Note: This is an unedited transcript. For direct quotes, please see video at http://allh.us/f4Ct
SARAH DASH: Good afternoon, and welcome to our webinar on Prescription Drug Patents: Balancing Innovation, Access, and Affordability. I am Sarah Dash, President and CEO of the Alliance for Health Policy and I will be facilitating today’s discussion. For those who are not familiar with the Alliance, we are a non-partisan organization dedicated to advancing knowledge and understanding of health policy issues. We do not lobby, advocate or take any policy or political positions ourselves, but our mission is to educate the health policy community.
During today’s webinar, our panelists will explore the role of patents in creating economic incentives for prescription drug innovation. The Alliance for Health Policy gratefully acknowledges the National Institute for Healthcare Management Foundation, for supporting the Beyond the Beltway Health Webinars for Journalists Series.
We would also like to thank the Association of Healthcare Journalists for their partnership in this series. If you are interested in joining the Twitter conversation, use the hashtag #allhealthlive, and follow us at All Health Policy.
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Next slide, please. Here is our agenda for today. Each of our panelists will make about ten minutes of opening remarks and will use the remaining time to take questions from the audience. And again, you can submit questions using the question section in the audience interface at any time during the webinar.
Next slide. You will also find the materials that accompany this webinar, including a copy of the slides, a resource list, and an expert list, on our website, Allhealthpolicy.org. And a recording of today’s webinar will also be made available on our website in a couple of days.
Now I’d like to introduce our esteemed panel of experts. Joining us today, we have Ed Silverman, who is Senior Writer and Pharmalot columnist at STAT. Mr. Silverman has covered the pharmaceutical industry for two decades. He won the Gerald Lob Award for Business and Financial Journalism in 2018 for his Pharmalot View column, along with several former Wall Street Journal colleagues, Mr. Silverman was a Pulitzer Prize finalist in explanatory journalism for a series of stories on prescription pricing.
We are also pleased to be joined by Genia Long. Ms. Long is a Senior Advisor for the Analysis Group. She’s an expert in the economics and business strategy of innovation and growth, and has assisted executives in pharmaceuticals and biotechnology, consumer package and information technology, with maximizing the value of their product services and innovative technologies by addressing fundamental challenges related to research and development, business planning, opportunity assessment and competitive market strategy. Her work has been published in Health Affairs, the Journal of Medical Economics, and many other venues.
Finally, we are joined by Priti Krishtel, who is co-founder and co-executive director of I-MAK. She co-founded I-MAK in 2006, and since then, the organization has become a recognized global force in the access to medicines movement. Ms. Krishtel is a frequent speaker at national and international events and has been featured in Entrepreneur, CNN, The New York Times, Bloomberg, CNBC, The Wall Street Journal, The Hill, and Reuters.
Thank you all for joining us today. So with that, I will now turn it over to Ed Silverman for his opening comments. Ed, go ahead.
ED SILVERMAN: Hi, thanks, Sarah and thanks everyone for showing up. I appreciate that you’re here. So as you heard, I cover pharmaceutical industry for a long time and what I want to talk about today are the — some of the interesting patent issues that frequently come up on a very regular basis.
I will walk you through some of those issues now, and try to give you some context that will help you identify when a patent issue is worth filing, and how to sort out some of the particulars. I should mention, I’m not an attorney, certainly not a patent attorney, but I’ve spent a lot of time reading litigation and sometimes patents, if I can figure those out. So with that said, maybe we can move to the first slide.
Thank you. So I guess it goes without saying, but I put it here anyway: Patents are very critical to the pharmaceutical industry and other industries of course. It’s all about innovation. The basic grand bargain is that drug makers work on discovering and developing in medicine and in exchange for all of that work, they obtain patent that gives them some marketing exclusivity. That means they can have some time to sell their FDA approved drug without competition later on that could be generics. And there can be a lot of patents, by the way, that are obtained. You can get a patent on the actual chemical substance, different formulations. Maybe it’s a tablet, maybe it’s an injectable, different dosages. There are patents for manufacturing processes, and what’s called method of use, which refers to the disease that’s actually being treated. And there are many other patents that can be obtained for a medicine. But interestingly, a controversial aspect of the industry dynamics over the last several years is that drug makers have been increasingly criticized for using patents to gain the system. That’s a very cliched phrase, but I’ll go into that now. Can we have the next slide?
Thank you. So why would a company want to obtain a large number, a seemingly endless number of patents? A patent lasts 20 years, so one would think that there’s a lot of opportunity to not only recover the cost to develop a medicine, but also make a profit. The industry, however, will point out that the time spent developing a drug after the initial patent has actually been filed, eats into that time frame, because it may be X number of years later before the medicine is approved by the FDA and then made available for marketing in this country. So since a patent precludes other companies from selling another version of their drug, this — the drug maker wants to extend the patent protection as long as possible. So if you get one patent, and then you get more patents, it’s not as if they all end at the same time. It’s like a rolling situation. Additional patents provide more protection further out. And this is about a business strategy, but sometimes drug makers are accused of going too far and there have been several approaches that have caused controversy. So next slide, please.
One is called product hopping. It’s a funny term, but it describes typically only modest reformulations that are made to a medicine, but without offering any substantive therapeutic advantages. It could be slightly altering the physical essence of a tablet, which does in fact sound modest, right? There is a controversial case a few years ago; a company sought to switch Alzheimers patients to a newer, more expensive version of an older pill, before generic competition emerged. The idea was to try and continue to capture as many patients as possible. And the drug maker hoped it convinced doctors and patients that its new drug was more convenient, and therefore boost prescription of the new drug before generic versions of the older pill became available. And the reason was that patent on the older pill was expiring in just a few months. But the patent on the new medicine didn’t expire until 2025. That’s a number of years in which the register can keep ringing. Next slide, please.
