A recent decision from of the Western District of Washington, affirming an arbitration award in favor of Daiichi Sankyo Co., Ltd. (“Daiichi Sankyo” or “DCS”) against Seagen Inc. (“Seagen”), sheds light on a battle ongoing between these two antibody drug conjugate (“ADC”) heavyweights for market dominance. Seagen Inc. v. Daiichi Sankyo Co., Ltd. (W. Dist. Wash. 2024). The stakes could not be greater. Seagen was the first company to secure an ADC approval in 2011, has three ADCs approved in the United States, and was recently purchased by Pfizer for an astounding $43 billion dollars. Daiichi Sankyo, in contrast, is projected to lead the ADC space in sales through at least 2029, based largely on the success of Enhertu®, Daiichi Sankyo’s first ADC approved in 2019 by the US FDA.
The arbitration stems from a failed 2008 collaboration agreement with Seagen that Daiichi Sankyo terminated in 2015. When it entered the colaboration, Daiichi Sankyo was admittedly far behind Seagen in its efforts to develop ADCs . The question for the arbitrator was whether Daiichi Sankyo had improperly misappropriated Seagen’s technology to catch up with Seagen. If so, Seagen argued, the patent applications filed by Daiichi Sankyo in 2012 covering Enhertu® were owned by Seagen.
At the end of the day the arbitrator – former Chief Judge for the District of New Jersey Garrett E. Brown, Jr. – was unwilling to impose such a harsh remedy on Daiichi Sankyo, finding that Daiichi Sankyo had not misappropriated any technology governed by the agreement, and that Seagen's claim was time barred in any event by Washington’s 6-year statutory of limitations on breach of contract actions.
From what we can gather from the limited public record, Judge Brown reached this conclusion because the alleged Seagen technology that Daiichi Sankyo used to develop Enhertu® was in the prior art. Seagen contended that Daiichi Sankyo derived the technology from its collaboration with Seagen, and not the prior art, but Judge Brown was not persuaded. Seagen offered evidence that “DSC chose to use a linker with the identical architecture (the “Firestone” architecture) as the seminal Seagen ’345 patent listed on Schedule B to the Collaboration Agreement.” Seagen even pointed to an alleged “smoking gun” in Daiichi’s Sankyo’s laboratory notebooks referring to Daichi Sankyo’s protocols for linking ADCs as “SG-type conjugation,” a reference to “Seattle Genetics” (the prior name for Seagen). Nowhere, however, did Seagen argue that the “Firestone Architecture” or the “SG-type conjugation” that Daiichi Sankyo had allegedly misappropriated was not in the prior art.
We take away four lessons from the arbitration award and the District Court’s subsequent confirmation.
First, Seagen should have been more vigilant in monitoring its collaboration partners’ activities. In its appeal of the Arbitration Award, it claimed that “Unbeknownst to Seagen, in 2010 DSC started its own ADC program outside the collaboration with Seagen.” One wonders how such activities could have gone unnoticed by Seagen, particularly given the degree of collaboration called for by the agreement and the seven year-duration of the collaboration.
Second, Seagen should not have waited until December 2019, after the US FDA approved Enhertu®, to enforce its rights. The delay gave Daiichi Sankyo an easy 6-year statute of limitations defense because, if Daiichi Sankyo had breached the agreement as Seagen alleged, it had done so in 2012 when it filed its patent applications. It also gave Daichi Sankyo the moral high ground, and the ability to argue that the arbitration was a mere pretext to appropriate Daiichi-Sankyo’s patents covering Enhertu®.
Third, know when to throw in the towel. An arbitrator’s award is rarely overturned, particularly one from a retired federal court judge who has tried numerous pharmaceutical cases. As explained by the Washington District Court:
Confirmation is required even in the face of erroneous findings of fact or misinterpretations of law. … Section 10 [of the Federal Arbitration Act allows for vacatur only where the arbitrators exceeded their powers. 9 U.S.C. § 10(a)(4). Arbitrators exceed their powers [only] when they express a manifest disregard of law, or when they issue an award that is completely irrational.
Fourth, a fee shifting arbitration clause can have unintended consequences. In this case, Daiichi Sankyo was awarded $45 million in attorney fees and expenses even though Seagen itself had spent only $16 million in attorney fees. The disparity was justified in this case because:
DSC and Seagen were not similarly situated in the critical sense that DSC was required to gather evidence (dating back decades, across continents, in various forms and languages) and craft complex legal arguments (from various disciplines) in an effort to defend itself across the full spectrum of Seagen's very broad affirmative claims.
The dispute is not entirely over. Seagen secured a new patent in 2020 that allegedly covered Enhertu® from a patent application first filed in 2004, and recently won a jury verdict and an 8% royalty on sales of Enhertu® through November 2024. Seagen Inc. v. Daiichi Sankyo Co., Ltd. Civ. Action No. 2:20-CV-00337 (E.D. Tex.). However, that verdict is on appeal to the Federal Circuit and the PTAB ruled in January of this year in a parallel IPR proceeding that the patent lacked written description support. Daiichi Sankyo, Inc. v. Seagen. Inc., No. PGR-2021-00030 (January 16, 2024, Final Written Decision). We will be following this one closely.
