Prescription Drug Patents: Balancing Innovation, Access, and Affordability

1:30 p.m. – 1:35 p.m.         Welcome and Introductions

• Sarah J. Dash, MPH, President and Chief Executive Officer, Alliance for Health Policy, @allhealthpolicy and @sarahjdash

1:35 p.m. – 2:05 p.m.         Panelist Opening Remarks

• Ed Silverman, M.A., Pharmalot Columnist and Senior Writer, STAT,  @pharmalot
• Genia Long, MPP, Senior Advisor, Analysis Group
• Priti Krishtel, J.D., Co-Founder and Co-Executive Director, I-MAK, @pritikrishtel

2:05 p.m. – 2:45p.m.          Question and Answer Session

The Alliance for Health Policy gratefully acknowledges the support of the National Institute of Health Care Management (NIHCM) Foundation and the Association of Health Care Journalists (AHCJ) for this event.

Note: This is an unedited transcript. For direct quotes, please see video at http://allh.us/f4Ct   SARAH DASH:  Good afternoon, and welcome to our webinar on Prescription Drug Patents:  Balancing Innovation, Access, and Affordability.  I am Sarah Dash, President and CEO of the Alliance for Health Policy and I will be facilitating today’s discussion.  For those who are not familiar with the Alliance, we are a non-partisan organization dedicated to advancing knowledge and understanding of health policy issues.  We do not lobby, advocate or take any policy or political positions ourselves, but our mission is to educate the health policy community.   During today’s webinar, our panelists will explore the role of patents in creating economic incentives for prescription drug innovation.  The Alliance for Health Policy gratefully acknowledges the National Institute for Healthcare Management Foundation, for supporting the Beyond the Beltway Health Webinars for Journalists Series.   We would also like to thank the Association of Healthcare Journalists for their partnership in this series.  If you are interested in joining the Twitter conversation, use the hashtag #allhealthlive, and follow us at All Health Policy.   I’m going to briefly orient you all to the Go To Webinar platform, and review a few technical notes.  We have taken a screenshot of the attendee interface.  You should see something that looks like this on your computer desktop in the upper right corner.  You can click the orange arrow to minimize and maximize this menu.  When you join today’s webinar, you are muted, and you will be throughout the presentation.  Please use the question panel to chat with us about any technical issues you may be experiencing.  You may also send in questions you have for the panelists at any time.  We will collect these and address them during the broadcast.   Next slide, please.  Here is our agenda for today.  Each of our panelists will make about ten minutes of opening remarks and will use the remaining time to take questions from the audience.  And again, you can submit questions using the question section in the audience interface at any time during the webinar.   Next slide.  You will also find the materials that accompany this webinar, including a copy of the slides, a resource list, and an expert list, on our website, Allhealthpolicy.org.  And a recording of today’s webinar will also be made available on our website in a couple of days.   Now I’d like to introduce our esteemed panel of experts.  Joining us today, we have Ed Silverman, who is Senior Writer and Pharmalot columnist at STAT.  Mr. Silverman has covered the pharmaceutical industry for two decades.  He won the Gerald Lob Award for Business and Financial Journalism in 2018 for his Pharmalot View column, along with several former Wall Street Journal colleagues, Mr. Silverman was a Pulitzer Prize finalist in explanatory journalism for a series of stories on prescription pricing.   We are also pleased to be joined by Genia Long.  Ms. Long is a Senior Advisor for the Analysis Group.  She’s an expert in the economics and business strategy of innovation and growth, and has assisted executives in pharmaceuticals and biotechnology, consumer package and information technology, with maximizing the value of their product services and innovative technologies by addressing fundamental challenges related to research and development, business planning, opportunity assessment and competitive market strategy.  Her work has been published in Health Affairs, the Journal of Medical Economics, and many other venues.   Finally, we are joined by Priti Krishtel, who is co-founder and co-executive director of I-MAK.  She co-founded I-MAK in 2006, and since then, the organization has become a recognized global force in the access to medicines movement.  Ms. Krishtel is a frequent speaker at national and international events and has been featured in Entrepreneur, CNN, The New York Times, Bloomberg, CNBC, The Wall Street Journal, The Hill, and Reuters.   Thank you all for joining us today.  So with that, I will now turn it over to Ed Silverman for his opening comments.  Ed, go ahead.   ED SILVERMAN:  Hi, thanks, Sarah and thanks everyone for showing up.  I appreciate that you’re here.  So as you heard, I cover pharmaceutical industry for a long time and what I want to talk about today are the — some of the interesting patent issues that frequently come up on a very regular basis.   I will walk you through some of those issues now, and try to give you some context that will help you identify when a patent issue is worth filing, and how to sort out some of the particulars.  