Video: Life Sciences Quarterly (Q4 2019): 2019 Roundup on Life Sciences Hot Topics

In a recap of our December presentation, which includes video and an accompanying transcript, a cross-practice panel examines significant developments, trends and hot topics in the pharmaceutical, biotechnology and medical devices industries that covers governance, intellectual property and FDA regulatory research.

Topics addressed include:

• The Clovis decision and its impact on board oversight and corporate governance
• What life sciences companies need to know about patent law trends
• Legal and regulatory landscape related to real-world evidence and “big data”

The Ropes & Gray panelists include strategic transactions partners Marc Rubenstein, Melissa Rones and Zach Blume, health care partner Mark Barnes, life sciences regulatory & compliance partner Kellie Combs, and litigation & enforcement partner Martin Crisp.

This presentation is part of Life Sciences Quarterly, a quarterly seminar series that delivers insights from Ropes & Gray attorneys, speakers from government and industry and other professionals as they examine key developments, issues and trends affecting the life sciences sector.

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Transcript: 

Marc Rubenstein: Welcome to the December edition of Ropes & Gray’s Life Sciences Quarterly. My name is Marc Rubenstein and I'm a partner in the life sciences practice at Ropes & Gray. Good to see you all this morning. So for those of you who have come to this in the past, thank you. But also be aware we're going to do something a little different today. We usually do deep dive on a single topic. Today we're going to cover five different topics – sort of a round up of hot topics of the year. We've never done this before so we'll see if we can logistically handle the transition, but bear with us. We'll be taking questions for each session. So, don't hold your questions from a particular session until the end just because we won't be up there at that point. So feel free to ask questions at the end of each session.

Zach Blume: Morning, everyone. Thanks very much for coming. I am Zach Blume. I'm a partner in our strategic transactions group in Boston and represent primarily life science companies in M&A and capital markets transactions.

Martin Crisp: Hi, good morning. Thanks for coming out. I’m Marty Crisp. I'm out of the New York office. I'm in the litigation and enforcement practice group. I do all sorts of matters, but mostly specialize in stock holder litigation, oftentimes in the life sciences sector. As we'll go through today, my practice includes a lot of traditional stock drop litigation that I'm sure you're all familiar with but it often includes a lot of state law fiduciary duty litigation where stock holders will sue directors and officers of corporations alleging that they've engaged in some kind of misconduct that's harmed the company. So just to kick us off a little bit I appreciate that no one's usually thrilled to see a litigator, particularly in the morning, usually means something's gone awry. But Zach and I have been talking along with some of our life sciences colleagues, and we've talked about some ways to provide some preventative medicine discussions to our corporate clients to avoid some of those down the line outcomes that no one really wants: the depositions, the invasive email discovery, all of that expensive trauma that folks have to endure years after something's gone a little bit sideways. So that leads me to a particular litigation trend that we've seen grow exponentially over the last couple of years and which we think has gotten a real shot in the arm from some recent cases coming out of the Delaware Supreme Court. So just to go some basics, I know this is a bit of an advanced audience so you're all probably familiar with this. We won't spend a lot of time on the basics. But directors and officers of corporations have fiduciary duties. Your duty of loyalty, your duty of care, the relevant law that's going to govern most of this is Delaware either because the corporation is actually incorporated in Delaware or because you have a state corporate law that is drawing by-proxy from Delaware because they don't have a well-developed body of law on their own. So when we see trends arise the incubator is often what we see in the Delaware Court of Chancery down in Wilmington. So when I was coming up, derivative lawsuits were few and far between. And it was a pretty sleepy area of practice. So derivative cases are technically corporate assets, but they're lawsuits that are brought in the company's right by individual stockholders claiming that current or former directors or officers of the company have acted in such a way as to harm the corporation and ultimately the additional stockholders. Again, it was pretty sleepy for a long time. It is no longer sleepy. We see a lot of these cases. And without boring you with the Delaware inside baseball, the ultimate reason why is that the plaintiffs' bar is economically rational. There's the famous quote from Willie Sutton, "Rob banks because that's where the money is." The plaintiff's bar will go where the money is. And the money right now from my perspective, aside from stock drop cases, is in these derivative lawsuits. And the reason why it's in these derivative lawsuits is because you have judges who are keenly focused on alleged conflicts and controller transactions and potential sort of dereliction of duty claims against corporate directors and also because you have D&O insurance policies which will pay out for these claims. And again, these are all things that are very well-known to a group of very, frankly, sophisticated commercially-rational actors. So that's really why folks have been voting with their feet and driven the claims towards there. So your typical fiduciary duty claims, again, duty to loyalty, that's really the focus for most of these claims. That usually involves some kind of allegation of a conflict of interest. And the reason why folks are focused on that is because claims for the duty of care are exculpated through most corporate charters under a section 102B7 provision. So there are no monetary damages available for that type of claim. So you really want to focus on your loyalty claims which plaintiffs can theoretically drive towards some kind of money damages award.

Zach Blume: It is fundamental and for all of you who have been at companies who have suffered a stock drop or have been through litigation in connection with a merger or other typical litigation of that sort that all of you are probably familiar with at least from some vantage, this really is a business. And I think that Marty would say it just as much as I would that the plaintiffs bar that represents people and seek out plaintiffs, if you see their press releases and otherwise, this is their business. And so they are going to find it's a bit of a herd and they follow where the money goes. And so we'll talk about current trend obviously here. But this is not always based solely on legal principles but rather where the dollars are.

