceed 10% of an individual’s adjusted gross income. H.R. 1 eliminates this deduction. Critics suggest the elimination may potentially leading to reduced consumer spending on medical needs and/or increased reliance on government healthcare resources.

At 450 pages, H.R. 1 is a complex and dense bill — the list above is not exhaustive, of course.  We will keep you updated as tax reform continues.

 

[1]          Title V amends several provisions relating to exempt organization that are beyond the scope of this article, but may be of interest to research universities and foundations. If you have questions on the potential impact of Title V, please contact us and we will refer you to our tax and benefits colleagues for further information.

shutterstock_99945896The value of an early stage biotech company is driven primarily by the quality and scope of its intellectual property. As such, these companies’ primary goal is to stake out and consolidate a defensible claim in their technology space.

In sizing up an early stage company’s IP portfolio during due diligence, many investors and acquirers tend to focus on prior art issues related to patentability and freedom-to-operate concerns posed by the potential risk of someday being sued for infringing a third party patent. However, a hyper-focus on patentability and freedom to operate may be misplaced during early stages of technical development.

Often overlooked is the fact that substantive patent prosecution often winds through years of negotiation with the Patent Office. Moreover, claim sets in a filed patent application continuously evolve not only in response to Examiner rejections but also to track and cover important developments in lead candidate selection and pre-clinical product design, for example.

Additionally, biotech companies usually take advantage of the safe harbor set forth in 35 U.S.C. § 271(e)(1) to avoid charges of infringement for research activities associated with pre-/clinical development. This affords them a certain luxury of freedom with respect to third party patents as they develop their technologies.  Therefore, while early stage companies are expected to understand their competitive IP ecosystem, be aware of potentially threatening third party IP and even have an informal game plan in place to deal with such risks; sophisticated investors and BigPharma acquirers infrequently require that such companies will have actually made cash-draining licensing investments or aggressively attacked third party patents through litigation or Inter Partes Review.

In practice, therefore, sophisticated due diligence with respect to an early stage intellectual property portfolio is often better served scrutinizing an entirely different and more pressing aspect of the technology: Chain of Title.

Between 2007 and 2012, U.S. industrial biopharmaceutical annual R&D spending dropped by about 15%.  It is reasonable to assume that BigPharma’s internal early stage research programs disproportionately fell victim to such cuts.  It is no surprise, therefore, that we have seen an increasing amount of initially publically funded academically derived technologies flowing through start-ups into larger companies.

Inventors generating these new technologies usually collaborate with other researchers at various universities, corporations and service providers. While University professors and post-docs generally owe a duty to assign their inventions to their respective institutions, industrial sponsored research arrangements and third-party grant making entities such as government agencies and philanthropies may nevertheless have their own rights in the IP arising out of the research they support.

Thus a complex juxtapositions of funding sources, inventors, technicians, institutions and former employers — particularly in an area of investigation where the number of experts is small — represents a minefield with respect to issues of technology control and ownership. If not properly managed from the outset Chain of Title issues can explode once a technology is deemed to have commercial value and an aggrieved party believes they are being excluded when the proverbial ‘cookie tray’ is being passed around in the form of liquidity event, for example.

We have often helped parties dealing with tangled chain of title issues.  In the best cases, critical transactions are merely held up and cap tables potentially adjusted while ownership issues are cleaned up.  In the worst cases, an exit is scuttled or a party is sued for breach of contract, breach of a duty of loyalty and misappropriation of trade secrets for example or even accused of inequitable conduct before the USTPO for willfully misnaming or excluding inventors.

Irrespective of who ultimately prevails on the merits in such disputes, the cost in terms of unproductive time, lost opportunity, money, anxiety and reputational damage will no doubt, have been immense. These are particularly painful to bear at the start up stage when cash and key person attention are at a high premium.

Therefore, when conducting due diligence on early stage biotechnologies, it is of critical importance to generate a comprehensive list of all scientists and technicians who were involved in the earliest stages of a technology asset.  Each such individual’s contribution should be carefully analyzed with respect to whether they likely qualify as a legal inventor for example.  Inventorship under U.S. law is tied to conception and linked in concrete terms a claim in a patent or patent application.  The standard for inventorship with respect to know how can be much less clear.

In addition to analyzing inventive contribution, each such person’s obligations to assign their rights in their inventions must be assessed. For example, is a person entitled to keep all rights for themselves or are they obligated to assign to their respective employer/university?  Have the critical requirements of the Bayh-Dole Act, e.g., iEdison reporting, been complied with by federally-funded institutions?  Furthermore, does the inventor in question have a relationship with a funding agency, e.g., through a sponsored research agreement with a biopharma industry partner that has a rights, e.g., of first refusal, to the inventions it funded.  It is imperative that these investigations are conducted early, be properly memorialized and that relevant employee policies, employment and funding agreements are collected and cataloged in preparation for potential future third party due diligence.

Only after matters related to IP inventorship, ownership and control are clarified, is a company in a strong position to efficiently go about raising money or seeking partners to exploit its intellectual property assets.