Generic Challenge:: Understanding Patents, FDA and Pharmaceutical Life-Cycle Management (Fifth Edition)

Preface to the Fifth Edition

The U.S. Food and Drug Administration (FDA) approved 45 new drugs in 2015 bettering the number (41) approved in 2014, which had been the highest number approved since 1996. The number of such approvals is generally considered to be a barometer of the pharmaceutical industry’s innovation and the FDA’s efficiency in reviewing and approving new therapies. While this trend is good news for industry and patients, it is likely to fuel the ongoing debate over rising prescription drug prices.

One is told that prescription drug prices are too high and annual increases are out of step, e.g., total spending on prescription drugs in the U.S. rose 12.2% from 2014 to $425 billion in 2015. But recall the admonition popularized by Mark Twain that There were three kinds of lies: lies, damned lies and statistics. While the foregoing statistic is true based on list prices, IMS Health estimates that manufacturers actually received $310 billion after rebates and discounts averaging 27%, only a 2.8% increase over such receipts in 2014. And IMS reports the average patient share of the cost for a brand name prescription has increased only about 25% since 2010, averaging $44 per prescription in 2015. In addition almost 90% of new prescriptions in 2015 were for generic drugs which typically cost the consumer a fraction of the cost of brand name drugs.

Spending based on list prices of the top five brand name prescription drugs in the U.S. for 2015 (in billions of dollars) were as follows:

Note only one (Crestor) is a conventional small molecule drug (and its basic patent expired in 2016 and Crestor became a generic). All the rest are new biotech drugs. This dramatic change of leading drugs from chemically manufactured conventional small molecule drugs to biologically produced large molecule biotech drugs is the most important new trend in the pharmaceutical industry.

At the same time, the first U.S. generic for a biologic drug (called a biosimilar) was approved by FDA and launched by Novartis in September, 2015 as Zarxio, a biosimilar of Amgen’s white blood cell-boosting product Neupogen. Initial pricing was 15% below that of Neupogen. In April, 2016, FDA approved a second biosimilar Inflectra, Pfizer’s version of Janssen’s Remicade for treatment of arthritis. FDA has also accepted filings for approval of other biosimilars including a Sandoz biosimilar for Amgen’s Enbrel and an Apotex biosimilar for Amgen’s Neulasta, a long lasting version of Neupogen. Sandoz said in 2015 that it had a number of biosimilars in various stages of development and planned to make as many as 10 regulatory submissions by 2018. According to newspaper accounts there are 11 biosimilars in development to compete with AbbVie’s Humira.

The European Union (EU) is well ahead of the U.S. in approving such biosimilars, as the legal framework for approval of biosimilars was in place by 2003, vs 2010 in the U.S. As a result, there are already 19 approved biosimilars on the market in the EU for the treatment of a number of important disease conditions including diabetes, anemia, cancer, psoriasis, chronic kidney failure and rheumatoid arthritis. European biosimilars sell for about 20-30% below the list prices of the name brand versions of these biologics.

Wall Street expects U.S. biosimilars will have similar discounts once multiple biosimilars for the same product are on the market and discounts could go to 40 to 50% according to one major pharmacy chain manager. In addition, in 2015, the centers for Medicare and Medicaid Services issued new rules for biosimilars which will eliminate existing incentives for doctors to prescribe the more expensive brand name version of the drug instead of the corresponding biosimilar.

Yet despite all the recent innovations and approvals of biosimilars in the U.S., there continues to be animosity towards drug companies and calls for government price controls for drugs, exacerbated by widely published stories of a few single source generics for rare conditions having been bought by unscrupulous parties who raised prices a thousand fold for those few unfortunate users who have no alternative but to pay the exorbitant asking prices for the life-saving drugs until new generics can be approved. Hopefully, the politicians of the day will not be moved by these egregious acts to throw the baby out with the bathwater.

It is also my hope this Fifth Edition will be a useful update of the book as the laws and regulations and court decisions affecting this fascinating subject continue to evolve.

Martin A. Voet

October 1, 2016

Preface to the First Edition

A horse walks into a bar and the bartender says, Why the long face? Why indeed. The pharmaceutical industry should be on top of the world with innovative discoveries and development of so many fantastic new drugs for treating life-threatening illnesses, while often avoiding expensive surgeries. There are targeted new drugs for treating once deadly cancers and for preventing blindness; wondrous new life-saving biotech products for treating stroke and multiple sclerosis; amazing new lifestyle enhancement drugs from growing hair and erasing wrinkles to maintaining sexual vigor; yet the pharmaceutical industry is trashed nightly as being second only to the tobacco industry in the corporations-we-hate-most department.