There’s another tactic that’s called patent thickets. Product hopping, patent thickets — lots of sexy names, right? This refers to the use of numerous patents that can cover minuet differences. A processes associated with a medicine. However, critics will say this distorts patent laws, because the erstwhile generic competitors are precluded for years from selling their own version. Their own generic version. Next slide please.
Thank you. There’s a very widely known example that is currently quite controversial. It’s a drug called Humira, sold by a company called AbbVie. It’s used primarily for treating rheumatoid arthritis, but it’s also approved for treating other ailments. The company has filed dozens of patents over the years, some of which do not expire for another four years — until 2023. Although, the so-called core patent, arguably the most important patent, expired in this country three years ago, 2016. The upshot is this has made it impossible for rivals to compete and sell — in this case it’s not called a generic, it’s a biosimilar version — I will detour for a second, because Humira is a biologic medicine, it’s not a pill or a tablet. And so there are companies that have lined up to try to make the investment to sell a biosimilar version of Humira. It’s a much larger time staking investment to make that kind of drug than a generic pill. In any event, AbbVie’s patent filing has made it impossible for erstwhile rivals to compete, and that’s angered consumer advocates. They say the U.S. Healthcare System is the big loser. Now, it’s worth noting Humira generated just in the U.S. last year, $13 billion in sales. There’s a big chunk of company-wide revenues too. But again, the patent ticket delays lower cost alternatives from becoming available. Next slide, please.
Then there is another maneuver called pay-to-delay, and this describes a sort of grand bargain between the brand-name drug maker and one or more generic companies. The deals are merged from patent litigation. A brand-name drug maker claims that a generic company, which wants to sell a cheaper version of its drug, has infringed upon its patent. So the brand-name company files a lawsuit against the generic company, or several generic companies. And you can imagine that it eats up time and money before anything is resolved and a lower cost generic version can reach the consumer. So how do the deals work? How do these pay-to-delay deals work? Typically a brand-name drug maker will settle a patent lawsuit by paying cash for transferring something else of that (indiscernible) to a generic rival. Which then agrees to delay launching its copycat medicine until some time into the future. Well, this gives the brand-name drug maker more time to sell its medicine without lower cost competition. The Supreme Court ruled six years ago that these deals were worth exploring for anti-trust issues. And the FTC, the Federal Trade Commission, a few years ago, released a report contending that these pay-to-delay deals cost consumers three and a half billion dollars annually, although they haven’t updated that figure. Next slide, please.
So meanwhile, the pharmaceutical industries tended — pay-to-delay deals are not only legal, but they actually are a good deal, because they allow lower cost generic drugs to reach consumers faster than if the patent litigation would drag on for years. Next slide, please.
A newer issue emerged a few years ago with the Affordable Care Act, which created a mechanism for companies that hope to sell the biosimilar versions of the pricier brand-name biologic. There is yet another fun name, so-called patent dance takes place in these situations to which the biosimilar company would provide necessary information to the brand-name drug maker in order to establish whether or how patent litigation begins. It’s a sort of process that allows the brand-name company to say, hey, I think this biosimilar company is going to infringe on my patent, so let’s go to court. And there is a complicated process that takes place to sort out which patents might go to court, become subject of a lawsuit. But this, as you can imagine, takes time, and even though we’ve had more than a dozen biosimilars approved by the FDA, this patent dance has delayed the launch of lots of products in the U.S. market, while the litigation plays out. Next slide, please.
Finally, there was one clever gambit tried by a drug maker two years ago. The company transferred several patents on a best-selling medicine to a Native American tribe, and then licensed the sales rights back for a small sum. Why? The drug maker complained — this was its rational — that it faced two very different kinds of patent litigation with generic companies. Next slide, please.
One was the usual patent litigation with different generic drug makers — I mentioned that before. A brand-name drug maker feels a generic company that wants to sell its low cost version is infringing on a patent, so the brand company files a lawsuit. But the other issue raised by this company in this instance was a newer type of challenge that can be filed with the U.S. Patent Trademark Office. It’s known as inter partes reviews, and these allow generic companies to more easily and quickly file claims that challenge the patent held by the brand-name drug maker. So there’s two things going on there that the brand-name drug maker contend with; really double jeopardy. So again, it’s so — it transferred the rights to some patents, license them back, and did so because it argued the Native American tribe was entitled to sovereign immunity, which meant the patents couldn’t be challenged before the Patent and Trademark Office, and therefore, the drug maker could protect its sales a lot longer. Ultimately, the courts disagreed. Whether another drug maker will try this kind of gambit, is probably unlikely because, as I mentioned, just a moment ago, the courts didn’t agree that the tribe had sovereign immunity. As a result, the brand-name drug maker had a great clever idea, but lost out in the end. But I mention this just because it was so unusual and it got a lot of people thinking about the different ways that brand drug companies try to extend patent product life. Next slide, please.
Oh, I’m done. Okay, thank you very much.
SARAH DASH: Great, thank you very much, Ed. Next, Genia Long will explore the economic constructs that influence prescription drug innovation through the patent system. So Genia, I’m turning it over to you.
GENIA LONG: All right, thanks very much. Ed, thanks for some great background as well. I wonder if we could flip to the first slide and the next one. Thank you.