Martin Crisp: Shocking. There's also no Santa Claus, I'm very sorry to say. So to fast-forward to the trend that I think we're here to talk about briefly today is the rise in what I call Caremark claims. Caremark claims are a unique spin on the typical breach of fiduciary duty claims, the core allegation there is that directors or officers breach their duty of loyalty because they fail to make a good-faith effort to oversee the company's operations. The way I sort of colloquially describe these is the dereliction of duty claim. Unlike most breach of fiduciary duty claims, these claims do not require any conflict of interest allegations. No one has to have been alleged to have an insider relationship or to have somehow been paid or otherwise benefited economically from whatever it is that the plaintiff is challenging. So Caremark imposes two burdens on directors of corporations: 1) that the board has to have a reasonable board-level system of monitoring and reporting; and 2) that the board has to adequately monitor that system of oversight. And what that second prong really means is directors have to be on the lookout for red flags of misconduct. That's the magic phrase in this world. So for years the Caremark claims, again, it was a pretty sleepy area of the law. They tended to get brought in extreme cases or by, frankly, the bottom feeders of the plaintiff's bar. If I saw a Caremark claim come in I wouldn't really be fussed and that's the type of counsel we'd be giving our clients. The magic quote here is it was “the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” And the reason for that is Caremark requires plaintiffs to plead and prove that the directors acted with scienter – they affirmatively willfully abandoned their duties as directors. And what well-advised board is ever going to really do that? And it's very difficult to prove that. However. that's on the rise a little bit which is contrary to what we've seen historically. So, again, as I talked about earlier, these are derivative claims brought in the right of the company. And without getting into all of the whys and wherefores the magic test for these plaintiffs is to try to show that a majority of the board abandoned their duties willfully and therefore they, the individual stockholder, should be vested with the right to pursue the claim, not the company itself. That they're the ones who are the true stewards of the company, not these directors who have essentially fallen asleep at the job and that they've done so willfully. The big benefit, and Zach sees these a lot, and I certainly do is that for derivative claims stockholders, particularly of Delaware corporations, and this is also now true in Massachusetts, can get what are called Section 220 books and records documents. And sadly, Josh over here, we've lived through this, over the course of the summer. And what that means is that there is a statute under most state's corporation law that allows stockholders to request corporate books and records. And the standard for obtaining those documents is incredibly low. It's, again, a very, very low standard. It's very easy to satisfy. And what that allows stockholders' lawyers to do is to get things like board meeting minutes, presentations to the board, presentations to relevant committees. Sometimes they get at emails and text messages if they're at the director level. And then they take all of that, they put their own unique spin and perspective on what those communications and documents mean and they draft a complaint and they file it. And they say, "Look at horribly these directors have behaved." So as opposed to someone coming in cold where they're just relying on the public pleadings, these folks really have a running start when they get into court.

Zach Blume: Yes, and this has been something that we've seen also in merger litigation, for instance, whereas previously you would oftentimes get a strike suit that would be filed very promptly after you would file your proxy or your tender offer documents. Now you may get a 220 demand where they're not only going to be, you know, trying to look at whatever disclosure you're putting out there. But they're also getting your books and records if they potentially have another post-closing demand. And so this has really become something that we're seeing people use pretty much in all of these strike suits as part their tool kit.

Martin Crisp: Yes, that's exactly right. And the Delaware courts have told them to do this. And when people have failed to do it they've scolded the plaintiff's bar. So it's almost a pre-req now for anyone that's trying to take these cases and pursue them seriously. So there are two cases that I think have been a real boon for the plaintiff's bar and were the genesis, in some ways, for this discussion. One is a case out of the Delaware Supreme Court called Marchand, which everyone just thinks of as Blue Bell because it's about the ice cream brand down in Texas that everyone is cultishly loyal too. And essentially what happened, as some of you may know, is there was a listeria outbreak with their products back in 2015. It was deadly. Some people died. Many people were very sickened. And it also was very economically harmful for the company because it precipitated a liquidity crisis. So unsurprisingly people sued. When bad things happen, plaintiff's lawyers sue. It's the axiomatic rule of the world. So folks sued. And they sued on a Caremark claim. Essentially alleging based on some 220 documents they had gleaned that the directors of Blue Bell had deliberately fallen asleep at the switch. And they went to the trial court. The trial court did what trial courts typically used to do with these claims and knocked it out of court and said that it wasn't well-pleaded. Case went up on appeal to the Delaware Supreme Court – Delaware Supreme Court reversed. It's a big day at least for those of us who practice a lot in Delaware to see the Delaware Supreme Court say, "No, no, no. This claim should go forward." And what the court really ultimately said is a quote that I think is important: “Caremark has a bottom-line requirement that the board make a good faith effort to put in place a reasonable board-level system of monitoring and reporting.” And in Blue Bell they said the board didn't do that. And the facts in Blue Bell are a little extreme. So that's the caveat to all of this. It's a monoline company. Right? They make ice cream. But there were no board-level reporting requirements on food safety. There was no regular procedure in place for the board to get updates about food safety issues. So they were totally flying blind with the type of risk that ultimately manifested in the outbreak and the court caught them for it. And they got scolded accordingly. So one other thing I think to talk about and maybe Zach has some thoughts too. But the court was really focused on whether the board was receiving reports from management on whether there were food safety issues at this company. And that has a little bit of an interesting ramification for the advice that we all give to our sort of C-suite and board-level clients on these sort of issues.