I should mention, I’m not an attorney, certainly not a patent attorney, but I’ve spent a lot of time reading litigation and sometimes patents, if I can figure those out.  So with that said, maybe we can move to the first slide.   Thank you.  So I guess it goes without saying, but I put it here anyway:  Patents are very critical to the pharmaceutical industry and other industries of course.  It’s all about innovation.  The basic grand bargain is that drug makers work on discovering and developing in medicine and in exchange for all of that work, they obtain patent that gives them some marketing exclusivity.  That means they can have some time to sell their FDA approved drug without competition later on that could be generics.  And there can be a lot of patents, by the way, that are obtained.  You can get a patent on the actual chemical substance, different formulations.  Maybe it’s a tablet, maybe it’s an injectable, different dosages.  There are patents for manufacturing processes, and what’s called method of use, which refers to the disease that’s actually being treated.  And there are many other patents that can be obtained for a medicine.  But interestingly, a controversial aspect of the industry dynamics over the last several years is that drug makers have been increasingly criticized for using patents to gain the system.  That’s a very cliched phrase, but I’ll go into that now.  Can we have the next slide?   Thank you.  So why would a company want to obtain a large number, a seemingly endless number of patents?  A patent lasts 20 years, so one would think that there’s a lot of opportunity to not only recover the cost to develop a medicine, but also make a profit.  The industry, however, will point out that the time spent developing a drug after the initial patent has actually been filed, eats into that time frame, because it may be X number of years later before the medicine is approved by the FDA and then made available for marketing in this country.  So since a patent precludes other companies from selling another version of their drug, this — the drug maker wants to extend the patent protection as long as possible.  So if you get one patent, and then you get more patents, it’s not as if they all end at the same time.  It’s like a rolling situation.  Additional patents provide more protection further out.  And this is about a business strategy, but sometimes drug makers are accused of going too far and there have been several approaches that have caused controversy.  So next slide, please.   One is called product hopping.  It’s a funny term, but it describes typically only modest reformulations that are made to a medicine, but without offering any substantive therapeutic advantages.  It could be slightly altering the physical essence of a tablet, which does in fact sound modest, right?  There is a controversial case a few years ago; a company sought to switch Alzheimers patients to a newer, more expensive version of an older pill, before generic competition emerged.  The idea was to try and continue to capture as many patients as possible.  And the drug maker hoped it convinced doctors and patients that its new drug was more convenient, and therefore boost prescription of the new drug before generic versions of the older pill became available.  And the reason was that patent on the older pill was expiring in just a few months.  But the patent on the new medicine didn’t expire until 2025.  That’s a number of years in which the register can keep ringing.  Next slide, please.   There’s another tactic that’s called patent thickets.  Product hopping, patent thickets — lots of sexy names, right?  This refers to the use of numerous patents that can cover minuet differences.  A processes associated with a medicine.  However, critics will say this distorts patent laws, because the erstwhile generic competitors are precluded for years from selling their own version.  Their own generic version.  Next slide please.   Thank you.  There’s a very widely known example that is currently quite controversial.  It’s a drug called Humira, sold by a company called AbbVie.  It’s used primarily for treating rheumatoid arthritis, but it’s also approved for treating other ailments.  The company has filed dozens of patents over the years, some of which do not expire for another four years — until 2023.  Although, the so-called core patent, arguably the most important patent, expired in this country three years ago, 2016.  The upshot is this has made it impossible for rivals to compete and sell — in this case it’s not called a generic, it’s a biosimilar version — I will detour for a second, because Humira is a biologic medicine, it’s not a pill or a tablet.  And so there are companies that have lined up to try to make the investment to sell a biosimilar version of Humira.  It’s a much larger time staking investment to make that kind of drug than a generic pill.  In any event, AbbVie’s patent filing has made it impossible for erstwhile rivals to compete, and that’s angered consumer advocates.  They say the U.S. Healthcare System is the big loser.  Now, it’s worth noting Humira generated just in the U.S. last year, $13 billion in sales.  There’s a big chunk of company-wide revenues too.  But again, the patent ticket delays lower cost alternatives from becoming available.  Next slide, please.   Then there is another maneuver called pay-to-delay, and this describes a sort of grand bargain between the brand-name drug maker and one or more generic companies.  