Pharmaceutical Patent Regulation in the US

Question 1

Introduction

Answer 1

1. Patents are characterized by high research and development costs
2. A utility patent provides the patent owner with exclusive commercial rights to produce and use the covered technology for up to 20 years
3. 3. Pharmaceutical patent holders are using exclusivity in ways that sometimes have been correlated with price increases and potentially anticompetitive market dynamics

Question 2

Intellectual Property Protection in the Pharmaceutical Industry

Answer 2

1. Two types of intellectual property protection for pharmaceutical inventions.
   a. Patent exclusivity is a system shared with other industries

b. Regulatory exclusivity: The Food and Drug Administration (FDA) grants newly approved drugs a period of time during which they will not approve competitor drugs

2. A successful patent grant requires demonstration of
   a. Usefulness (the invention accomplishes its intended purposes)

b. Novelty (the invention was not publicly known before the patent applicant invented it)

c. Non-obviousness (the invention is not an obvious development to an expert in the invention’s field)

3. Pharmaceutical patents can include a wide variety of claims about a single drug, including
   a. formulation
   b. indications for treating particular diseases
   c. technology for administration
   d. methods of manufacturing
   e. chemistry related to active ingredients
4. Patents can be applied for and issued at any time during the development of a drug
5. Secondary patents: Patents that cover new aspects of or improvements to a drug already covered by a patent
   a. A single drug may be covered by more than 100 patents due to secondary patents covering many unique aspects of a drug

b. Each new patent, whether a first or secondary patent, grants commercial exclusivity for 20 years

6. Regulatory exclusivity
   a. Definition: Refers to prohibitions granted to new drug applications that prevent the FDA from approving competitor drugs

b. Unlike patents, regulatory exclusivity varies in term depending on which of seven types of exclusivity are issued. For example, orphan drugs are eligible for the longest period of exclusivity at seven years, while new generic entrants are eligible for the shortest period of exclusivity at 180 days.

c. Patents and regulatory exclusivity operate separately, and drugs may have both, just one or neither type of protection
i. The two types of protection may or may not run concurrently and can cover similar or different aspects of the drug product
ii. Patent exclusivity term is longer and can be lengthened through secondary patents, thus raising concerns about exclusivity abuses
iii. Regulatory exclusivity grants are provided only to new drug applicants

7. The FDA publishes lists and information about approved pharmacological products in the Orange Book and Purple Book
   a. Orange Book
   i. Contains information about drug products
   (1) specific information about patent and regulatory exclusivity data
   (2) a drug’s proprietary name
   (3) active ingredients
   (4) dosage form
   (5) route and strength
   (6) therapeutic equivalence to other drugs
   ii. Drug products have well-defined chemical structures that can be analyzed for safety, efficacy, and patent novelty purposes

b. Purple Book
i. Contains information on biologic products
(1) about regulatory exclusivity
(2) proprietary name
(3) biosimilar status

ii. Biologics are manufactured in a living system, and are large and complex molecules that are difficult to characterize analytically
(1) The process of producing a biologic and the consistency of that process is the subject of the patent analysis, not just the composition of the final product

c. The presence of patent information in the Orange Book can make it easier for potential generic competitors to understand if infringement claims could be brought and what the content of the patents are.

Question 3

Economic Justification of Patents

Answer 3

1. Patents are a regulatory tool that can solve inefficient outcomes related to knowledge-based innovation
2. Patents allow the entity that generated the new product to exclude competitors from enjoying subsequent profits for a period of time
3. Patents are public documents that contain thorough documentation on the nature of the invention
   a. This allows for new research to be done that uses the findings documented in the patent
   b. A well-functioning patent system can fuel further innovation by incenting public distribution of research findings without attaching financial penalties
4. Drug products cannot be protected as trade secrets because their molecular composition can be readily determined by chemical analysis
   a. For example, Coca-Cola’s famously secret recipe is not patented, as doing so would mean disclosing the ingredients to the public via the patent application and losing exclusive rights to that formulation at the expiration of the patent
5. For biologic products, their chemical structures are not easily analyzed and the biological processes that led to its creation are not clear
6. Patents can be “rented” through payment of royalties, and can also be sold or acquired
   a. This creates opportunities for competitor firms to produce products that would otherwise infringe on patent rights, subject to an agreement with the patent holder