Zach Blume: Yes, and so for board meetings though when you were setting them up obviously on the agenda you typically would have key items that you know are fundamental to your business. And you would anticipate that an ice cream company, food safety is going to be among those. It may not be, in a given quarter, that critical. But you would expect some sort of report from either CEO who may be doing it or there might be somebody that's responsible for compliance. Or there might just be somebody that otherwise monitors facilities and the manufacturing here of the ice cream. That was clearly just not happening. So you would expect that just in the ordinary courts we might be able to address this, but it is something that you need to be thoughtful about. We'll talk a little bit more about that down the road. But one thing that I guess is an open question a little bit is how can a board who is actively having meetings and relying a little bit on management to report up, if they just never hear these details, it's hard to blame a board who is just in the dark and not necessarily at their for their own fault. I mean, if the CEO doesn't tell them something when he's asked and he is actively keeping it to himself it's hard to blame a board. But nevertheless, the plaintiffs will allege that the board was in the dark on this and at their own fault.

Martin Crisp: Yes, I think that's exactly right. I think ultimately some of the practical takeaway guidance that we can offer here is, look, if you set up reasonable reporting policies on your key risk areas and for some reason there's a risk that was perceived to be minor and somehow manifested in a bit of an outsized way or for some reason for a particular reporting period something just falls down a little bit and doesn't get passed up the food chain to the board. It strikes me as fundamentally unlikely that a court's going to hold the board liable for not having magically discerned that because what the board is really tasked with doing is designing the policies and procedures to set up a situation where they're going to get that information. And if systems sometimes fail and that kind of is what it is. But it's really incumbent on the board to set up a set of procedures to be able to get that information on a regular basis.

Zach Blume: Yes, and when we say also just one caveat to that, when we say that it's going to be hard for a court to actually affirmatively decide in favor of the plaintiffs here or that a jury would, we have to remember that the key element or key timing that we're actually looking at primarily is the motion to dismiss stage. If they adequate plead here that the board wasn't getting this information they may get past that motion to dismiss. And that's when it gets very expensive, very distracting and everything else for the company. So it doesn't necessarily mean that we're worried about whether the court ultimately years from now would actually decide in the plaintiff's favor. But it is more critical that we know with this motion to dismiss and whether we have facts that we can bat it away early on.

Martin Crisp: Yes, that's exactly right. So the other key case, which is somewhat more recent than Blue Bell is the Clovis Oncology case, which is the other type of potential Caremark issue which is, yes, you had policies and procedures in place, but did you follow them or did you sort of willfully blind yourself to data that was coming up to you on important issues? Again, I think it's important to note that this is, if not a monoline company, then a company that was particularly dependent on a particular pipeline product. So the court, again, was focused on the fact that this was so core to the company's operations, this issue, that the board was discussing the court was also particularly focused that the risk that was being breached here is a legal compliance risk, not just a business you should've gone path A with customer X instead of path B. So, there again, as Zach said, the key decision was at the motion to dismiss stage and the court denied the motion, allowing the case to proceed into the expensive document and deposition discovery. And ultimately concluding that the directors had ignored red flags and misconduct. And in doing that they relied on the fact that the board had received all of these presentations about the sort of industry standard, at least in the court's view of the world, ways to run this clinical trial but had affirmatively decided to ignore all that and publicly report data that was based on sort of information outside of the scope and mandate of the trial.

Zach Blume: And one of the challenges, of course that you all appreciate, is that what is a red flag. Of course you're looking at this in hindsight and of course if you put the facts together in the right way, in hindsight this looks like of course if you had looked at these documents you would have recognized this is a fundamental problem for us. But it's not always going to be that obvious. There are going to be just a number of facts that the board is going to hear in the ordinary course of their meetings and everything else. And it may not in their minds and reasonably so add up to a red flag that is just this is going to bring down the company or this is a fundamental problem for us. So it's just not something we can necessarily prevent in advance but we certainly need to be thinking through what are the key risks here and really analyzing the information thinking ahead to what it would look like in hindsight if you were challenged.

Martin Crisp: That's right. And I think we can fast-forward to the last slide. But to spoil it a little bit, as Zach said earlier, these folks have a herd mentality. So as you would expect, after Blue Bell and Clovis there's a million of these lawsuits now. Everyone's trying to file them. There's some sort of particularly prominent cases going on right now. There's one against Boeing about the 737 issues that they have that manifested in some crashes. There's one against a variety of life sciences and distribution companies out of the opioid crisis. And none of these cases have been successfully dismissed. So this is now the theory of case du jour that we're really dealing with on the day to day. And I expect we'll see many more of them as everyone sort of piles into the door to try to get their recovery before the pendulum invariably swings back a little bit more towards the defense side on these claims.

Zach Blume: Yes, and this is not to suggest necessarily that they're also doing the typical drop suit for these companies that are suffering these. They will do that in addition to this new type of litigation and hope to just double dip effectively on the same set of facts and hopefully just attack from two different angles.

Martin Crisp: Oh yes, that's exactly right. You'll have a plaintiff's lawyer tries to be the lead in a stock drop case, doesn't get it. Turns around, files the derivative case. It's just another way to put your sort of – to be coarse about it – to sort of put your snout in the trough.

