IP and Other Exclusive Rights in the Pharmaceutical Industry

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IP and Other Exclusive Rights in the
Pharmaceutical Industry

• John H. Barton
• Stanford Law School (Emeritus)

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Outline of presentation

• The role of patents
• Price control during the patent monopoly
• Extensions and modifications of the patent
  regime
• The Hatch-Waxman Act (1984)
• The Orphan Drug Act (1983)
• Pediatric exclusivity (1997)
• Operation of patent regime in the biotechnology
  era
• Implications

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The patent regime

• Intention of providing a monopoly as an incentive
  to innovation
• Standards
• Novelty
• Non-obviousness
• Utility
• Disclosure/enablement/written description

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Effective term of patent/exclusivity

• Reduced by time taken to qualify for FDA approval
• Expanded by evergreening
• For filings pre-1995, based on continuation
  practice and separate patent terms based on e.g.
  the compound and its use.
• For filings post-1995, possibility of an
  additional invention, e.g. purple pill, based
  on separating isomers.
• Regulatory exclusivity sometimes available by
  state statute or FDA decision, e.g. Premarin and
  difficulty of showing bio-equivalence

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Price control during the patent monopoly

• Traditional European() use of price controls for
  public purchases. US power limited by 2003
  Medicare Act.
• Effective low price in developing nations (a very
  small portion of market) as a result of
  international HIV controversy and Doha
  Declaration
• Canadian imports
• Political implications for price differential
• Practical implications for research cost recovery

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The Hatch-Waxman compromise -- 1984

• Simplifies entry process for generic manufacturer
• ANDA process (bioequivalence) (with 3 or 5-year
  data exclusivity)
• Bolar exemption
• Patent term restoration max of 5 years and
  total exclusivity not to exceed 14 years
• Special incentives

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Hatch-Waxman Act - Implications

• Did encourage growth of generic industry 19
  (1984) gt 49 (2002) by volume according to
  Pharma 2002 study.
• Average effective patent life raised from 8.2 to
  11.2 years according to Shulman, DiMasi,
  Kaitlin (1999).
• Incentive systems led to gaming

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Hatch-Waxman Act Gaming

• When there is conflict over a patent (the Orange
  Book) and a suit arises, FDA cant approve the
  generic for 30 months (unless suit won)
  multiple stays had taken place prohibited by
  2003 Medicare Act
• First generic to file an application gets 180
  days of exclusivity starting when it enters the
  market deals were made to delay the entry
  2003 Act permits several to file on same day and
  gain joint exclusivity
• 2003 Act also permits declaratory judgment action
  against patent holder

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Orphan Drug Act - 1983

• For orphan drug (affects lt 200,000 people)
• Federal grants for clinical trials
• Tax credit for 50 of clinical trial costs
• 7-year exclusive marketing right (for use for the
  particular disease same product may be marketed
  for other diseases)

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Orphan Drug Act Implications

• gt200 new drugs
• Probably, a highly skewed price distribution
• Relatively little interest by large firms

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Patent strategy and biotechnology

• Emergence of biotechnology industry, often
  starting with publicly-funded technology, and
  marketing to Pharma through strategic alliances
• Biotech industry (and sometimes universities) use
  broad and basic and research-tool patents in
  marketing to Pharma and seek reach-through
  royalties, to obtain a share of the ultimate
  rent.

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Examples of biotech industry patents

• Stem cell technology
• Gene sequences
• Protein structures
• Receptors
• Array methods to evaluating gene expression
• Selective inhibition

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Pharma responses

• Anti-stacking provisions
• Encouragement of patent pools (as for SNPS)
• Licenses
• Off-shore research (Bayer v. Housey 340 F3d 1367
  (2003))
• Ignore
• Redesign research strategy

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Is there a research tool problem?

• Yes Anecdotes Heller Eisenberg in Science
  (1998)
• No (?) Walsh, Arora, Cohen in Science (2003)
• Analysis of agreements shows that royalties to
  universities and biotechs amount to 21 of
  profits together with upfront payments, they
  amount to 36 of profits (7 to university, 29
  to biotech), Edwards, Murray Yu in Nature
  Biotechnology (2003).

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Possible legal responses

• NIH grant rule change
• Patent law changes
• Utility standard (and guidelines)
• Bayh-Dole change
• Non-obviousness standard (patentability of
  previously-unknown result of a measurement that
  is obvious to try?)
• Subject matter definition
• Experimental use exception (and Madey v,. Duke,
  307 F.3d 1351 (2002) Integra v. Merck, 331 F.3d
  860 (2003))

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Implications

• We have moved far from a pure patent framework
• Hatch-Waxman created an important discontinuity.
• With the possible exception of price controls,
  the biotechnology-associated changes are the most
  important change in the legal economic reward
  framework since Hatch-Waxman