The pharmaceutical industry is widely criticized for wasteful spending on duplicative research to develop “me too” drugs, and focusing their efforts on “evergreening” patents. Those who argue that incremental innovation and follow on improvements to existing therapies aren’t worthy of patent protection need to look more deeply at the reality of what subsequent innovation provides. The case for protecting incremental innovation is laid out in a new publication by the Fraser Institute (released 19 June 2014), in which a thorough exploration of the therapeutic and economic value of follow-on pharmaceutical innovation is provided.
Pharmaceutical innovation is an inherently dynamic process; one innovation builds on another and improvements draw from a long history of earlier technological advances. Sir Isaac Newton once stated, “If I have seen far, it is by standing on the shoulders of giants.” In her classic paper on innovation, Scotchmer cites this quote and emphasizes that virtually all technical progress builds on a foundation provided by earlier innovators. Innovation is an undeniably cumulative event, and progress happens both in leaps and bounds (radical innovation) and in small steps (incremental innovation). In the context of the pharmaceutical industry, radical innovations encompass breakthrough discoveries of the ‘first-in-class’ medicine with a new mechanism of action. In contrast, incremental innovations may expand an existing therapeutic class through the development of a new drug based on differences in adverse effects, delivery systems, dosing schedules, or heat stability. In 2012, 45 new drugs gained regulatory approval from the US FDA, the highest number since 1997. Currently there are 907 biologics, medicines and vaccines in development, targeting more than 100 diseases. Much of this innovation can be considered incremental, resulting in so-called ‘me-too’ or follow-on drugs. These are therapies that largely replicate the action of existing drugs. All indicators suggest that a significant share of medical progress is happening through incremental innovation.
One of the most difficult issues in antitrust and patent law involves “pay for delay” or “exclusion payment” settlements in which a brand-name drug company pays a generic firm to settle patent litigation and delay entering the market. In the landmark case of FTC v. Actavis, the Supreme Court held that such settlements could have “significant anticompetitive effects” and violate the antitrust laws.
Despite the importance of the Court’s decision, several questions remain unanswered. One of the most crucial is what constitutes a payment. The district courts have split on this issue, and in In re Lamictal, Judge William Walls of the District of New Jersey ruled that “payment” under Actavis was limited to cash. The court concluded that “nothing in Actavis says that a settlement contains a reverse payment when it confers substantial financial benefits” and that “[b]oth the majority and the dissenting opinions reek with discussion of payment of money.” Id.
On behalf of 53 professors, the American Antitrust Institute, and Consumers Union, Steve Shadowen and I filed an amicus brief in the Third Circuit urging reversal of the district court’s opinion. We made five general points.
Actavis plc (NYSE: ACT) announced yesterday that it has entered into an agreement with Valeant Pharmaceuticals International (NYSE: VRX) to settle all outstanding patent litigation related to Actavis’ generic version of Acanya® (clindamycin phosphate and benzoyl peroxide) Gel, 1.2%/2.5%. Acanya® Gel is a lincosamide antibiotic and benzoyl peroxide indicated for the topical treatment of acne vulgaris.
Under the terms of the agreement, Valeant will grant Actavis a license to market its generic Acanya® Gel beginning on July 1, 2018 or earlier under certain circumstances. Other details of the settlement were not disclosed.
Launch of Actavis’ product is contingent upon Actavis receiving final approval from the U.S. Food and Drug Administration (FDA) on its Abbreviated New Drug Application (ANDA) for generic Acanya® Gel.
Recently IPWatchdog.com published an article that cited the work we do at the Infectious Disease Research Institute (IDRI) as an example of how dedicated individuals and corporations can work together to transform science into global health solutions. By integrating capabilities, we strive to create an efficient pathway to bring scientific innovation from the lab to the people who need it most.
I write today to explain more about what IDRI does and why leveraging spin-out companies supports global health initiatives.
One of the most important engines in populating and growing the life sciences sector within the United States is the practice of universities spinning out new technologies into startup biotechnology companies. This, in turn, drives the development of new drugs, vaccines and other much-needed health products.