Zach Blume: So just getting tethered to the bottom line for preventative measures that you should be thinking through and advising your board about. So again, there are two prongs really to these Caremark claims. And they're really – you need to both implement reporting measures and then you also need to follow through on them. If you're getting the information you need to actually actively look at it and think it through. So just a handful of best practices which most of you, I'm sure, are active on and implementing. But it's the critical thing at the very beginning is just to think through what are the key risks for the business. And for many companies that are probably represented here that might be pretty straight forward. You're in the clinic, really the clinical trial results are probably the fundamental aspect of it now. As companies grow, you not only have continued development but you have commercialization risk, you have financial issues that may be relevant. You may be expanding overseas where you're going to have regulatory risks overseas. So there may be many more. Once you identify those you need to ensure that the company has policies to address them. And, of course, again, many people put policies into place with the best of intentions when they do that. These need to be evolving, however. It's going to be one thing if you put a policy in place today. But the company's going to be very different two years down the road. And you need to continually think about whether what you have in place is appropriate for the business as it is now, not what it was two years ago because again, if a plaintiff challenges it, just because you had a policy reporting on the clinical trials to the company, once you've commercialized, that doesn't matter anymore to the plaintiffs. They also have to have obviously a reporting mechanism. Management should be encouraged to present information to them. But also, they need to be thoughtful about it. You need to engage the right advisors, the right consultants, the right experts on these areas to really talk about it. Obviously, directors typically are fairly sophisticated people. But they are still going to have specific skills person that is a former CPA and a great auditor may not be the best person to be looking at your regulatory policies. And you just need to also continue to build a record. For the people that are maintaining the minutes, that are setting up the board meetings, that are setting the agendas you need to make sure that all of this presents a story that you can then present if you were ever challenged, "Look, we had all of the policies in place. We actually talked about. We actually got information and considered it." It's not enough, again, just to have it somewhere that the directors never have access to and never actually engage on and think through. But you actually actively need to do this. And one final reminder on here is just to make sure that the D&O policy is going to adequately protect directors. It's something that you should be looking at every year. Obviously your brokers will probably be advising on it and encouraging to get more insurance at all times. But it is something to be thoughtful about. And it may be worth talking to your advisors about separately too just to see what new claims have come up and what you may need to be thinking through.

Martin Crisp: Yes and let me just hang a foot out on that D&O policy point, one thing we've seen a lot in the D&O market is people agreeing to higher coverage limits and more robust coverage language. But then tagging you with a really high retention so that you're never going to get there. So yes, you ostensibly have coverage but it's never realized because it only trips in after five million or something like that. So one thing we've been talking to folks about is really advising them to push hard on that retention issue so that the coverage isn't just theoretical.

Zach Blume: Great. So any questions or any… Steve?

Audience: So I assume the Caremark standard is under the duty of care, not the duty of loyalty, right?

Martin Crisp: It is actually a duty of loyalty line of cases where it is essentially saying that you, the directors, have acted so aggressively negligently that we have no choice but to assume that you acted in bad faith.

Audience: Interesting. And so that's because you had said earlier that there were more duty of loyalty cases than there were in the past, which I always felt duty of loyalty meant some sort of self-interest. But it's not just self-interest – it's gross and reckless behavior that advises the level of some duty…

Zach Blume: It's bad faith. Right? You are actively ignoring your duties. And you are actively acting adverse to your shareholders and to the company.

Martin Crisp: Yes, you're right that typically duty of loyalty claims are in the conflict of interest sort of hypothetical. But this is sort of an interesting varietal of that type of claim.

Audience: So that's not covered by the exculpation for the majority?

Martin Crisp: Correct. That's right.

Audience: I'm just curious to follow up on something you said a little while ago – you were talking about if board members aren’t informed they don’t have the information that’s right to really worry them or whatever. I guess I'm just curious, what is the duty of the board member to proactively inquire about it?

Zach Blume: Well, obviously I think the first prong that we talk about obviously is you need to set up this reporting and monitoring mechanism. You need to have policies in place that require management to push the information up to the board and to have the board receive that information. And the board should actively be saying, "Is this all of the…"simple questions – "Is this all the information? Do you have any concerns here? Do you have any thoughts here?" You may ask specific questions to management that is attending those meetings. But again, if all of those are in place and are actually satisfactory policies but management just doesn't tell them and you don't have a record of them telling them it's very hard to blame a director who's actively trying to do that. But again, in hindsight, it'll just look like they probably had access to it and you didn't do it. So it's tricky.

Martin Crisp: It is. I mean, I think Zach is exactly right. That if you have an adequately set up process and procedure situation I don't really view there as being an independent duty for some director to conduct an independent investigation to see if they're being misled or not being told all the information. But rather asking the sort of straight-forward questions Zach just mentioned I think would be adequate in that scenario.

Audience: So all these things are helpful in getting rid of sort of on the ultimate merits, but what can you do to be successful at the motion to dismiss?

Martin Crisp: Build your record. Period. Full stop. And let me tell you what I mean by that. So we talked about the 220 demand where plaintiffs are allowed to incorporate board-level documents into their complaint. What we now insist on in the NDA that gives plaintiff's lawyers those documents, it's what's called an incorporation provision, which says if you use a document, I get to use it too. And I can quote from that last part of the sentence you left out. So if you've got the aggressively-built record that Zach was talking about earlier you can say, "No, no, no if you look at the paragraph right below the one cited at paragraph 74 in the complaint you'll see that the directors were, in fact, updated about the regulatory risk concerning this particular potential product." And you put that in front of the judge. And you essentially force the judge to have to conclude that the directors face potential liability because they were somehow misled by the directors or something like that. So if you have the adequate policies and procedures and you've got an affirmative record of these folks fulfilling your duties even at a motion to dismiss stage, which arms you with a lot of the tools you need to try to knock that suit out.

