Big Pharma: The Intellectual Property Game, Part III
Tue May 15, 2007 at 06:13:43 PM PDT
Introduction, Part I. Part II
Previous diaries in this series described the most important statutes enacted during the past quarter century that created an intellectual property protection (IPP) regime both robust and unique to the pharmaceutical industry. This diary will rely on the previous ones as background to allow me to discuss the little-known ways in which Congress has ignored consumer interests when legislating that regime and a few of the almost unknown ways the innovator pharma companies exploit the regime to maintain their sales monopolies beyond the time their patents would have expired.
The obvious conclusion is that at every significant point in the development of that regime, Congress (both Democrats and Republicans) chose the option that expanded monopoly pricing for the industry. This may have been justified in 1984, when Hatch-Waxman created the grand compromise that extended the effective patent life of new drugs in exchange for creating a viable path that created a significant generic drug industry.
The choices to extend market exclusivity as the incentive for the industry to develop orphan drugs or to test drugs on children, in contrast, demonstrate the degree to which the industry has set the agenda in Congress. In the case of orphan drugs, the failure to provide any mechanism to exclude those that later become top sellers from the additional seven years of exclusivity demonstrates the short sightedness of legislators powerfully influenced by pharma money. There was no representation of the patients who were forced to pay high prices for drugs much longer than they otherwise would have.
In the case of the six month additional exclusivity for testing drugs on children, Congress’ disregard of the patients who must continue to pay exorbitant prices during that time is glaring. Pediatric testing would have been much more systematic if it were required as a prerequisite for FDA approval. Or it could be done by the NIH. But the only option considered was the single one that would inflate pharma profits and force people unfortunate enough to be sick to pay.
Inflating pharma profits and forcing the sick to subsidize desirable industry actions are not the sole weaknesses of the pharmaceutical IPP regime. Even worse are the loopholes big pharma has found in the regime. In the case of a blockbuster drug bringing in $1 billion or more per year, every additional month without a generic competitor is worth millions of dollars in revenue.
The most important means of extending market exclusivity has been a set of practices known as "evergreening". "Protecting IP Throughout the Product Lifecycle," Pharmaceutical Executive, August 2003 (from a pay database) outlines the basics of the process. In all cases, companies file core patents on the chemical composition of the drug early in its development.
Increasingly, though, companies also file patents at later stages of a drug’s life. During the drug’s further development, additional patents can be filed on such aspects of the drug as the drug’s biological action as found in the lab, its potential therapeutic uses and any new compositions developed. When the drug moves into clinical testing, patents can be filed on specific therapeutic formulations and manufacturing methods. By this means, a drug’s protected life can be extended until the last patent expires, which will be later than the initial patents.
Later patents may also be the subject of challenge under Hatch-Waxman. Until 2002, when the practice was prohibited by FDA regulation and 2003 when it was prohibited by statute, companies could file weak, some might say frivolous, patents late in the product’s life, triggering a new patent suit each time and 30 month stays on generic competition each time. That practice is no longer allowed, but patent litigation has created other opportunities for the innovator company to delay competition.
One of these is under Congressional examination now. Companies have taken to paying generic companies to settle their Hatch-Waxman patent challenges by agreeing to postpone generic production for a specified time. This has the advantages of preventing the first generic company from entering competition. It also stops other generic producers from challenging the patent because the 180 day exclusivity period Hatch-Waxman grants to the first generic company to challenge the innovator’s patent(s) starts the earliest of 1) the date of a judicial decision declaring the patent invalid or 2) the date the generic company begins to market the drug. If a settlement ends the litigation, there is never a triggering decision, and the generic company postpones its market entry.
After the drug goes to market, the company begins to lay the foundation for altering the drug sufficiently to allow it to come to market as a new drug. This can be done by means that include: changing the specific ingredients of the drug; creating controlled-release formulations; creating combinations of drugs due to lose their patents creating new delivery systems, and modifying the molecular structure of the drug, presumably to decrease side effects or increase effectiveness. Any or all of these modifications can be patented and serve as the basis for a new round of proprietary drug, one that requires little new research or investment.
We have seen examples of these strategies on our TV screens. Perhaps the most successful campaign of this type was the campaign to switch patients from AstraZenica’s Prilosec to its Nexium. AstraZenica’s patent on the blockbuster heartburn treatment Prilosec expired in 2001. The company patented a slightly altered version of the drug, named it "Nexium", began an intense television ad campaign for it, and changed Prilosec to OTC status. The strategy was extraordinarily successful. Prilosec generated $6.2 billion in revenue in 2000; Nexium generated $5.2 billion in 2006.
The descriptions above capture only a few of the ways big pharma uses the current intellectual property regime to preserve its extraordinary profits. The conclusion of this series will consider some evidence that that regime may be nearly obsolete.
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