So I have been asked to step in for my co-author and colleague, Henry Groboski at Duke University, to share some industry-wide information that might be helpful to you and as I mentioned, kind of really trying to get a handle of how these complex issues relate to one another, what they mean. So I will talk about a couple of topics: First, why is it — and Ed touched on this a little bit — why is it specifically from an economic point of view that patents and other forms of intellectual property, protection, are important for biopharmaceuticals? What is it about that dynamic that is particularly important? And then secondly, where do you they fit into the big picture? So how do they fit into this basic framework that sets out what we think of as sort of the rules of the road for small molecule drugs under the Hatch-Waxman Act. In particular, how do patents and other forms of statutory exclusivity incentives and other factors, competitive factors, combine to yield what is called the market exclusivity period? Ed mentioned that phrase a little bit in his remarks, but I’ll primarily kind of present some of that research that my co-author, Henry Groboski at Duke and others — other colleagues as well, participated in, to really track what does that concept mean and how has it changed over time? And how does it relate to patents as a critical element kind of in that?
And then lastly, given that we have limited time, I will just take a bit of an opportunity to on the one hand look back on the Hatch-Waxman experience with small molecules, and then look forward to some of the challenges and opportunities for biologics and biosimilars, which are kind of subject to — related, but distinct frameworks and forces. So the next slide.
Thank you. So as Ed mentioned, and I will go into a little bit, kind of more detail. Here there several factors about the development of new medicines that are really important from an economic perspective, when we consider why is it that patents and other forms of IP protection, like statutory exclusivity provisions that we’ll talk a little bit about, are important? So as I’m sure you all know of, and heard, or maybe read some of the details about, they require very large investments in research and development. So you probably have heard the most recent estimate of that, being some $2.6 billion, including the cost of a dead end, or the cost of failures, projects that companies pursue and that in fact don’t make it all the way through the development and testing process, and then to market and the cost of capital for investors. But they total, also over an extended period of time. The same research noted the average time from synthesis of the molecule to FDA approval was almost 11 years, so we’re trying to dimensionalize that — sort of that investment time horizon. And then lastly, the other kind of feature that’s critical from an investment assessment kind of point of view is very high levels of risk, and uncertainty. So if we’re associated with whether you will experience scientific success and along those lines, we know what the same research showed, essentially that approximately one in eight drugs that enter Phase 1 clinical testing, that’s sort of the first phase of testing in man, achieve eventual FDA approval. And of course only a subset of those are extremely successful commercially and have to kind of support the whole — kind of the whole system. On the other hand, what we have kind of here even more so than in other industries, is copying those drugs, which take a lot of research and development, investment, and all of that, over an extended period of time. Once they are approved by regulators and the patent expires, generally, quite straight forward for small molecules, at least. And much less expensive than the effort that the innovator had to take to bring a drug to market. So rather than $2.6 billion, it may just take a handful of millions of dollars. So taken together, that means that the central challenge that we have, is that without some form of protection, innovators would rapidly come to the conclusion that they should not expect to recover the fixed cost of R&D investment, and instead they would expect that competitors would systematically lower costs of copying would enter the market, drive down the price, and competing for share, you would not expect to recover those costs. So because of this dynamic, firms that consider whether to invest in new drug development efforts, would simply decide to not do so. So they would not make the investments in the first place. So that’s really the critical concern that we have. These are potentially, you know, life enhancing, life-saving medicines with substantial spillover effects, in many cases, on society, so we care very much about access to them. So we have this tradeoff. And the tradeoff is between lower prices today and the access benefits that come with that for today’s patients or higher incentives to encouraged continue innovation, and then providing access for those new therapies for patients of tomorrow, who otherwise would not have access to those drugs at all because they wouldn’t be pursued. So that’s essentially kind of the tradeoff that we have. It’s between those two goods. Flip to the next page.
So the core piece of legislation in this area is, of course many of you know, it’s the 1984 Hatch-Waxman Act, and it really was designed to balance these dual goals. It was at the hearts of this central piece of legislation and it explicitly, as you see here, has these two goals: Being first, making available today’s medicines at the most competitive and affordable prices, and second, encouraging the development of tomorrow’s breakthrough cures. So the goal of Hatch-Waxman is not just to lower prices for drugs today, but to also pave — you know, which would — with no other of these incentives, create sort of the risk of a therapy drought, following that initial generation, but also to create a sustainable balance system that continues to provide new generations of cures, you know, with the current generation. And at the end of that period of market exclusivity protection, or patent term, encourage aggressive price-based competition from generic. Next?
We’ll go through what is a very complicated set of provisions and their interpretations in lots of — as I mentioned, kind of lawsuits over the sort of many years. But in a nutshell, the framework there for created benefits for each of those two sets of competitors, are generic manufacturers on the one hand, and brand innovators on the other. So generic manufacturers who previously had to provide their own independent evidence of safety and efficacy, and therefore conduct, you know, expensive trials on their own, no longer have to do that. So they can rely on findings of safety and efficacy from the innovator after the expiration of the patents end exclusivities, they can ten enter the market. So there’s also a safe harbor for testing, so it allows generic firms to begin that work prior to the expiration of patents, so that they are ready to launch immediately when the patents expire. Brand manufactures are then required to list all of those patents in what’s called the FDA’s Orange Book, so they’re public and out there. And they established a process for generic firms to challenge those patents. So when Ed mentioned earlier issues around determining sort of the — you know, the actual date, whether it’s before or after a certain point in time, particularly when they are before the expiration of a patent, that is really the mechanism that — that we’re talking about. So the process allows generic manufactures to challenge those patents and potentially enter — their successful prior to the listed expiration of the patent. So for brand manufacturers that recognize that firms who apply for the central initial patents, they’re often well before clinical testing begins. So if we’re talking about the duration of testing that we mentioned kind of early, around 11 years, on average by the time the drug is approved, you know, much of that patent protection is lost. So there is a certain calculation involved in restoring a portion of that lost period of patent protection. And then, finally created a five year data exclusivity period for new chemical entities, and a process around that. Go ahead and turn to the next slide.