Zach Blume: It is tricky though too, just in the ordinary course of board meetings it is not infrequent that we see that are very high-level. In fact, we encourage you to be relatively high-level in preparing your minutes. However, to the extent that you recognized that there are these key fundamental problems or potential problems it is probably advisable to start building out those sections a little bit more just to show what you've been talking about. And obviously to the extent there are materials that are shared at the board you want to make sure that those are included, they're put into your books and records and they're exhibit A to our minutes you'll see that we had this presentation from the compliance officer that highlights it. Those are the kinds of things that you would probably want to be looking at.

Melissa Rones: I'm Melissa Rones, and I'm a partner here in Boston in the strategic transactions group doing primarily IP work. So let's talk about patents. Usually I like to pick a really arcane topic of patent law to talk about. But today I've tried to do something less arcane. And that is that there's been an enormous amount of proposed litigation over the course of 2019 in the patent space. And I'll say, before even getting to it, this is all proposed. Most of this is in very early stages, and will undoubtedly change dramatically, at least in some cases, if it ever even gets to actual legislation. But I think, it's noteworthy for a few reasons. I think first of all, and we're going to go through maybe four proposed pieces of legislation, it really reveals a tension, significant tension that we're seeing a lot of in the news, as well as within the patent bar and within the patent system. And that tension between, on the one hand, the U.S. keeping its position as having a strong patent system, a system that rewards invention, that encourages innovation, which encourages investment. And on the other hand, concerns about the cost of healthcare, drug prices, and whether misplaced or not, a growing view that at least in some cases, the patents contribute in some ways to this issue. So this is the tension that I think is revealed in some dueling legislation. So we're going to cover, or at least talk a little bit about four pieces of proposed legislation. So first the Term Act. The Term Act has this slightly inflammatory stated goal of addressing the rising costs of prescription drugs by significantly limiting evergreening, whereby companies make minor changes to a drug and file for a new patent on those trivial changes to extend their exclusivity and maintain high prices, right. And reasonable minds will disagree about how trivial these changes are. But that's the stated goal of the legislation. It was introduced in early June by Representative Jeffries of New York, and it was referred to the Subcommittee on Courts, Intellectual Property, and the Internet in the end of June. So we're very early in the process. But what the Term Act would do is, it would amend Section 253. This is a section of the patent act around disclaimer. And it would create a rebuttable presumption that a patentee has disclaimed any patent term that extends beyond the term of the earliest expired patent that covers a drug. And so, if you think about this, let's say, in the Hatch-Waxman litigation context, Orange Book listed set of patents, this would create a presumption, a rebuttable presumption, but a presumption that anything beyond that term of probably your base patent, maybe to your composition of matter of your drug is not patently distinct, and you're not entitled to that additional term. For any of you with those kinds of products, you know that probably your whole patent strategy is around second and third generation patents that build on early innovation and provide for additional periods of exclusivity. So like I said, it's a rebuttable presumption, but still, a shifting in the presumption. In addition, the Term Act would require the USPTO to sort of look at its policies and its procedures around managing double patenting and examining things for double patenting, which for any of you who have any experience, particularly on the biotech and pharma side, I don't think that's something the PTO is having any trouble doing in its pretty ordinary course to get those. So I think the key takeaway here is, what the Term Act seeks to do is shift the burden on the patent holder, and put that burden on the patent holder to demonstrate why their second and third generation patents warrant new patent term and corresponding exclusivity. So, this is obviously a shift, right? Otherwise patents are presumed to be valid, and the burden is on the challenger, to show why that isn't the case. Critics have compared this pretty unfavorably to regimes used in sort of patent unfriendly jurisdictions like India and China where the ability to get reasonable second and third generation protection is pretty difficult. And even when you get it, not generally viewed as being particularly strong. They've also noted that this is a real showing of a complete lack of deference to the PTO and their examination procedures, and their ability to actually do this. Because remember, this is only coming up with issued patents, right. This is, you've gotten your patent through the patent office, you've made your arguments for patentability, and this disrupts that. But part of the criticism as well is, would this really change anything? To me, this is a piece of legislation that sounds very tough, sounds like we're going to go out there, and we're going to do something that's going to get generics on the market faster. It certainly would be a real departure in many of the basic principles of the patent system, in terms of presumptions. But does it really change things in a material way, in terms of the timeframe for generic entry? And what I mean is, you've got your patents, you've got your Orange Book listable patents. You're still with the generic challenges. You're still going to be in litigation. I think that this is going to be very fact intensive, right? This is going to all be about non-obviousness and patentable distinctness. So it's going to be fact intensive. It's going to be a battle of experts and of evidence. To me, it's not going to typically be the sort of thing that's going to get resolved on summary judgment. So now you're still looking at protracted patent litigation to resolve this issue, and all you've done is you've shifted the burden. And not that that can't be very meaningful in litigation. It can be very meaningful. But where it's going to be most meaningful is on the margins where that difference in who bears the burden is dispositive. And so to me, this is pretty crucial in the way it changes some very basic principles of patent law in an industry-specific way, alleging to solve a problem, and probably doesn't solve the problem at all, to the extent one believes there's a problem. So to put a pin in that for a second, because there's a second piece of legislation that in some ways tries to do the same thing and took a slightly different approach. But I think you can tell by the name of this legislation where its bias sits. The No Combination Drug Patents Act, creatively named I'm sure. And it's got a very similar stated goal. And it raises the concerns around so-called "patent thicketing." There's been a lot about that. It's been in the news a lot. It's become a bit of a dirty word, as if amassing patents is sort of per se a dirty thing to be doing. But its approach is actually a proposed amendment to Section 103. Right, in Section 103, this is a core of the tenets of patent eligibility. 