Politicians sensing this are quick to lay blame, announce conspiracies, demand lower prices and push for re-importation of low-priced drugs from foreign countries. African countries blame them as if they started the AIDS epidemic, instead of coming up with promising treatments. Generic drugs are thought to be the answer to what is wrong with healthcare, while innovators are viewed at best with a jaundiced eye. In this charged and decidedly unfriendly environment, why write this book?

In fact there is nothing wrong with generics and they are a valuable and necessary part of a good health care system. However, there would be no generics without the innovators and I am worried that the public has lost sight of this truism. This book is intended to encourage the innovators to persevere in the face of this adversity and to redouble their efforts to innovate and to continue to see themselves as the valuable contributors to society that they are.

Martin A. Voet

December 3, 2004

Introduction

The Generic Challenge is about providing the necessary information to pharmaceutical executives, managers, regulatory, legal and business development professionals, those involved in strategic marketing and in research and development, among others in the pharmaceutical field, to deal with the increasingly aggressive tactics of generic companies designed to legally copy innovative drug products.

Generic drugs offer significant benefits to society by providing good, low cost medicines at affordable prices. But people and their children also will need new and better innovative drugs in the future to treat a variety of unmet needs. If the generic industry is not kept in check, the balance between the goals of low-priced currently available drugs and innovative, life-saving and life-enhancing future drugs will not be maintained, and while we will continue to have available inexpensive older generic drugs, we will have fewer new, innovative drugs.

Most people don’t understand that new, innovative drugs are invented and developed by the drug industry without any significant help from the government. Sometimes the basic concepts are discovered at Universities and are licensed to the pharmaceutical companies at a very early stage in development, and once in a while something comes from a government-sponsored research institute, such as the National Institutes of Health (NIH), but not very often. And even then, the long times and great costs and capital risks for development and approval by FDA are all on the pharmaceutical industry alone.

A significant percentage of the profits made by the drug companies in marketing and selling their current drugs is invested in the research needed to discover and develop future new drugs. No profits on current drugs, no research on new drugs.

Generic companies have no expense for discovery or development or marketing of drugs. They are legally allowed to copy an innovator’s drug after a relatively short time of exclusivity for the innovator, unless there is patent protection. If they can overcome the patent protection, they can legally obtain rights to use all the safety and efficacy data developed by the innovator and copy the drug. Then they only have to manufacture the drug and put it on the market. No payments are due to the innovator by the generic company for use of his property.

A comparable situation would be you building a house and putting a lock on the door and then after a period of time, anyone who can pick the lock can legally use your house. Well, you say, that’s not fair. I built and paid for the house, no one should be able to use it just because they can pick the lock. You are right of course. No one would dream of that kind of legal process for houses. But that is precisely what happens in the wonderful world of pharmaceuticals where a generic company gets free use of your FDA drug file if he can pick the lock of your patent. In fact, current law actually gives generic companies an incentive to do so by providing a period of exclusivity for the first generic company that tries to pick a product’s patent lock!

In the last 30 years since the Hatch Waxman Act fostered the generics industry, it has grown steadily, so that by 2016 it accounted for almost 90% market share of the prescription drugs sold in America, according to IMS Health. Not satisfied with that enviable track record, during recent years, the generic drug companies have adopted a take no prisoners attitude and are challenging virtually all new drug patents at the earliest possible time. Branded pharmaceutical companies today have virtually all of their current products under attack by generics.

One of the main reasons for the on-going consolidation of the pharmaceutical industry is the shortening of product life-cycles caused by generics entering the market at earlier times in the product life-cycle. As the innovative product life-cycle gets shorter, simple economics suggests that the pharmaceutical industry must recover its long term investment over the shorter time period. This inevitably results in higher drug prices, which leads to further political pressures for Canadian re-importation of lower priced drugs, price controls, excise taxes on new drugs, etc.

Under such conditions, it would not be wise to take the survival of the innovative pharmaceutical industry for granted. An interesting example of this is the drug policy in Canada which has now come full circle.

The Canadian government decided many years ago that it preferred to reimburse inexpensive generic drugs to more costly innovative branded drugs and established governmental policies to achieve that. There was no data protection in Canada for drug dossiers and the only thing preventing a new pharmaceutical product becoming generic almost from day one was a patent. Even there the law was not very friendly to innovators and it was the policy of the health authorities and even the courts to officially favor the generic industry.