So very quickly then, what I want to present is kind of how these pieces come together. So the market exclusivity period or, we kind of call it the MEP for short, skip some of those long words, is defined as really that period between the date when that brand drug has it’s very first commercial sale, so it’s on the market and it has sold a unit, to the very first date that its corresponding generic enters the market. So if a drug launched on January 1st, 2000, and it’s first generic launched on January 1st, 2005, the MEP would be five years. So patents are a critical factor in determining what the market exclusivity period, but they are not the only factor. So it’s really the net result of all of the factors affecting the timing of market entry of the brand relative to the patent. So how long relative to the filing critically is that initial patent? Did the product get through testing and hit the market, as well as other statutory IP protections for the innovator that five years most notably that we kind of noted earlier, and the process of kind of patent challenge by generics and what the outcome of that is. So in some sense this index, sort of the market exclusivity period, really gives a sort of a barometer for where kind of the balance sort of is between a longer MEP, you know, that provides more time for brands to recover these costs. You know, increases the incentives for investors to be attracted to that opportunity, and enter, and shorter MEP that would accelerate the potential cost savings from generic entry. So let’s take a look on the next slide at what that information looks like.
So what these data are, are the average market exclusivity periods for all drugs, experiencing first generic entry, so that we know how long the market exclusivity period is, over time. So all the way on the left we have March 1995-’96 would be drugs that experienced their first generic entry in ’95-’96, and then consequently all the way on the right, March of 2013-14 would be a brand of drugs that experienced their first generic entrance in 2013 or 2014. So we can see that they’ve ranged — looking at the blue line here, labeled all new molecules, they’ve ranged from a low to just over 12 years, to high of 13.7 years, I think. So between sort of that 12 and 14 year, but really kind of clustered around 13 and a half years. So for most years or subset years, the results were kind of in the mid-13 year range. The red line is for molecules that were just the higher sales molecules, so they had sold $250 million or more in 2008 dollars, is the way the calculations were expressed. In the year before going generic. And for that group, the periods were somewhat lower with a little bit more fluctuation, but in both instances, to kind of put some concrete kind of results to it, all of these of course are well below the 20 year patent period. Okay, we’re going to move to the next slide.
So patent that really — at the core of the Hatch-Waxman framework in a number of ways, as I mentioned before, generic companies can challenge patents which have been awarded to the brands for various reasons, and so-called Paragraph 4 challenges, you may have heard that — kind of that shorthand lingo, are one of the basis on which the generic companies, when they’re applying for — when they are going into the process, they need to notify the basis on which they’re entering a challenge to the patent. Maybe claiming that there wasn’t a patent, or that it’s not infringed, and then they are going to pursue that through litigation. So what this information tracks is — you can kind of see all the way on the left, the time period here is from 1995, which is when the data kind of began, all the way through 2014. So in the early years, we take a look at the red line. It’s really only 10 to 20 percent of molecules that experienced one of these Paragraph 4 patent suit filings. And as you can see in the blue line, which is the period of time between the brand launch when they had that first sale to when the Paragraph 4 filing took place, was substantially kind of after the brand launched. So 15, 16, 19 — you know, 19 years. So fast forward all the way to the right hand side of the graph, and what you see is that really virtually all of the molecules that we’re looking at, have experienced a Paragraph 4 filing, so you’re basically looking at 80 percent in those years and in fact, luckily somewhat higher since. And the period of time after launch that one of those suits is filed, so the brand needs to be litigating that, is down to now under six years in 2014. So many more generic challenges and happening much earlier in the process.
The last slide I want to share with you — the flip side of that is, all right, well the intent of Hatch-Waxman is a great balance between incentives for innovation on the one hand, so we keep that pipeline robust and continuing, and on the other hand, you know, aggressive, spirited, generic entry and price competition at the end of that protected period. So how we’ve doing on that second dimension. So what this really shows is over time the market impact of generic entry on the brand has intensified. So let’s take a look at the top line, which is sort of in yellow and the bottom line in red, which shows that between — for the — sort of for the cohort of drugs that experienced first generic entry in 1999/2000. By the end of 12 months, which is the far right hand side of the graph, about half of the brand units had gone to the generic about 12 months after initial generic entry. And that for each of the years subsequent to that, you can see that line pushed down further and further so that by the time you hit the red line at the bottom, you’re talking about essentially 90 percent of prescriptions for that molecule being on the generic side. So there’s only 12 percent left for the brand at 12 months. So think what’s notable about these kind of slides taken together is that although Hatch-Waxman, as we think of it today, just sort of this very immediate generic entry plunging brand shares, you know, low — low prices, et cetera. It took a while for that process to really develop and be fully realized. It did not happen overnight, but what we really see here is sort of a steady progression. As payers responded by managing their formularies and benefit designs, automatic substitution became the norm. All of those kinds of things. So it’s been 35 years that we’ve had the Hatch-Waxman framework and you can kind of get a sense across this picture of these three views as to how that has changed over time.
If you want to flip to the next slide, I’ll go through these quickly, because I’m sure I’m cutting into the time we have for questions. A critical question that we have now is, all right, so we want that process, we saw how Hatch-Waxman has sort of evolved over time in the 35 years it’s taken to get to where we are. You know, we want a comparable balance for biologics and biosimilars. The details are going to look different because the markets are different and how competition plays out is different. But what’s that balance going to look like there? So what will those markets look like?
