Potential Abuses Within US Pharmaceutical Patent Regulation

Question 1

Introduction

Answer 1

1. Some pharmaceutical manufacturers use patent laws to extend patent lifespans and deter legal challenges
2. Consumer advocates note the significant increased costs to consumers resulting from delaying generic entrants

Question 2

Potential Patent Abuses

Answer 2

1. Some pharmaceutical manufacturers have used patent laws to gain extended patent lifespans and deter potential legal challenges
   a. Statistics on drugs identified as potentially subject to generic-delaying abuses
   i. A study of 12 leading drugs revealed an average of 125 patents filed and 71 patents granted per drug, with an average patent lifespan of 38 years (compared to the 20 years envisioned by the patent system) and an average 68 percent price increase over a five-year period

ii. A study focusing on just three drugs suggested an excess cost of $55 billion to the U.S. health care system in the next 15 years due to delayed generic availability for just those three drugs

2. Patent terms are extended beyond 20 years through a strategy called “evergreening”
   a. Evergreening occurs when a patent holder files secondary patents on an invention to renew the 20-year patent exclusivity period
   i. For example, an initial patent may relate to the method for using the drug
   ii. Subsequent patents may cover
   (1) treatment of a new disease
   (2) crystalline form of the drug
   (3) process for manufacturing the drug

b. Evergreening is more difficult to adjudicate when a secondary patent is frivolous and intended solely to renew patent exclusivity
c. Much of pharmaceutical innovation is incremental in nature, and secondary patents can represent true innovation with real medical benefits to patients,

d. Research has shown that more than 80 percent of reformulations are not temporally connected to impending generic entry

3. “Product hopping” is similar to evergreening. It uses reformulations of a drug to extend exclusivity and prevent Abbreviated New Drug Application (ANDA) applicants from referencing the primary patent
   a. The ANDA fast-track process requires that applicants only prove bioequivalence to a reference brand-name drug
   i. A brand can develop a reformulation of a drug that is covered by a secondary patent and then pull the original drug off the market

ii. This eliminates the ability of an ANDA application to prove bioequivalence to the original drug

iii. For e.g. a brand manufacturer switched from a twice-a-day pill to once-a-day, gaining 14 additional years of patent protection and excluding generic entrants

4. A brand manufacturer withholding samples from a potential generic distributor, inhibiting its ability to perform a bioequivalence assessment
   a. The U.S. Food and Drug Administration (FDA) can require drug safety plans for drugs with serious side effects or the potential for abuse—these are known as Risk Evaluation Mitigation Strategy With Elements to Assure Safe Use (REMS with ETASU)

b. REMS plans
i. may include educating doctors and patients about risks
ii. they also could require that distribution be limited to approved pharmacists or health care providers

5. A strategy colloquially referred to as a “patent thicket” uses the presence of multiple patents on a drug to deter potential litigants
   a. The patent holder needs only to prove that at least one patent is infringed by a generic entrant, so the generic entrant is burdened with proving that every patent covering a drug is invalid
6. Pay-for-delay: a brand producer pays a generic producer to delay the entry of the generic into the market
   a. Settlements are common when legal action is brought through the Hatch-Waxman Act, inter partes review (IPR) or other legal action entirely

b. They have raised concerns about the possibility of anticompetitive practices

c. Generic companies argue these types of settlements allow for generic entry earlier than existing patents would have allowed were those patents deemed valid

d. Consumer advocates fear these types of settlements may artificially inflate drug costs and create anticompetitive duopolies

Question 3

Recent Legislative Proposals

Answer 3

1. The CREATES Act of 2019 makes samples more easily accessible for generic manufacturers
   a. The bill allows generics to bring action in federal court to obtain samples needed for bioequivalence analyses and allows for limited damages to be awarded in cases of sample withholding

b. Gives the FDA more discretion to approve alternative safety protocols to bypass impediments caused by REMS plans

2. The Preserve Access to Affordable Generics and Biosimilars Act prohibits settlement agreements where “a branded drug firm pays a potential generic competitor to abandon a patent challenge and delay entering the market”
   a. Settlements would not be illegal, but they need to demonstrate that the agreement provides procompetitive benefits that outweigh the anticompetitive effects

b. Civil penalties could be assessed if the FTC proves an agreement violates these provisions

3. The Prescription Drug Price Relief Act would legislate the voiding of patent rights and regulatory exclusivity on pharmaceutical products if the prices of covered drugs were found to be excessive
   a. Defines “excessive” as when the average U.S. manufacturing price exceeds the median price charged in five reference countries, or if the price of the drug is “higher than reasonable” taking into account data on
   i. research and development costs
   ii. health outcomes
   iii. the value of the drug to patients
   iv. revenues and recent price increases
4. The FLAT Prices Act would shorten regulatory exclusivity periods by 180 days if the price of a drug increased by more than 10 percent over a 12-month period, 18 percent over a 24-month period or 25 percent over a 36-month period.
   a. The secretary of HHS could waive or decrease the reduction in exclusivity if it is determined that the price increase is necessary
5. Patent reform can positively steer the pharmaceutical industry toward meeting patient needs, fostering innovation and promoting long-term stability.
   a. The Biologic Patent Transparency Act closes the gap in information required by the FDA’s Orange Book and Purple Book.
   i. While patent information is contained in the Orange Book, the Purple Book does not contain patent information.
   ii. The bill would require the Purple Book to include patent information

b. The Affordable Prescriptions for Patients Act codifies definitions of patent thicketing and product hopping, which could enable the FTC to bring antitrust suits against companies that employ these strategies
i. manufacturers can make rebuttals against an FTC determination of patent thicketing by showing that secondary patents provide
1. clinically meaningful therapeutic or safety benefits
2. improved product purity or potency
3. more efficient manufacturing or other benefits to patients

ii. Product hopping can be defended by proving that the follow-up product provided clinical benefits and that this was the least likely means to reduce competition.

Question 4

Conclusion

Answer 4

1. Intellectual property rights are but one of many interwoven complex factors that impact the prices consumers pay for drugs
2. Patent reform can be a key tool to positively steer the pharmaceutical industry toward meeting patient needs, fostering innovation and promoting long-term stability
3. Actuaries can aid this process by combining a deep and holistic understanding of the U.S. health care system with analytical and financial expertise.
   a. They can contribute to the
   i. quantification of value
   ii. projection of utilization patterns
   iii. calculation of savings related to various patent decisions and related social policy