The net result was that there is virtually no innovative drug industry in Canada and like Blanche in A Street Car Named Desire; it depends on the kindness of strangers for future innovative drugs. Interestingly, because of price controls for branded drugs, innovative drugs are cheaper in Canada than in the U.S., but generic drugs are more expensive. If all countries took Canada’s approach, eventually, there would be no innovative pharmaceutical industry and no new innovative drugs.

To Canada’s credit it has now recognized the negative aspects of its drug policy and has implemented new regulations to provide for up to eight years of regulatory exclusivity for new drugs approved after June 17, 2006. This will encourage innovation by insuring a minimum of eight years of exclusivity for a new drug before it can be made available in Canada as a generic drug. Further details on the new Canadian drug rules can be found in Chapters 5 and 6.

The purpose of this book is to familiarize the reader with both the strategic and tactical aspects of enhancing pharmaceutical product life-cycles utilizing a variety of interactive tools including patents and regulatory exclusivities, together with an understanding of applicable laws including the Hatch Waxman Act for conventional generic drugs and the corresponding Biologics Price Competition and Innovation Act (BPCIA) for biologic generics or so-called biosimilars.

However, this is not as easy as it may sound. Patent law tends to be an arcane specialty with its own jargon like prior art, terminal disclaimer and 102 reference; while FDA law, with its dense and almost impossible to understand regulations and its own jargon like 505(b)(2) filing and Phase III clinical trial, is not much better.

The following Dilbert carton does a pretty good job of illustrating how many people think about patents: somehow important, but at the same time not very understandable.

DILBERT © 2012 Scott Adams. Used By permission of UNIVERSAL UCLICK. All rights reserved.

Furthermore, when you need an answer to a patent question, you ask a patent lawyer. If the question also involves FDA regulatory issues, you will generally be told that that is an area outside the expertise of the patent lawyer and you should consult an expert in FDA law or regulation. So you find such a person and they will tell you all you need to know about FDA law and regulations, but if the question also involves patents in any significant way, they will tell you it is outside their area of expertise, so please to consult a patent lawyer.

This Catch 22 problem for pharmaceutical managers and executives is that there are an increasing number of important you bet your product issues that depend on fully understanding how patent and regulatory laws and regulations and statutes such as the Hatch Waxman Act interact to influence the long-term success of a pharmaceutical product.

That means pharmaceutical managers and executives alike who want to succeed in their jobs have no choice but to become knowledgeable in these matters, so that they can plan for the successful development and long term success of their company’s pharmaceutical products. This book might also be helpful to the regulatory lawyer or patent lawyer (who can save time by skipping the chapter on his or her specialty) who wishes he or she had a better understanding of the interaction of patent law with regulatory law so that they can better see the bigger picture and help achieve the goal of successful pharmaceutical product lifecycle management.

This book is intended to explain those subjects in understandable language so that you, the reader, will be able to ask the right questions and understand the answers you receive. Keep in mind this book is not intended to be, nor could it be, a substitute for competent counsel in patent law and FDA regulatory matters, nor is it a substitute for expert consultants in pharmaceutical product life-cycle management.

The first three chapters are on patents. Chapter 1 is an Overview of Patents. Chapter 2 covers Patent Enforcement and Infringement and Chapter 3 describes Pharmaceutical, Biologic and Medical Device Patents. These chapters provide the necessary basic background in patents for understanding pharmaceutical product life-cycle management. The next two chapters relate to regulatory matters. Chapter 4 is an Overview of FDA and Chapter 5 covers Exclusivity for Brand Name Innovative Drug Products. These chapters provide the basics for understanding how FDA regulations and brand name product exclusivities affect product life-cycle management. Chapters 6 and 7 discuss the final pieces of the puzzle. For conventional generic drugs: Generic Drugs: Hatch Waxman Act; and for biologic generics: Generics for Biologic Drugs, covering the Biologics Price Competition and Innovation Act of 2009 (BPCIA), which for the first time authorizes generics (or biosimilars) for biologically produced branded drugs in the United States. Then Chapter 8 synthesizes the previous seven chapters in Putting it All Together: Product Life-Cycle Management. Finally Chapter 9 closes with some Conclusions and Final Thoughts.

Overview of Patents

The invention all admired,

and each, how he

To be the inventor missed,

so easy it seemed

Once found, which yet unfound

most would have

thought impossible.

John Milton

Paradise Lost

"Genius is one percent inspiration and

ninety-nine percent perspiration."

Thomas A. Edison

ORIGINS OF U.S. PATENTS

Patents have been around longer than you may think. Article I, Section 8 of the U.S. constitution provides that

Congress shall have the Power … to promote the Progress of Science and Useful Arts by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.