So the quick summary here of the relevant legislation, which is the biologic price competition innovation act. So in 2010 we got for the first time a framework for biologics and their corresponding biosimilar, so you can kind of see — here it has a somewhat different structure and lastly at the bottom, it also has a different structure for raising and resolving patent disputes. Go to the next slide.
Much discussion around what are the differences between these markets. So when we think from a patent point of view, how’s that going to look different, and how is competition going to develop, how is that going to be different? You know, what’s the world going to look like as sort of the biosimilar market develops. One of the things that we, you know, kind of really have to start with is that the two sets of molecules are completely different in terms of their complexity. So it may not be possible to completely characterize the molecular structure today or sufficient to guarantee that those two are identical, will have identical effects, making clinical trials necessary. So that’s a fundamental difference, sort of, between these two. So in addition, it also means that on the one hand, for small molecules, we’re really accustomed to a highly predictable chemical synthesis process. But on the right, we’re really faced with a more variable living cell production system environment, which is potentially going to be affected by really very small changes in the environment. So one implication of this is that companies that make advances to make production more consistent or improve yields or improve the level of impurities or whatever it may be, those are things that are likely to be patented. So the mix of patents is likely to look somewhat different. Kind of between these two worlds. So we expect there to be more and probably somewhat different patent states for biologics then for small molecules. And as I mentioned, process patents, production technology, are going to be important here and we expect to see active patenting in that area.
The other thing noted here is that reimbursement is fundamentally different, sort of between the two, and those sets of incentives and rules are fundamentally different between these sets of molecule types and in markets as well. So it’s relatively unitary retail pharmacy model for small molecules where a doctor writes a script and the patient fulfills it at a retail pharmacy, subject to the insurance company’s tiered formulary policies and likely like a dollar co-pay arrangement is — and where the pharmacist can substitute automatically a generic or the prescription drug, unless the physician says not to, is much less likely to apply. So we are talking about products that may be infused in a hospital clinic or a physician office or in some instances be self-injected. The physician might — you know, even purchase the drug and be reimbursed for it under what’s called the buy and bill system. Patients could be subject to co-insurance rather than a dollar co-pay. So all of these things as well as a physician willingness to switch patients who are stable on one therapy to another, are likely to have some kind of impact on the uptake of a biosimilar. We expect initially that to look pretty different. Okay?
SARAH DASH: Thank you so much, Genia. Now finally, I’m pleased to turn the presentation over Priti Krishtel, who will discuss the legal framework that underlie the patent system and describe practices that have come under scrutiny by some as anti-competitive. Priti, please go ahead.
PRITI KRISHTEL: Thanks so much. So if we can start with the next slide. The next slide after that. I want to start by saying that the roots of our patent system lie in the Constitution, which sought to advance the progress of science by granting a limited term monopoly to inventors. So I would like for you all to remember that original intention as I go through my presentation today. That the Constitution actually says limited term. Next slide.
So the patent system is complicated. All three branches of government are involved, as are different agencies, and who is not on this slide is actually the FTC, who has the power to look into patent settlements as Ed mentioned. The pay-per-delay deal. And all different levels of courts are also involved in touching patents. But what I want to emphasize here with this diagram is that all of the bills currently being introduced in Congress that touch on patents, do not actually touch on the patent law itself, or on the USPTO, which is the agency tasked with the administration of patent. Next slide.
And so Genia actually did a great job covering most of the laws relating to patents, so I’ll be quick here. The ones that we didn’t talk about were the Patent Act, which is what I would call the main patent law, but discusses the issue of, what is actually the criteria in our country and our patent system to get a patent. Then 30 years later we had Hatch-Waxman and the only thing I’ll add to what she said, is that the law was actually intended to encourage generic competition. So what it has resulted in is the explosive growth of defensive patenting strategies to block competition and I think that’s worth noting the BPCIA was already mentioned — so in 2012 we saw, under the Obama Administration a bipartisan legislation called the America Invents Act, which created the patent challenge procedure known as Inter Partes Review, or IPR. That lay at the heart of the Native American tribe case that Ed mentioned. It was also the subject of the Supreme Court case known as (indiscernible) and it’s the subject of the Stronger Patents Act, which Senator Cruz and others have tried to bring in to restrict the IPR mechanism a bit. So moving to the next slide, that’s the legal framework.
Now I want to speak a little bit about how patents are granted. So looking at the next slide, the basic question is: What does it take to actually get a 20 year monopoly or a patent? Section 101 of the Patent Facts talks about subject matter eligibility or the question of: Are there anything that we as a society should exclude from being patentable? So things like abstract ideas or mathematical formulas would not be considered patentable. This section is actually, in patent law circles, the subject of a lot of conversation right now, and I’m happy to explain that during the Q&A. But for our purposes about drug pricing, the remining sections here address the core criteria that you need really to get a patent. Is this invention new? Is it inventive or non-obvious to someone skilled in the art? And finally, is it fully disclosed? Because we don’t want patents written too broadly that block others from entering the space. Moving to the next slide, those are the legal criteria to get a patent.