b. Allows the patent to be treated as a somewhat liquid asset in a market-based economy

c. Allows for the creation of products that not only partially rely on patented inventions but also introduce novel and unpatented inventions

d. Patents do not guarantee an innovator a profitable monopoly

Question 4

Financial Analysis of Patents in the Pharmaceutical Industry

Answer 4

1. A numeric financial analysis of the impact of patents on the pharmaceutical industry is complex and often debated.
2. The costs of bringing new drugs to the market are indisputably high
   a. Published estimates can be very different from each other
   b. Costs are subject to considerable risk and volatility, and can be misleading indicators of a pharmaceutical company’s financial stability
   c. The discovery and clinical trial steps are prominent contributors to the considerable volatility in costs
3. Factors that add to the high costs of bringing a drug to market
   a. Drug discovery can take a team of scientists between three and 20 years

b. FDA’s three-phase clinical trial testing process can cost millions per phase, and only a fraction of products tested in clinical trials succeed

c. The discovery and clinical trial steps are prominent contributors to the considerable volatility in costs that pharmaceutical developers incur, and the gap between when costs and profits are realized

Question 5

Previous Reforms of Pharmaceutical Patents

Answer 5

1. Notable pieces of legislation
   a. Drug Price Competition and Patent Term Restoration Act of 1984/Hatch-Waxman Act
   b. America Invents Act of 2011/Leahy-Smith America Invents Act or AIA
2. Hatch-Waxman Act fueled exponential growth in the generic drug market.
   a. The bill introduced an abbreviated FDA approval process for generic drugs called the Abbreviated New Drug Application (ANDA

b. Generic products utilizing the ANDA no longer need to prove safety and efficacy but can alternatively prove bioequivalence to a designated reference drug
i. Bioequivalence means that there is no significant difference in the “rate and extent that an active ingredient is in contact with the site of the drug’s action.”

ii. The abbreviated process significantly reduces the requirements and uncertainty associated with gaining approval of generic drugs

3. Generic applicants using the ANDA need to certify one of four categories of patent coverage
   a. That the generic drug does not overlap with any patents ever approved
   b. That the generic drug overlaps with patents that have expired
   c. That the generic manufacturer will not market the drug until overlapping patents have
   expired
   d. That the generic manufacturer believes overlapping patents are not relevant or invalid
4. Hatch-Waxman Act created safe harbor protection for generic applicants asserting the third category above
   a. This allows generic producers to prepare manufacturing processes and gain FDA approval for generic drugs while the brand patent is still in effect so that generic drugs can become available immediately after an overlapping patent expires
5. Hatch-Waxman Act established that the fourth category above is an “artificial” act of patent infringement
   a. This encourages brand manufacturers to bring an early patent challenge
   b. A patent owner must bring suit within 45 days of an ANDA filing or the right to bring
   action is lost
   c. This expedites the generic approval processes and insulates generic manufacturers from potentially costly patent infringement findings late in a generic product’s launch process
   d. A patent challenge puts a 30-month stay on the approval of the ANDA to resolve the legal dispute
6. Litigation under the Hatch-Waxman Act can be brought only regarding patents that are reported to the FDA through the Orange Book
   a. The Purple Book, relating to biologic drugs, does not contain patent information
   b. There are potential patent challenges that lie outside of Hatch-Waxman’s purview
7. AIA enacted another route toward challenging the validity of a patent through the inter partes review (IPR) procedure
   a. Petitioners applying for IPR may challenge a patent. Pertains to “prior art” that is a patent, printed publication, or public use that existed prior to and is identical to a claimed invention

b. IPR cases are heard by the Patent Trial and Appeal Board (PTAB) and appealed to the U.S. Court of Appeals for the Federal Circuit
i. The AIA created the PTAB to reduce costs and time to litigating parties

c. IPR, unlike ANDA-derived litigation, may challenge any patent, including patents that were not required to be reported to the FDA in the Orange Book or the Purple Book.

Question 6

Conclusion

Answer 6

1. Patents and regulatory exclusivity occupy a prominent role in ensuring the pharmaceutical industry meets patients’ needs, fosters innovation and promotes long-term stability.
2. Intellectual property rights are but one of many factors that impact the prices consumers pay for drugs.
3. Actuaries can provide perspective on ways to balance financial volatility embedded in the process of bringing a drug to market, health system costs and patient health.