Lawfare in the orphan drug space

Neurelis, Inc. v. Aquestive Therapeutics, Inc., --- Cal.Rptr.3d ----, 2021 WL 5355958, D077984, D078186 (Ct. App. Nov. 17, 2021)

The parties compete in developing means to administer diazepam, a drug used to treat acute repetitive seizures (ARS). “Neurelis was further along in the development process than Aquestive. Thus, according to Neurelis, Aquestive engaged in a ‘multi-year, anticompetitive campaign to derail the Food and Drug Administration’ (FDA) from approving Neurelis’s new drug.” Neurelis sued Aquestive for defamation, malicious prosecution, and violation of the UCL, triggering an anti-SLAPP motion. The superior court granted the anti-SLAPP motion as to the defamation claim but not the other two causes of action. The court of appeals splits the baby differently: at least some of the conduct giving rise to the defamation (and UCL) action was covered by the commercial speech exception to the anti-SLAPP statute. But Aquestive’s petitioning activity was protected conduct under the anti-SLAPP statute, and Neurelis didn’t show a likelihood of prevailing on the merits on that, including the malicious prosecution claim in its entirety.

Neurelis received orphan drug designation from the FDA for its Valtoco for management of ARS in 2015. “This designation did not indicate that Valtoco was safe or effective for public use but, instead, operated to qualify Neurelis for various development incentives, like tax credits and potential exclusivity for seven years if the FDA ultimately approved Valtoco.” It then received fast strack designation, which allowed it priority review, and filed an NDA for Valtoco in 2018; this was pending at the time of the operative complaint.

Meanwhile, Aquestive’s Libervant obtained orphan drug designation in 2016. The parties discussed potential partnership in 2017 and 2018, but the discussions didn’t go well. In 2018, Aquestive did an IPO, and its Form S-1 represented that it was “further along” than other companies who were developing “other routes of administration” of diazepam for the treatment of ARS (that is, further along than Neurelis, which was allegedly untrue). In 2019, Aquestive allegedly threatened to file three inter partes review petitions with the PTAB unless Neurelis signed a waiver of its orphan drug exclusivity, which Neurelis did not do. Aquestive filed the petitions; the PTAB denied two of them and the third remains pending.

Aquestive also filed a citizen petition with the FDA requesting that the FDA stay approval of Neurelis’s new drug application for Valtoco “ ‘until additional clinical studies have been conducted that would allow for adequate labeling as requested in this petition.’ ” Aquestive requested that the FDA determine that Valtoco was neither clinically superior to other diazepam products nor offered a “ ‘major contribution to patient care.’ ” Neurelis alleged that this would be equivalent to revoking its orphan drug exclusivity, and that none of Aquestive’s claims against Valtoco were accurate, but instead, they were “founded on misleading, inaccurate, and incomplete data.” After Neurelis responded, Aquestive then submitted a supplemental petition asking the FDA to require Neurelis to reformulate Valtoco because it contains Vitamin E. This too was allegedly based on “inaccurate data and misinformation.”

On a 2019 quarterly investors call, Aquestive’s CEO stated, “ ‘Based on patient survey data, Libervant is preferred by 80-plus percent of patients when compared to nasal sprays. Once approved by the FDA, Libervant will be the only treatment option usable by and delivering a consistent, predictable dose to virtually all patients to whom it’s prescribed.’ ”

Analysis: malicious prosecution inherently arises from an underlying lawsuit, thus implicating petitioning activity. The UCL claim was based on a mix of protected and unprotected conduct; Aquestive’s allegedly “extortionist behavior using litigation as leverage to force Neurelis into waiving [o]rphan [d]rug [e]xclusivity” was not subject to anti-SLAPP treatment. What about statements in the citizen petition/statements to investors? Statements to investors about the parties’ drugs were commercial speech, even if the statements didn’t mention plaintiff or its drug by name and even though they were investors and not ordinary consumers of the underlying product; indeed, the anti-SLAPP exception for commercial speech explicitly lists “securities” among the “goods or services” covered under the exception. The audience was in a position to “influence” a “potential buyer” of Libervant by investing in Aquestive to help ensure that company brought Libervant to market before other competing drugs, like Valtoco.

But the citizen petition wasn’t excepted commercial speech. Neurelis argued that the exemption to the anti-SLAPP law was specifically focused on overturning DuPont Merck Pharmaceutical Co. v. Superior Court (2000) 78 Cal.App.4th 562, which involved a pharmaceutical company’s “ ‘false statements and conduct before a regulatory agency.’ ” But a citizen petition in particular “is a means by which the FDA explicitly allows private entities to express safety, scientific, or legal concerns regarding a product,” and thus a means of petitioning the government for redress, and that wasn’t at issue in DuPont.

With respect to the non-excepted speech, Neurelis didn’t show a probability of prevailing on the merits.

Acquisitive didn’t show that the litigation privilege applied, since it didn’t argue that the citizen petition was part of a judicial or quasi-judicial proceeding. But Noerr-Pennington did apply and Neurelis didn’t show that the petition was a sham. Even though the FDA apparently agreed to some extent that Aquestive’s “ ‘subjective motivation’ ” was to use the petition process “ ‘as an anticompetitive weapon,’ ” commenting that it “appear[ed] to be the case here” that the petition “was submitted for the primary purpose of delaying approval of” a new drug application. But that didn’t amount to a showing that the petition was “objectively baseless.” The FDA noted that “ ‘publicly available information on the general characteristics of nasal spray product[ ]’ showed that ‘it [was] unlikely’ ” that one of Aquestive’s major complaints about Valtoco had any merit. But that didn’t go to the whole petition; the FDA determined that it could not summarily deny the citizen petition as requested by Neurelis because it was “unable to conclude that the petition does not, on its face, raise valid scientific or regulatory issues.” Neurelis didn’t explain how a petition that wasn’t summarily denied could be objectiely unreasonable for Noerr-Pennington purposes.

As for the malicious prosecution claims, two of the PTAB petitions seem to have been time-wasters, but one triggered an actual review. During the pendency of the appeal in this case, the PTAB declared the relevant patent invalid, a decision affirmed by the Federal Circuit. Neurelis didn’t show that Aquestive brought the petitions without probable cause. The denial of two petitions didn’t itself show that they were brought without probable cause, even the one for which the Board said Aquestive did “not show that there is a reasonable likelihood that [it] would prevail with respect to at least one of the claims.” That’s a higher standard than probable cause. As for the other, the Board explained it was a waste “of the Board’s time and resources to revisit the same prior art disclosures that were examined in detail by the Examiner over eight years of patent prosecution.” But that didn’t mean there was no probable cause; the Board just used its discretion to deny the petition, but it had statutory authority to grant a petition “even though it raises claims based on the same prior art or arguments previously made to the PTO.”