103 is obviousness and nonobviousness, and would make this sort of industry, technology specific shift and change in 103, once again creating a presumption that these certain types of sort of second and third generation biotech innovation is obvious. So it would create a sort of presumption of obviousness that then applicant, during patent examination not just litigation would have to overcome. Here too, fundamental shift. Examiners have to come forth and make a prima facie case of nonobviousness that then the applicant can rebut. And this is a fundamental shift in that. So similar goals, or at least similar stated goals to the Term Act, but addressing it in a different way. So interestingly enough, although introduced at a very similar time, this bill was withdrawn before markup in the subcommittee. And so we'll see whether or not they take another swing at this, or whether or no folks viewed the Term Act, these two things being not both necessary together, and the Term Act being viewed as a less of the kind of hammer to the patent system. Or whether or not we see this come back in some other form. So, maybe just a couple of things to think about in your own portfolios. Like I said at the beginning, this is far from over. These are early stages only introduced for discussion six months ago. So where they land, and whether or not they even land during this session, up in the air. So the subcommittee is a subcommittee of the House Judiciary Committee. I've heard they're a little busy right now, so that may also delay things. But, I think the things to be thinking about in your own patent portfolios, and this is probably in some ways not very different from what many of you already do in the ordinary course. And that is, to be considering your nonobviousness story very early, again, probably not very different from what many of you are already doing. But if there may come a time, whether through actual changes of the law or just increased public view that some second and third generation IP is inherently a little more suspect, you'll want to be thinking about your nonobviousness story early. And being careful as you always are to avoid statements that would be inconsistent with that. When you think about these things from time to time, find that journal article or that press release or that statement, that has some unhelpful statement about how easy something was, or how clear the solution was or something like that. Not necessarily the most helpful thing, particularly if you may ultimately bear that burden of showing nonobviousness. I think be prepared for the possibility of more double patenting at the patent office, and thinking about managing your portfolios. And finally, I do think this is going to further increase your emphasis during litigation on expert testimony either way. And so be thinking early in your pre-suit investigation phase about, lining up those right experts. So moving on to the other side, so there is a yin and a yang, there's a counterpoint. And that is this concern that we do want to have a strong patent system. We pride ourselves on innovation, on being a place that's friendly to investment. And the Stronger Patents Act. Now I will say, this is being reintroduced. It's been introduced in other forms. It has not gone forward during other sessions. We'll see how it goes this time. It does appear it's bicameral, and there were hearings conducted before the Senate subcommittee in September of this year. And the concern is strengthening the Patents Act, as the name would imply. So it's got many prongs. I'll hit on just a couple, and I want to focus on the first and the last. Now the first is on injunctive relief. So this would restore the presumption in favor of injunctive relief. As some of you may know, that isn't really the current way it goes. And the U.S. is the standard four-factor balancing test for injunctive relief. This would return presumption in favor of an injunction if you prevail in your infringement action. It also seeks to change the standard for bringing a PTAB proceeding. Anyone can bring a PTAB proceeding right now. This would move to have a standing requirement akin to having standing in district court litigation, so it's a pretty significant shift. So, like I mentioned, the change in injunctive relief would overrule the current state of the law in eBay v. MercExchange. That presumption in favor of injunctions is something you see in Germany, some other European jurisdictions. It's very interesting. I was at a conference in October, and the Germans were really flabbergasted by not having a presumption in favorable of injunctive relief. But on the other hand, we're a litigious culture. Europeans can't necessarily understand how litigious we are. And there are issues with things like nonpracticing entities and other entities that have strong patent positions but don't necessarily have products. And this has been a really significant point of debate. Would we be prepared for a system where a life-saving product could be kept off the market by a patent holder, who themselves wasn't in a position to bring a therapy to the market? Would we be okay with that outcome? And then on, just a quick thing on standing. Standing is already a bit of an issue, because you can bring a PTAB action, but you need Article 3 standing. You need the kind of standing you'd need in a litigation to appeal. And that in the life sciences industry has created a real issue where people worry about bringing a PTAB action. Because yeah, I can bring it, but if I don't like the outcome, do I actually have standing to appeal? And could I actually get stuck in a situation where I'm not entirely satisfied with my outcome, but yet, the court finds that I'm not far enough in my own development to have standing to appeal. And this would set that back and also institute it at the very stage of even bringing the PTAB proceeding. So I think, if this were to go forward in this or a similar form, in my view, there would just be no life sciences PTAB proceedings outside of parallel proceedings to litigation. Because no one's going to be able to bring them, unless they're so far along that they'd already be able to be in a declaratory judgment action or an infringement suit. So again, far away, there was a hearing in September. And interestingly, even the panel was split on these issues. Probably why this has been reintroduced. This is a pretty big movement, and a pretty big movement on issues, where I think even the patent bar and even companies are not necessarily allied. You take something like injunctive relief, yeah, if you're the patent holder that sounds great. If you're a company, even an innovative company that has an FTO issue, and you're making the calculus that you're not going to be enjoined, this might shift your calculus. So it's clear why it's a split view. Wrapping up very quickly. Changes to 101. So Section 101, this is changes to eligibility, right. When this started out, this was mostly things that software companies and those sorts of tech companies worried about. In more recent years, this has become a significant issue for diagnostic companies, and for other life sciences companies. Lot of concern that the various court tests by the Supreme Court and the federal circuit have done nothing but created confusion. There's even recent federal circuit opinions where you've got judges saying, "Yeah, I don't like it. I don't like that I have to find not subject matter eligible, but I'm bound by Supreme Court precedent, so you know, talk to your Congressman." So, I do think we will see action here. It will undoubtedly take a while. And it's unclear whether it will solve the problem or add different confusion. Currently, this is an interesting one, because there isn't an actual proposed bill. What there is, is sort of straw man proposals that both chambers are kicking around and having debate and discussion on, in an attempt to actually formulate a proposal. But some of the things on the table are essentially striking all the judicially created exceptions on natural laws and abstract ideas in favor of Section 101 would be construed in favor of eligibility. So, this turns it all on its head and abrogates all the case law. And also really I think all of this says a trend towards, you need to look at the invention as a whole and not sort of dissect the invention and read out all the things that you label as being kind of ordinary course or routine. So we'll see. Stay tuned. And like I said, this is under consideration. I do think on this point, because things are very up in the air, but yet you've got portfolios you have to manage now, here are two thoughts, again probably consistent with your current portfolio strategies is to be drafting new patent applications with both things in mind. Drafting narrowly to fit into guidance that comes out of the PTO and the cases. And there's practically new examination guidelines that come out from the PTO every three or four months to keep up with the cases. So draft narrowly in view of that. But also, don't give up those broad positions in your cases, because it might take two, three years, but you might be looking two, three years down the line and want to go back and pursue a broader claim. And I think if you do have important cases that are really being plagued by 101 issues, consider kicking the can down the road, so that you can go back later, if and when the law changes. So that's it from me. Thanks so much, and I'm happy to take a question or two, or I'll be around at the end as well. So I'll let Kellie come up and then I'm happy to talk at the end.