The deals are merged from patent litigation.  A brand-name drug maker claims that a generic company, which wants to sell a cheaper version of its drug, has infringed upon its patent.  So the brand-name company files a lawsuit against the generic company, or several generic companies.  And you can imagine that it eats up time and money before anything is resolved and a lower cost generic version can reach the consumer.  So how do the deals work?  How do these pay-to-delay deals work?  Typically a brand-name drug maker will settle a patent lawsuit by paying cash for transferring something else of that (indiscernible) to a generic rival.  Which then agrees to delay launching its copycat medicine until some time into the future.  Well, this gives the brand-name drug maker more time to sell its medicine without lower cost competition.  The Supreme Court ruled six years ago that these deals were worth exploring for anti-trust issues.  And the FTC, the Federal Trade Commission, a few years ago, released a report contending that these pay-to-delay deals cost consumers three and a half billion dollars annually, although they haven’t updated that figure.  Next slide, please.   So meanwhile, the pharmaceutical industries tended — pay-to-delay deals are not only legal, but they actually are a good deal, because they allow lower cost generic drugs to reach consumers faster than if the patent litigation would drag on for years.  Next slide, please.   A newer issue emerged a few years ago with the Affordable Care Act, which created a mechanism for companies that hope to sell the biosimilar versions of the pricier brand-name biologic.  There is yet another fun name, so-called patent dance takes place in these situations to which the biosimilar company would provide necessary information to the brand-name drug maker in order to establish whether or how patent litigation begins.  It’s a sort of process that allows the brand-name company to say, hey, I think this biosimilar company is going to infringe on my patent, so let’s go to court.  And there is a complicated process that takes place to sort out which patents might go to court, become subject of a lawsuit.  But this, as you can imagine, takes time, and even though we’ve had more than a dozen biosimilars approved by the FDA, this patent dance has delayed the launch of lots of products in the U.S. market, while the litigation plays out.  Next slide, please.   Finally, there was one clever gambit tried by a drug maker two years ago.  The company transferred several patents on a best-selling medicine to a Native American tribe, and then licensed the sales rights back for a small sum.  Why?  The drug maker complained — this was its rational — that it faced two very different kinds of patent litigation with generic companies.  Next slide, please.   One was the usual patent litigation with different generic drug makers — I mentioned that before.  A brand-name drug maker feels a generic company that wants to sell its low cost version is infringing on a patent, so the brand company files a lawsuit.  But the other issue raised by this company in this instance was a newer type of challenge that can be filed with the U.S. Patent Trademark Office.  It’s known as inter partes reviews, and these allow generic companies to more easily and quickly file claims that challenge the patent held by the brand-name drug maker.  So there’s two things going on there that the brand-name drug maker contend with; really double jeopardy.  So again, it’s so — it transferred the rights to some patents, license them back, and did so because it argued the Native American tribe was entitled to sovereign immunity, which meant the patents couldn’t be challenged before the Patent and Trademark Office, and therefore, the drug maker could protect its sales a lot longer.  Ultimately, the courts disagreed.  Whether another drug maker will try this kind of gambit, is probably unlikely because, as I mentioned, just a moment ago, the courts didn’t agree that the tribe had sovereign immunity.  As a result, the brand-name drug maker had a great clever idea, but lost out in the end.  But I mention this just because it was so unusual and it got a lot of people thinking about the different ways that brand drug companies try to extend patent product life.  Next slide, please.   Oh, I’m done.  Okay, thank you very much.   SARAH DASH:   Great, thank you very much, Ed.  Next, Genia Long will explore the economic constructs that influence prescription drug innovation through the patent system.  So Genia, I’m turning it over to you.   GENIA LONG:    All right, thanks very much.  Ed, thanks for some great background as well.  I wonder if we could flip to the first slide and the next one.  Thank you.   So I have been asked to step in for my co-author and colleague, Henry Groboski at Duke University, to share some industry-wide information that might be helpful to you and as I mentioned, kind of really trying to get a handle of how these complex issues relate to one another, what they mean.  So I will talk about a couple of topics:  First, why is it — and Ed touched on this a little bit — why is it specifically from an economic point of view that patents and other forms of intellectual property, protection, are important for biopharmaceuticals?  What is it about that dynamic that is particularly important?  And then secondly, where do you they fit into the big picture?  