If we go to the next slide, in terms of what types of pharmaceutical patents exist, we’ve already touched on this, so we can go to the next slide. Ed talked about secondary patents when he was explaining patent thickets. The only thing I would add to what he said is that we hear a lot of terms for this in public discourse, whether it’s evergreening, patent thickets — we hear about life cycle management of products, and usually when we’re hearing those conversations in policy circles, it is referring to secondary patents, looking at new dosage forms or three in one combinations, or when there’s a new route of administration on a known drug. There’s a new term coined by our friends at Harvard, called tertiary patents, which is the idea of pairing medical devices with an active ingredient. And this would apply to things like the epi pen or to lancets for insulin. So that’s a little primer on the types of pharmaceutical patents. If we go to the next slide.
I want to focus the rest of my time on the types patent strategies that companies are using and what we’ve found with our data on this issue. So if we can skip the next slide and move to the next slide. Last year we put out a report called Over Patented, Over Priced; and we looked at the 12 best selling drugs in the country to understand how many patent applications were on each drug. How many granted patents? How many years could the patent application potentially block competition? And what were the resulting price increases? So if we move to the next slide, it provides a summary of what we found, which was that on average there are 125 patent applications being filed on this drug set, and that has the potential to block competition from the market for 38 years. So in really straight-forward terms, patent law was designed to provide 20 years of monopoly protection to a given drug product. And through these defensive business strategies of patent thickets or patent proliferation, we’re seeing that it’s almost doubling, which is a cause for concern, given that prescription drug spending has tripled in the last decade and it’s poised to double again.
So digging in the data a little bit, if we go to the next slide, we wanted to understand a little bit better why we are seeing so many patent applications being filed in the U.S. compared to similarly situated countries. And one of the reasons is that we have a patent practice here in the United States called continuation application, which means that if your original application gets refused, you can put it back in with a tweak and you can keep refiling over and over. Ultimately, it’s a war of attrition and most of the time patent holders are the ones who win this battle. So this was one key finding that came out of the data.
Looking at the next slide, we also wanted to look into the question of when in a product’s life the majority of this patenting was happening. And we looked at the question of: Are most of these patent applications are being filed early on during the really intensive R&D stage for drug development, or are they happening later? And what we found is — for example, this is lancets for insulin, we found that 95 percent of the applications were filed after the FDA approved lancets, after it was on the market, and shortly before the competitor product was going to enter the market.
Going to the next slide, you found that lancets was not alone. If you look at the last column, these are the top selling biologic in the country. For almost all of these drugs, the vast majority of patent applications were file after FDA approval and shortly before the competitor product was set to launch on market. And looking at the next slide, this is not limited to just biologic, this is also found to be the case for small molecule drugs and matchups for the top 12 best selling drugs in the country. Now, this week we’ve seen some of these companies really be featured in the press. Teva for example, the generics issue. So if you look at Copaxone, which is the small molecule MX drug, you see that there have been 137 patent applications file. Almost doubling the length of potential protection for the stroke product. Gilead Science is also up before the House Oversight Committee today related to prep. Prep is Truvada, it’s an HIV drug and prophylactic and you’ll see that there are 72 distinct patent applications on this drug product after 45 years of potential protection. So we’re seeing that the average length of monopoly will start to double if all of these patents are granted.
Moving to the next side, I think it comes down the question now of, well, okay, we understand that drug prices are high. That patents and patents play a role as a driver of that. But we always come back to the question of: Are we getting the (indiscernible) we need? Because we also have a balance, right, between scientific progress and between access.
And so if you go to the next slide, you know, I find this slide very telling. It shows that about 90 percent of the pharmaceutical industry is revenue. It’s (indiscernible) 2017 data is on the left, and these are all older, repurposed products. Only 11 percent of the revenue is coming from new products, which is defined as products that were newly launched in the five years, and those are the two bubbles on the right. So I think what we want to make sure, you know, is the patent system delivering the outcomes that we want? Both in terms of getting us new inventions as a society, and also are we making sure those inventions are reaching more people who need them?
So if we go to the next slide. Our next policy prescriptions are included in the resources that have been made available for today, but I wanted to list up two in particular, if we go to the next slide. The first is to modify and potentially raise the bar of the inventiveness standard. This is something that we should have a serious national conversation about, if we are trying to align intentions and outcomes. And the other is to restrict this practice that I talked about, called continuation application, which is a practice that we in the United States have in other regions including in Europe and Asia, do not have. And so if we go to the last slide, I think I will leave it here for now, and we can move to the Q&A, thank you.
SARAH DASH: Great, thank you so much to all of our presenters today. So we have about 20 minutes left for audience questions now. And as a reminder, you can submit a question into the question box on your screen.
Let me go to a question that came in from the audience while we were speaking and I will ask Priti, we’ll start with you and then others can answer as well. So the question that came in is: The patent (indiscernible) for many referenced biologics such as Humira, run into the hundreds, providing years of exclusivity in the range of 25 to 34 years. So the question is, why do some argue that patent protection is insufficient to encourage innovation and argue that data exclusivity is necessary to incentivize innovation. Priti, could you take a stab at that?
PRITI KRISHTEL: Yeah, I definitely can and I was actually thinking that maybe Genia could go first on this one because she spoke about this in her presentation, and I’m happy to provide some follow-up thoughts.
GENIA LONG: Sure. Let me step in and then Priti, feel free to add on. I guess my first observation about the question is there is actually a lot loaded into that question, so maybe we can divide it up a little bit. Taking the — if I remember correctly — the second half of the question first, which is: Why do we need data exclusivity? And probably a reminder about what that is — in addition to patents? And I think that’s a little bit of a separate question than from questions with regard to like, what is a patent thicket and how would you think about it? Is there a number? Can you have a gray line? Any of those sorts of question. So if I can pick up the second half of that question.
