From our first leader, George Washington, to the latest, Donald Trump, our presidents have been no strangers to the importance of intellectual property.
For example, President Trump and his organizations have a plethora of trademarks and Vice President Mike Pence was a member of the United States House Judiciary Subcommittee on Courts, the Internet, and Intellectual Property.
In his remarks to the joint session of Congress on February 28, 2017, President Trump expressed his desire for Democrats and Republicans to join forces, find common ground and unite for the good of the country and the American people. In that vein, Trump referred to the slow and burdensome approval process at the Food and Drug Administration that keeps too many advances from reaching those in need. But what does the FDA have to do with intellectual property? Surprisingly, a great deal, and not just with “Big Pharma” pharmaceuticals.
What does the FDA actually do?
According to the FDA website, the FDA is responsible for “protecting the public health by ensuring the safety, efficacy, and security of human and veterinary drugs, biological products, and medical devices; and by ensuring the safety of our nation’s food supply, cosmetics, and products that emit radiation.” At times it seems that the FDA carries out these responsibilities through a byzantine set of procedures that exalts bureaucratic process over common sense.
The FDA process is a long and remarkably expensive journey from creating and discovering a new drug to getting it in the illustrious “Orange Book” – an FDA publication identifying approved drug products with therapeutic equivalence evaluations listing any patents on a drug or its use that could reasonably be infringed.
It is illegal to sell drugs with advertised medical claims that are not FDA approved and insurance companies usually will not pay for them. However, it is the FDA that effectively gets to decide which products will be allowed in the stream of commerce. It is this stranglehold on the market that causes so many to feel such frustration. Trump lamenting that the burdensome FDA approval process keeps too many advances from patients who desperately need them is all too familiar.
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Few Drugs Gain Approval
To put this frustration into perspective, getting a drug on to pharmacy shelves is actually rare with the ratio of researched drugs gaining FDA approval somewhere between 5,000 and 10,000-to 1. In 2016, only 22 medicines were cleared for sale, the lowest number since 2010 and down from 45 in 2015. Most drug developments fail and those that do make it require passing an approval process that typically spans over a decade and costs nearly $3 billion.
This price tag is so high due in large part to research, development, legal costs and opportunity costs associated with having money tied up indefinitely. Large, complex trials, post-FDA approval trials, analyzing side effects, and researching new dosing methods are also major contributors. Nevertheless, as described above, all those thousands of failed drugs are also culprits. Someone has to pay for their on-going or unsuccessful discovery stage studies, which are not free.
Further, the FDA can be quite moody and fickle when it comes to granting approvals. Although it has a mission statement, the FDA does not execute it homogeneously, which causes regulations to swing from lenient to strict depending on the year. For example, scandals stemming from the drugs Vioxx or Avandia turned the agency into a very careful, safety conscious entity that rejected drug applications, which would have previously been approved due to theoretical safety risks. Yet, when the FDA is criticized for halting progress by being too strict, it becomes more permissive.
The general idea is to weigh the benefits of a drug against possible side effects, but the agency can, and does, modify the rules when it decides a change is required. So, when a drug company thinks it has provided all the data required, the FDA can decide that there need to be more studies or more information to comply with inconsistent standards. This is good news for those whose drugs or devices are already approved. Newcomers and competitors are going to be discouraged from throwing their hats in the ring and will not be eager to spend millions of dollars on a product that is likely to be rejected. But this comes at a cost to innovation which tends to decline with less competition.
Patents are Essential
While critics of the patent system so frequently cite the existence of exclusive rights as the problem, the reality is that the existence of exclusive rights is the only reason the cumbersome, inefficient, bureaucratic processes of the FDA have not completely stalled drug development in America. Without the promise of exclusive rights for what could one day become blockbuster drugs there would be absolutely no way any pharmaceutical company could ever justify investing the nearly $3 billion it takes to develop a single drug. Of course, critics love to opinion that drug development would not slump even without patent rights, which defies all common sense and logic, and they are unable to point to a single economy in the world that has ever enjoyed even modest levels of drug development in the absence of a strong intellectual property rights regime.
Patents only offer exclusive rights to the holder for a term of 20 years from filing. The time spent testing and developing drugs easily cuts into this term depending on when the patent is granted. Some of the administrative delay can be added back to the patent term, but patent owners of approved drugs do not receive the same effective patent term that other innovators receive. This is a common reason why innovative drugs are so pricey; there is less time to recoup costs before generics swoop in at a lower cost.
There is also no guarantee that the time, money and effort invested in the regulatory process (i.e., research, development, approvals) will ever yield FDA approval. That is why patent protection is so critical, particularly for those drugs and therapies that both reach the market and achieve market success. Without an ability to reap benefits from that exceptionally small category of commercially successful drugs and therapies the entire system would collapse, which would mean few (if any) new drugs and therapies being pursued and ever making it to market.