Kellie Combs: Thanks Melissa. Good morning, everybody. I'm Kellie Combs. I'm a partner in the life sciences regulatory and compliance practice based in D.C. I advise pharma, biotech, device companies on a variety of FDA regulatory issues, both pre-approval and post-market. And I'm going to be talking today about the FDA landscape as it relates to real-world evidence. And just to give you a preview, or to essentially put the conclusion up front, what we'll talk about today is that, although there have been significant strides at the agency with respect to understanding real-world evidence, policy developments, and even acceptance of real-world evidence and regulatory submissions, we still have a long way to go. There's been a significant amount of skepticism expressed by key agency officials about the use of real-world evidence and regulatory submissions, and so I think certainly in the near term, what we're likely to see is real-world evidence being used as a complement to evidence generated through randomized controlled clinical studies is going to be adequate and well-controlled trials that we're used to, rather than real-world evidence being a replacement for those types of data. So just to get started and set the framework for everyone. There's been, of course, a substantial increase in the availability of real-world data and real-world evidence and progress in the evolution of technology and the ability to mine big data. So, for example, we now have electronic health records. We have mobile devices, we have wearables. A lot more data are collected from individuals in the day-to-day setting. And certainly, we have a greater ability to really mine that data and leverage it in various real-world settings. FDA distinguishes between real-world data and real-world evidence. So real-world data is data that relates to a patient's health status or healthcare delivery, and it can be collected from a variety of sources. Real-world evidence is essentially what you do with that real-world data. So it's the evidence that's collected about a particular medical product or device, some sort of intervention that's derived from the analysis of that real-world data. In light of the advances in technology, Congress enacted the 21st Century Cures Act a couple of years ago in December 2016. The 21st Century Cures Act was really an omnibus bill that covered a lot of FDA and healthcare issues. Among other things, the Cures Act requires FDA to evaluate the potential use of real-world evidence, but only in two specific ways. So the Cures Act applies only to approval of new indications for drugs that have already been approved, or to help support post-approval requirements, particularly as it relates to product safety. And the Cures Act also requires FDA to take a number of steps to develop policy about the use and analysis of real-world evidence. FDA is so far carrying out its obligations, as laid out in the Cures Act. Last year about this time, FDA published something called the proposed framework for real-world evidence. We'll discuss that in more detail in a moment. The Cures Act also requires FDA to consult with a number of stakeholders including pharma, biotech, and big data companies to really learn how real-world data, real-world evidence can be collected and leveraged in the regulatory process. So moving onto the next slide. What we've seen so far is that even though FDA is developing policy, with respect to real-world evidence, there's still really a lack of clarity. And so far, all the agency has done is kind of laid out some high-level principles. So I mentioned a moment ago, the framework that was published about a year ago. It sets forth at a high-level, FDA's general approach to evaluating real-world evidence, for both safety and efficacy purposes. But it doesn't provide any details on study design. It doesn't provide any details on how FDA will view real-world evidence as potentially satisfying regulatory requirements. So just to pause here, and I'll use drugs as a key example, the statutory standard for approval of drugs requires that FDA find there to be, quote, "substantial evidence of effectiveness." And that term has been interpreted in regulations by FDA as requiring what are called adequate and well-controlled studies. So in most cases, these are the randomized controlled clinical trials that we're all familiar with. FDA's never opined on whether real-world evidence can in fact, satisfy that statutory or regulatory standard. When does real-world evidence constitute an adequate and well-controlled study? We don't have any details on that yet. And so that's a major open question. There's also no direction in the proposed framework about reliability of real-world evidence, what sponsors should be considering when they're generating data, analyzing data sets that have already been collected. There have been a couple of recent workshops, joint workshops, collaborations held by FDA and the Duke-Margolis Center, where a variety of participants have spoken from the perspective of industry, from the perspective of patients and big data, really trying to impress upon FDA the key considerations that the agency should be thinking about as it develops policy in this area. As a general matter, most of the content at that workshop has focused on use of real-world evidence generated within randomized controlled clinical studies. So there's still not much discussion about use of real-world evidence outside that controlled clinical trial setting, or for example, how companies may be able to leverage real-world evidence from prescriptions claim databases or observational data that's collected from your Apple watch. Still not much yet from FDA on how industry or others should be thinking about those specific issues. I want to highlight here a few recent drug approvals, and in some cases, a drug that was not approved on the basis of real-world evidence. Because I think these examples really underscore the way that FDA is currently thinking about real-world evidence. The first is Pfizer's Ibrance. So Pfizer's Ibrance has been on the market for a number of years now, and was approved originally for the treatment of breast cancer in women. Earlier this year, Pfizer got a supplemental approval that expanded the indication to apply to men as well. And that approval, the data that was submitted in connection with that supplemental application