So how do they fit into this basic framework that sets out what we think of as sort of the rules of the road for small molecule drugs under the Hatch-Waxman Act.  In particular, how do patents and other forms of statutory exclusivity incentives and other factors, competitive factors, combine to yield what is called the market exclusivity period?  Ed mentioned that phrase a little bit in his remarks, but I’ll primarily kind of present some of that research that my co-author, Henry Groboski at Duke and others — other colleagues as well, participated in, to really track what does that concept mean and how has it changed over time?  And how does it relate to patents as a critical element kind of in that?   And then lastly, given that we have limited time, I will just take a bit of an opportunity to on the one hand look back on the Hatch-Waxman experience with small molecules, and then look forward to some of the challenges and opportunities for biologics and biosimilars, which are kind of subject to — related, but distinct frameworks and forces.  So the next slide.   Thank you.  So as Ed mentioned, and I will go into a little bit, kind of more detail.  Here there several factors about the development of new medicines that are really important from an economic perspective, when we consider why is it that patents and other forms of IP protection, like statutory exclusivity provisions that we’ll talk a little bit about, are important?  So as I’m sure you all know of, and heard, or maybe read some of the details about, they require very large investments in research and development.  So you probably have heard the most recent estimate of that, being some $2.6 billion, including the cost of a dead end, or the cost of failures, projects that companies pursue and that in fact don’t make it all the way through the development and testing process, and then to market and the cost of capital for investors.  But they total, also over an extended period of time.  The same research noted the average time from synthesis of the molecule to FDA approval was almost 11 years, so we’re trying to dimensionalize that — sort of that investment time horizon.  And then lastly, the other kind of feature that’s critical from an investment assessment kind of point of view is very high levels of risk, and uncertainty.  So if we’re associated with whether you will experience scientific success and along those lines, we know what the same research showed, essentially that approximately one in eight drugs that enter Phase 1 clinical testing, that’s sort of the first phase of testing in man, achieve eventual FDA approval.  And of course only a subset of those are extremely successful commercially and have to kind of support the whole — kind of the whole system.  On the other hand, what we have kind of here even more so than in other industries, is copying those drugs, which take a lot of research and development, investment, and all of that, over an extended period of time.  Once they are approved by regulators and the patent expires, generally, quite straight forward for small molecules, at least.  And much less expensive than the effort that the innovator had to take to bring a drug to market.  So rather than $2.6 billion, it may just take a handful of millions of dollars.  So taken together, that means that the central challenge that we have, is that without some form of protection, innovators would rapidly come to the conclusion that they should not expect to recover the fixed cost of R&D investment, and instead they would expect that competitors would systematically lower costs of copying would enter the market, drive down the price, and competing for share, you would not expect to recover those costs.  So because of this dynamic, firms that consider whether to invest in new drug development efforts, would simply decide to not do so.  So they would not make the investments in the first place.  So that’s really the critical concern that we have.  These are potentially, you know, life enhancing, life-saving medicines with substantial spillover effects, in many cases, on society, so we care very much about access to them.  So we have this tradeoff.  And the tradeoff is between lower prices today and the access benefits that come with that for today’s patients or higher incentives to encouraged continue innovation, and then providing access for those new therapies for patients of tomorrow, who otherwise would not have access to those drugs at all because they wouldn’t be pursued.  So that’s essentially kind of the tradeoff that we have.  It’s between those two goods.  Flip to the next page.   So the core piece of legislation in this area is, of course many of you know, it’s the 1984 Hatch-Waxman Act, and it really was designed to balance these dual goals.  It was at the hearts of this central piece of legislation and it explicitly, as you see here, has these two goals:  Being first, making available today’s medicines at the most competitive and affordable prices, and second, encouraging the development of tomorrow’s breakthrough cures.  So the goal of Hatch-Waxman is not just to lower prices for drugs today, but to also pave — you know, which would — with no other of these incentives, create sort of the risk of a therapy drought, following that initial generation, but also to create a sustainable balance system that continues to provide new generations of cures, you know, with the current generation.  