Like pharmaceuticals, medical devices require clinical studies, peer reviews and FDA approvals, which can lead to years of research and development and cut into the profit of a product before it even enters the market. A device’s function and design are patent eligible, and IP protection is imperative in thwarting competitors from copying or infringing over the life span of the product, particularly at the development phase. This is particularly true for devices with low manufacturing but high R&D costs for becoming FDA compliant (like disposables). Notably, to hinder others from designing around the patent, the claims must be appropriately broad and not so narrow that similar products do not infringe.
Patent protection is vital along the way, not just for the finished product, but especially to prevent competitors from riding the coat tails and benefiting from the creator’s efforts.
A patent is not the only path to exclusivity. In fact, the FDA characterizes patents and “exclusivity” separately. “Exclusivity” refers to exclusive marketing rights granted by the FDA upon approval and was designed to promote a balance between new drug innovation and generic drug competition. Some differences are that patents can be issued or expire at any time – before, during or after FDA approval– while exclusivity attaches upon approval of a drug product. Further, some drugs have both patent and exclusivity protection while others have just one or neither. Patents and exclusivity may or may not run concurrently and may or may not cover the same aspects of the drug product. The terms also vary because a patent runs 20 years from filing (subject to extension) while exclusivity is granted according to the type of drug, usually between 6 months and 7 years. If there is exclusivity, it does not add to the patent term and if the patent or exclusivity is expired, it is removed from the Orange Book. A generic drug based on a branded drug that is no longer listed in the Orange Book is fair game for market entry.
What this means is that drugs can get exclusivity without a patent through the FDA. Like a patent, this exclusivity allows the exclusivity holders to recoup their investment and rewards innovation and R&D efforts like clinical trials. For example, a new chemical entity (NCE) that submits clinical tests to demonstrate the safety and efficacy of the NCE can get a 5-year monopoly in which no other company may submit an abbreviated new drug applications (ANDA) to get approval from the FDA on a drug containing the NCE. (The FDA may grant exclusivity to ANDAs for generic drugs. Under the Drug Price Competition and Patent Term Restoration Act, or the Hatch-Waxman Act of 1984, a company can seek approval from FDA to market a generic drug before the expiration of a patent relating to the brand name drug upon which the generic is based. The first company to submit an (ANDA) with the FDA has the exclusive right to market the generic drug for 180 days. The 5-year term often turns to 6 or 7 years since it takes the FDA two or more years to review and approve an ANDA once filed.) An ANDA can only be filed for expired or non-patented drugs, and the first drug or first group of drugs to file is granted the exclusive 180-day period.
Further, if the branded drug patent is invalid or infringes another, the FDA must wait 30 months until the generic can be approved, during which time the branded drug may file infringement suits. Generic drug manufacturers, who under the Hatch-Waxman Act only need to prove their drug’s bioequivalence to the original branded drug, can submit an ANDA much more easily and cheaply because they do not need to do clinical trials since they rely on those already conducted by the branded drug.
Other types of exclusivity in addition to New Chemical (NCE) and 180-Day exclusions include Orphan Drug (ODE), “Other” and Pediatric (PED). ODE is 7 years and is granted to drugs designated and approved to treat diseases or conditions affecting fewer than 200,000 in the U.S. (or more than 200,000 and no hope of recovering costs). NCE lasts 5 years and is granted to a drug that contains no active moiety that has been approved by FDA under section 505(b). “Other” Exclusivity runs for 3 years for a “change” so long as certain criteria are met. It is granted to a drug when the application or supplement contains reports of new clinical investigations (not bioavailability studies) conducted or sponsored by the applicant and are essential for approval. The PED adds an additional 6 months of market protection at the end of listed patents and/or exclusivity for sponsor’s drug products containing the active moiety, when the sponsor has conducted and submitted pediatric studies on the active moiety in response to a Written Request from FDA. Pediatric exclusivity takes on characteristics of five-year, three-year or orphan exclusivity when it attaches to those protections.
Make no mistake, it would be tremendously unwise to proceed sans patents. No patent means the generic can enter the market as soon as the FDA exclusivity period expires, and having a patent can extend the exclusivity period to the end of the patent term, often years later. Again, patent protection should be sought early in R&D because once the drug is commercially successful, it’s too late to generate considerable revenues since generics can make their way onto the scene. But having a patent is not the end, it must be properly listed in the Orange Book so that any ANDA approval is delayed until the exclusivity period ends. The Orange Book lists the brand name and chemical name, putting the public on notice that the holder believes a generic version would infringe the name brand drug. When an ANDA is submitted, the generic company certifies the status of the branded patent and challenges the validity, enforceability or states the generic would not infringe the patent.