Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Is The EPO Patent Decision A Big Deal?

|Includes:Benitec Biopharma Ltd (BNIKF)

We are again, seeing claim and counter-claim in the ddRNAi intellectual property (NYSE:IP) space.

The European Patent Office (EPO) has recently upheld Galapagos NV's objections to the Commonwealth Scientific and Industrial Research Organisation (CSIRO) patent EP1555317. EP1555317 is a core, gate-keeping patent for Benitec's ddRNAi technology and is exclusively licensed to Benitec (OTCPK:BNIKF) by the CSIRO for application in humans. This is just the latest round of claim and counter-claim between Benitec, the CSIRO and Galapagos.

So what does this decision mean for Benitec?

At face value, this EPO decision could be seen as a serious threat to potential royalty revenue for the company but is this actually the case?

In examining the issue there are a number of factors to consider.

First, the decision is not final, it can be appealed. A press release about the decision said,

This decision came despite the initially favourable opinion from the panel that issued prior to the hearing and the submissions presented at the hearing by CSIRO's legal counsel. The decision was made on the preliminary ground that one claim feature was not clearly and unambiguously disclosed in this particular patent specification. The novelty and inventiveness of the claims were not reviewed. The decision is appealable.

This tells us that the panel's preliminary assessment rejected the objections. So, what changed? The fact that the patent is both novel and inventive is not in dispute, only the clarity of the first claim. (I say the first claim because if it was only a minor claim that was in dispute, then the patent would likely stand with a deletion or a modification and there would be no reason to licence the Galapagos patent.) The likely source of ambiguity is the "greater than 20 nucleotides" description of the synthetic gene.

If this is the sole reason for the objection to be upheld, then I would suggest that there are reasonable grounds for appeal. It may also be possible to re-phrase the patent and submit the re-worded claims as a new patent application. I am not a patent lawyer but there certainly seems to be some wiggle room to me.

Second, the objections have been dismissed in other jurisdictions, such as the US and the UK. This means that, even if an appeal was lodged and lost, the decision would only impact Benitec's ddRNAi licensing revenue for products commercialised in Europe between now and early 2019 (2019 being the expiry date of the CSIRO's patent EP1555317). In this five year period, there will be less than a handful of commercialised ddRNAi products and so any lost revenue streams would be very limited and very short. Should an appeal succeed, the status quo would be maintained.

In any event, Benitec has taken a license from Galapagos for patent EP1444346. Under the current decision, this is a replacement for the CSIRO patent and this license ensures Benitec and its own licensees can operate in the European market. Under this licensing agreement Benitec will pay royalties for any commercialised pipeline products between the time of going on sale and 2021, when EP1444346 expires. (Should Benitec win its appeal against the Galapagos objections to CSIRO's EP1555317, then I suspect the licensing agreement with Galapagos will lapse.)

Third, Benitec and others, such as Pfizer and Bayer, have lodged objections to the Galapagos patent EP1444346. These objections have been upheld in the US and UK. The recent EPO decision does not impact on Benitec's ability to prosecute its objection to patent EP1444346, lodged with the EPO. If Benitec is successful in its objection to EP1444346, then there will be void in the ddRNAi patent space in Europe unless Benitec's appeal against the latest EPO decision is upheld.

Forth, as I pointed out in a previous blog, these gate-keeper patents are coming to the end of their lifespan and are therefore becoming less and less important by the day. Benitec is moving towards pipeline IP where specific patents control the use of specific applications of ddRNAi. The EPO decision will have no impact on this transition. (The Waterhouse patent EP1068311 is also being opposed in the EPO, with possibly similar consequences.)

Fifth, Benitec is experienced in fighting protracted IP battles. In the US a company called Nucleonics thought that they had successfully dealt a blow to Benitec's IP but they eventually lost that case and went out of business. So there may be a temporary IP setback in Europe but this is not the end of the race and Benitec is a stayer and not a sprinter.

While it may not be a good look for Benitec to appear to be losing control of ddRNAi IP, the reality is that the control is not lost until the appeal is heard and even then the decision only applies in Europe if the appeal fails. Furthermore, the possible impact on future revenue is likely to be minimal because of the limited commercialisation of ddRNAi products that will take place before the CSIRO patent expires.

It is important for the CSIRO and Benitec to defend their IP and in that context this is just another round of claim and counter-claim. I fully expect that Benitec will win an appeal but, if they did not, then I do not see the EPO decision as being a big deal.

Disclosure: I am long BNIKF.

Additional disclosure: This article is not intended to be investment advice. Readers should do their own research.

Stocks: BNIKF