The fundamental motivation for data exclusivity as a compliment to patents and a reminder kind of for people that they really run a little bit on separate tracks. So if you’re a manufacturer developing a product, you may have a whole range of possible situations with regard to the timing of the patents, by the time you actually are ready to kind of hit the market, right? So you may have a lot of sort of patent protection left. You may have ten years left. You may only have very little. You may have virtually none or a couple of years of core patent protection sort of left for that drug. So the thought behind data exclusivity is to say, we’re going to guarantee sort of the minimum, and so that when you combine those two elements, you get to a reasonable level. So they run on separate tracks, you do the calculations separately. For individual, you know, drugs, they are going to combine in a sort of particular way. So the data that I presented on market exclusivity periods, that’s in some sense kind of the all-in sort of combination of all the variation in protection, whether it’s by means of data exclusivity, which is really a way of saying, hey, a follow on product can’t use the clinical and other data that a drug went to the FDA with to get approval for a period of time. So the market exclusivity period really bakes in all of the variation in how much protection you had from a patent and how much protection you had from this statutory exclusivity. And that’s sort of the net result of that. I don’t know if you want to take the second half of that question, Priti?
PRITI KRISHTEL: Yeah, no, that was great. And I would add just the point that I made in my presentation as well, which is that companies have now become very adept at making sure that the patent life lives longer than the market exclusivity, despite the original argument and intention. You know, I would add to it that one thing that’s really important in our work is nothing that exclusivities cannot actually be challenged. So I mentioned that patents can be challenged in what the American (indiscernible) in 2012, that actually bring in that IPR mechanism, which was hotly contested for almost a decade before that law passed. And since that time, you know, everything from the Supreme Court case to other bills, we’ve seen that that is the subject of a lot of controversy, but interestingly, exclusivities are set up so that they cannot be challenged. And so this is relevant of course for domestic health policy, but it’s also relevant in case any of you follow global health policy, because we really push the exclusivity piece in a lot of our trade agreements and so it’s just worth mentioning that as well.
SARAH DASH: Great, thank you. Let me ask a little bit of a follow-up question to that: Is there a way in any of these processes to distinguish between patents that ae filed to improve a process or quality of life, or for some other reasons, and patents that are filed to block competition. Like, is there a way to actually discern like, the intention behind filing of new patents?
PRITI KRISHTEL: Okay, I’ll take this one. I think its very dependent on each patent application. So you’d really have to look at the science behind the specific patent application that decides, is it new? Is it useful or — is it useful and is it inventive or non-obvious to someone who (indiscernible). I would say though, I think from a policy perspective, we need to start looking at the different categories of patents and try to understand and unpack a little bit better, you know, looking at the timing of the patents can definitely suggest intention. I think it might be time to go back to the drawing board and look at categories of patents. You know, do we want to reward the breakthrough drug in the same way that we’re going to reward the patent application for putting three pills into a combination that doesn’t actually offer any type of therapeutic advance? And that’s one way to frame the discussion.
SARAH DASH: Thank you.
GENIA LONG: Maybe just two additional thoughts to throw into that, and as Priti rightly noted, the Patent Office’s job is honestly really to determine whether a valid patent application in whatever field, whether it’s cell phones or drugs or whatever it may be, is a valid application. So as she mentioned, is novel? Is it non-obvious? Does it offer utility? Is it useful? So that’s the basis of whether something can be patented. We have — and that’s fairly fundamental to the operations of our process. So we have a Federal Trade Commission and a Department of Justice, et cetera, to really determine if its practices in the world are anti-competitive and that’s really what they are there for. So I guess I’d say rather than going through what seems like a very difficult exercise to determine ex-anti, whether a valid patent that’s filed has the potential some day down the line to block competition. That seems a difficult determination versus thinking about whether the cops on the beat, so to speak, are keeping a sharp eye on ensuring we have active competition through practices kind of in the real world.
The other thing I’d sort of add is one thing we haven’t talked about in this whole process, but I’m reminded about the importance of payers in this process of really making sure that incremental changes to products, which may vary from really highly useful in some areas to, you know, they may determine that they are somewhat less useful and valuable. So payers play a very important role when they consider how do they want to tier certain products, prefer certain products over others. And although we’ve been kind of casually sort of describing sort of the period of market exclusivity as a sort of monopoly period, that’s not exactly really true, depending on sort of the circumstance, because of course many of these branded products compete with others and may be determined by payers to maybe serve a lower net price because they are not as valuable. So I think it’s important to kind of keep that in mind, particular as we’re thinking about it by a similar world as well. Payers can play their important role.
SARAH DASH: Thank you, Genia. And is there a term for that other type of competition that you just mentioned? Competition from other branded drugs in a therapeutic class? Or is there a way that you would describe that? Are there terms you have to —
GENIA LONG: I think it’s fair to think of it as sort of therapeutic competition versus therapeutic substitution. So you know, in many of these therapeutic categories, there may be a dozen different therapies and some a mix of some molecules and biologics. So they compete with one another, they have an effect on what’s the net price that may be charged for one therapy sort of versus another, is sort of part of that process. So they are going to compete vigorously in the market for share of patients, whether those are new patients or continuing patients or whatever the circumstance may be.
SARAH DASH: Great, thank you.
PRITI KRISHTEL: Sarah, is okay if I jump in with a couple of additional thoughts here?
SARAH DASH: Sure.
PRITI KRISHTEL: Great. So I think this is a really important point about the FTC, and this is something Senators Blumenthal and Corman, I believe, have released a bill that talks about expanding the powers of the FTC to, amongst other things, look at patent thickets. The thing about this type enforcement, is that it happens after the fact, after the cost has already incurred by payers and patients, which is why we like to raise for discussion this idea of, can we find a way from a policy perspective to address this before — to address the issue of what should get a patent at the outset before these spending — drug spending — and active issues come to light. And so that would be one thing I’d like to say.