Recently I had a frustrating morning dealing with a particular anti-patent “do-gooder” who seemingly thinks that everything wrong with the world today is because of the patent system. As is typical with this type of zealot, he intentionally misrepresented what Dr. Kristina Lybecker wrote in her recent article titled Compulsory Licenses Won’t Solve a Healthcare Crisis. Then this ignorant fellow turned on me to say that I supported 9,000 people a day dying in order to preserve patent rights. As you can see, this fellow is not a deep thinker, and not at all capable of honest debate, but isn’t that the case with all those who hate the patent system?
This level of asinine attack would hardly be worthy of my time if it were only the ranting of one particular lunatic, but sadly there are many people who seem to believe that the greater good can be served by stripping pharmaceutical companies of their patent rights and allowing generic drug manufacturers to make the latest drugs in the name of a health crisis. As if preventing a corporation from making money will lead that corporation to simply shrug and start all over again only to have rights stripped away again after billions of dollars of further investment.
The average cost of drug development by a major pharmaceutical company is at least $4 billion per drug, but can be as high as $11 billion per drug. Of course, as is self-evident to anyone capable of critical analysis, no drug company is going to invest billions of dollars to take a drug from laboratory idea to market reality if at the end of the successful trip generic drug manufacturers are allowed to ignore patent rights and immediately start making cheap versions of the patented drug. The generics didn’t have to do any research or engage in the costly and time intensive FDA approval process.
The Federal Trade Commissionfiled an amicus brief in the U.S. District Court for the District of New Jersey stating that an agreement by a branded drug company not to launch an authorized generic (AG) drug “provides a convenient method for branded drug firms to pay generic patent challengers for agreeing to delay entry.”
In a “no-AG” agreement, the branded firm, as part of the patent litigation settlement, agrees that it will not launch its own generic alternative when the first generic begins to compete. Since the introduction of the branded AG would cut into the revenues of a competing generic product, a no-AG commitment can induce the generic firm to delay entry of its product to the market. Thus, the Commission concludes, a no-AG commitment is legally sufficient to trigger a rebuttable presumption of illegality under the law of the Third Circuit.
Manus Cooney (American Continental Group) discusses job creation with the panel, Chief Judge Michel looks on.
On Friday, January 21, 2011, I was at the Newseum for the Innovation Alliance conference on patents, innovation and job creation. The turn out was spectacular. Of course there were the usual suspects, but also in attendance were a number of Congressional Staffers and a good contingent of reporters. No doubt the location, only blocks away from the Capitol, facilitated the attendance of many.
I had the privilege of moderating the first panel on how patented innovations create jobs and economic growth. On the panel were Lisa Kuuttilla, President & CEO of STC.UNM at the University of New Mexico, Harry Leonhardt, Vice President & Deputy General Counsel for Amylin Pharmaceuticals, Inc., and John Swart, President of Exemplar Genetics, a small Iowa-based biotechnology company. The panel discussion ran the spectrum from Kuuttilla, who is responsible for getting University based research licensed and into the hands of start-up companies, to Swart who’s company is only three years old, has raised $6 million from investors and licenses University technologies, to Leonhardt who described Amylin as being in virtually the same position as Exemplar Genetics 20+ years ago.
On May 20, 2010, 86 law, economics, public policy and business professors filed an amici curiae brief with the United States Court of Appeals for the Second Circuit seeking the en banc review of the panel decision in In re Ciprofloxacin Hydrochloride Antitrust Litigation, which issued on April 29, 2010. In the per curium panel decision the judges affirmed the district court finding the the ruling in In re Tamoxifen Citrate Antitrust Litigation clearly dispositive, but due to the “exceptional importance of the antitrust implications of reverse exclusionary payment settlements of patent infringement suits,” the panel invited the plaintiffs-appellants to petition the entire Second Circuit for rehearing en banc.
Mark A. Lemley, William H. Neukom Professor, Stanford Law School and partner in the San Francisco law firm Durie Tangri LLP, is representing the 86 professors pursuing this matter pro bono as a concerned law professor and not on behalf of any client. When asked for comment he offered that he thinks “the Cipro case may well be the turning point in legal treatment of reverse settlements.”