was based on electronic health records and post-marketing reports of use in men from the IQVIA insurance database, as well as Flatiron Health's breast cancer database, and Pfizer's global safety database. And what was interesting about that supplemental approval is that, even though nearly all the data that was submitted to get the label expansion for men was from real-world evidence, FDA made very clear in all of its statements about the supplemental approval that it was the original clinical trials conducted in women and submitted in connection with the original application for the drug that satisfied substantial evidence, that statutory standard that I mentioned earlier. And so FDA made really clear that it was just the real-world evidence as the supplement or a complement, rather, to the initial clinical trials that were conducted. The second example is Amgen's Blincyto. This is a drug that was approved for ALL, and there, real-world evidence was used as benchmark data for a single-arm registrational trial. And that single-arm trial that used real-world evidence was sufficient in FDA's view to support accelerated approval for the product. That said, as a confirmatory study, FDA is requiring Amgen to conduct a traditional randomized controlled clinical trial in the same exact population, in order to confirm the clinical benefit. And finally, I think actually one of the more interesting examples is something that just was reported in the trade press a couple weeks ago. A company called Correvio has a drug called Brinavess. It's a cardioversion drug. It's been on the market in Europe for almost ten years at this point in time. However, while the product application was pending at FDA, there was a patient death, and so FDA put the product on clinical hold. And the product has not progressed in the U.S. in those ten years. However, because it got approval in the European Union, the company now has all this post-marketing data, including observational data in more than 2,000 patients in the EU. And the company essentially tried to revive the application on the basis of this real-world data. And an advisory committee at FDA expressed serious concerns and voted against approval of the product, because they said that, observational data was subject to selection bias. And there was a real problem, it was not sufficient to support an approval in the U.S., because the real-world data simply meant that doctors were able to decide who was getting the drug and who was not getting the drug. And FDA was not confident that doctors in the U.S., if the product were actually approved, would be able to make those decisions in the same way. So just to close out briefly, I mentioned that there is a real lack of clarity, and still significant amount of progress to be made, with respect to real-world evidence at FDA. Just to tee up some of the more interesting outstanding issues from my perspective, so as I said earlier, we still don't have any information from FDA about the extent to which specific clinical trial designs incorporating real-world data or real-world evidence could be used to support a regulatory finding, specifically as that regulatory finding relates to effectiveness. I think we have seen and will continue to see FDA being significantly more flexible with safety data than effectiveness data. We still don't have any information about how FDA will consider real-world data or real-world evidence to be sufficiently reliable, or what gaps there may need to be that sponsors may need to address. And then, finally, on the last slide, some other really significant issues. So we still don't have a good sense yet, and I think there's significant amount of work to be done, both clinical work, as well as policy development, about the selection of endpoints as it relates to both safety and efficacy for real-world evidence. So just for example, the proposed framework that was released last year provided no information about endpoints that may be appropriate in various types of analyses. We don't know when a real-world evidence endpoint will be sufficient, as opposed to a commonly accepted endpoint that's already been validated, for example, through clinical studies. Another interesting issue here is the interpretation of regulatory requirements. So just as one example, electronic health record systems are not typically under the control of a company or a sponsor or an investigator. And they instead belong to the health system, or they belong to the big data company or technology firm. So sponsors may not have direct control or even kind of unfettered access to that data that may be required to comply with some of FDA's requirements. So for example, if the agency comes in to inspect clinical study records as collected through real-world data or real-world evidence, the sponsor may not have continued access to them. Or they may be significantly limited in the extent to which they could use them, hold onto them, provide them to FDA and so on. It's also important to avoid pitfalls of real-world evidence utilization. It's unclear that people at FDA or people within the companies that are going to be developing and analyzing the data really understand the regulatory requirements, and special considerations as it relates to real-world evidence. There are certainly I think going to be varying expectations at FDA. Already we know that there's a lack of clarity, but it's also very unclear how regulators across the world will consider the use of real-world evidence. And if, for example, you can beat FDA's regulatory standards, as amorphous as they are, will you for example be able to meet standards ex-U.S.? And then finally commercial considerations. And this I think is particularly interesting, because what we are seeing, and this is no surprise, is that payers, just as one example, are significantly more flexible and more innovative and more willing to accept real-world data, real-world evidence, for example, to show the clinical utility of the product or the cost-effectiveness of a product. And so many companies that we're working with in the FDA regulatory practice are using real-world evidence in really interesting, innovative, and substantial ways. But they're using it for commercial purposes. So they're not even submitting analysis to FDA. They're using it instead in their discussions with payers. So I will stop there in the interest of time.