The other is, I want to — I’m so sorry, but (indiscernible) or utility is not the only criteria for getting a patent, which is why we really try to emphasize that inventiveness is very important as well. The legal criteria I mentioned under Section 103, which says that the application needs to show that whatever it’s covering would not have been obvious to someone skilled in the art. So in terms of market exclusivity, absolutely you need to show that something’s useful, but that’s not what the patent system was intended to do alone. It needs to be useful, inventive and new.
SARAH DASH: Thanks. I’m going to ask Ed if you have any comments to add at this point?
ED SILVERMAN: Well, I agree that the legislation Priti referred to is provocative, but yeah, it kind of deals in “after the fact” situations. So that raises the question of: Do you want policies that can weed out — I’m being colloquial here — but can weed out patents that are essentially not adding much to the medicine, if anything, for the patient, and if that’s the case then how do we go about establishing those sorts of cut-offs, you know, the argument would be a slippery slope, but at the end of the day, if we had a patent thicket situation, the damage has already been done. The healthcare system has paid out X amount of money, and that’s because there were no alternative lower cost products that might have become available otherwise. So you know, there was a case a number of years ago in India involving the cancer medicine, sold by Novartis, and the company was evergreening, just filing additional patents that really didn’t do much for the patient, but would have preserved the company’s market dominance. The Indian government eventually said, no, but that’s a different country with different system, different laws, so — but I raise that just because it’s an interesting example of the idea that the system — that system anyway, you know, drew a line in the sand and said, no, we’re going to try to look at this before the damage is done to the healthcare system.
SARAH DASH: Great, thank you. So we are actually getting close to our time, but we still have a lot of questions about generics entering the market. So there’s sort of a basic overarching question about what process do generic companies go through to challenge patents and bring their product to the market? And Genia, I know you walked us through some of that, but if you could perhaps provide the high-level of again, what that process looks like. And then there was a related question, which was: What does it mean to launch at-risk? And when does the generic enter a market, even though they’ve only challenged some, but not all, the patents protecting a product? So if you could take a stab at that, that would be great.
GENIA LONG: All right, let me answer the second one, because it’s easier, which is, what does launching at-risk mean. Just as a matter of definition, launching at-risk is sort of the term that folks use to refer to generic to enter the market before patent litigation, you know, is — is entirely complete. So that’s a risk that they’re taking with regard to sort of the outcome of that patent dispute. With regard to sort of the process for generics kind of entering the market, I guess I’d go back, actually probably the first thing that Ed said, which is, I’m not a patent attorney. So it’s a — in terms of the steps in that process, the initial piece of that process is the generic is certifying that it believes that it’s going to enter the market, not after all patents expire, which is a so-called Paragraph 1 attestation. But because it believes that if there are no patents, in fact, it could enter that way, or it could claim that it believes that it’s not going to be abrogating any of those patents, or that the patents themselves are not legitimate, and so that’s really what they’re litigating. If that’s maybe a quick answer to a complicated question.
SARAH DASH: Thanks. Priti or Ed, do have anything to add on that question of generics entering the market?
PRITI KRISHTEL: I would just add in practical terms how it looks, that the FDA formally receives the generics and the application, and then there’s about 20 days for the generic to notify the brands that they don’t think that they will be infringing their patent. And then about 45 days later, the branded company would give notice that they are going to sue. And then that’s when the public is notified of that whole interaction. So it’s how it practically plays out. How they decide to enter, and then the legal foundation is laid. So what’s going to happen next.
SARAH DASH: Thank you. And then there is another question about generics, which is, is generic competition really the solution for lowering prices? Then they refer to biologics, that there is currently only one (indiscernible) biologic insulin on the market, and it was introduced with prices approximately 15 percent less than the original version, according to the American Diabetes Association. So there’s a question of, are the prices of generics or biosimilars and there’s a distinction, really the answer?
ED SILVERMAN: I don’t think entirely, because if it was, we wouldn’t have this hoopla the last several years over the cost of prescription drugs. So on one hand, yeah, most prescriptions are written for generics; 89 percent, according to IQVIA a few years ago. That’s a lot. They account for a big chunk of the market. But to the core issue we’re exploring this afternoon, is the patents prolong the generic life, so if they’re going to be — and this is sort of an obvious big picture, 30,000 foot quickie observation, if certain patent maneuvers are permitted that extend arguably unfairly or unnecessarily for a medicine that crowds out lower cost options sooner, well, then generics are good, but only if they get a chance to get on the market at the right time, the time that should be permitted once the patent life has expired. So I think that’s unfortunately the root of the issue.
SARAH DASH: Thank you. Well, I know there’s still a lot of complicated issues to tackle, but unfortunately we’re out of time for today’s webinar. We again, thank you all for joining us, Ed, Genia and Priti and the information from this webinar, again, will be available at allhealthpolicy.org, so please take a look for that. For those of you in our audience, we hope you’ll take time to complete the brief evaluation survey that you should receive immediate after the broadcast ends, as well as via email later today. And please save the date for our next in-person public event in Washington D.C., which will be different from the topic of patents, but it will be a half day summit examining what is next for the social determinants of health. Again, visit our website for more information. Thank you again to all of our panelists, thank you to the National Institute of Healthcare Management Foundation, and the Association of Healthcare Journalists for their partnership and thanks to all of you for joining us today. Have a great afternoon.