And at the end of that period of market exclusivity protection, or patent term, encourage aggressive price-based competition from generic.  Next?   We’ll go through what is a very complicated set of provisions and their interpretations in lots of — as I mentioned, kind of lawsuits over the sort of many years.  But in a nutshell, the framework there for created benefits for each of those two sets of competitors, are generic manufacturers on the one hand, and brand innovators on the other.  So generic manufacturers who previously had to provide their own independent evidence of safety and efficacy, and therefore conduct, you know, expensive trials on their own, no longer have to do that.  So they can rely on findings of safety and efficacy from the innovator after the expiration of the patents end exclusivities, they can ten enter the market.  So there’s also a safe harbor for testing, so it allows generic firms to begin that work prior to the expiration of patents, so that they are ready to launch immediately when the patents expire.  Brand manufactures are then required to list all of those patents in what’s called the FDA’s Orange Book, so they’re public and out there.  And they established a process for generic firms to challenge those patents.  So when Ed mentioned earlier issues around determining sort of the — you know, the actual date, whether it’s before or after a certain point in time, particularly when they are before the expiration of a patent, that is really the mechanism that — that we’re talking about.  So the process allows generic manufactures to challenge those patents and potentially enter — their successful prior to the listed expiration of the patent.  So for brand manufacturers that recognize that firms who apply for the central initial patents, they’re often well before clinical testing begins.  So if we’re talking about the duration of testing that we mentioned kind of early, around 11 years, on average by the time the drug is approved, you know, much of that patent protection is lost.  So there is a certain calculation involved in restoring a portion of that lost period of patent protection.  And then, finally created a five year data exclusivity period for new chemical entities, and a process around that.  Go ahead and turn to the next slide.   So very quickly then, what I want to present is kind of how these pieces come together.  So the market exclusivity period or, we kind of call it the MEP for short, skip some of those long words, is defined as really that period between the date when that brand drug has it’s very first commercial sale, so it’s on the market and it has sold a unit, to the very first date that its corresponding generic enters the market.  So if a drug launched on January 1^st, 2000, and it’s first generic launched on January 1^st, 2005, the MEP would be five years.  So patents are a critical factor in determining what the market exclusivity period, but they are not the only factor.  So it’s really the net result of all of the factors affecting the timing of market entry of the brand relative to the patent.  So how long relative to the filing critically is that initial patent?  Did the product get through testing and hit the market, as well as other statutory IP protections for the innovator that five years most notably that we kind of noted earlier, and the process of kind of patent challenge by generics and what the outcome of that is.  So in some sense this index, sort of the market exclusivity period, really gives a sort of a barometer for where kind of the balance sort of is between a longer MEP, you know, that provides more time for brands to recover these costs.  You know, increases the incentives for investors to be attracted to that opportunity, and enter, and shorter MEP that would accelerate the potential cost savings from generic entry.  So let’s take a look on the next slide at what that information looks like.   So what these data are, are the average market exclusivity periods for all drugs, experiencing first generic entry, so that we know how long the market exclusivity period is, over time.  So all the way on the left we have March 1995-’96 would be drugs that experienced their first generic entry in ’95-’96, and then consequently all the way on the right, March of 2013-14 would be a brand of drugs that experienced their first generic entrance in 2013 or 2014.  So we can see that they’ve ranged — looking at the blue line here, labeled all new molecules, they’ve ranged from a low to just over 12 years, to high of 13.7 years, I think.  So between sort of that 12 and 14 year, but really kind of clustered around 13 and a half years.  So for most years or subset years, the results were kind of in the mid-13 year range.  The red line is for molecules that were just the higher sales molecules, so they had sold $250 million or more in 2008 dollars, is the way the calculations were expressed.  In the year before going generic.  And for that group, the periods were somewhat lower with a little bit more fluctuation, but in both instances, to kind of put some concrete kind of results to it, all of these of course are well below the 20 year patent period.  Okay, we’re going to move to the next slide.   So patent that really — at the core of the Hatch-Waxman framework in a number of ways, as I mentioned before, generic companies can challenge patents which have been awarded to the brands for various reasons, and so-called Paragraph 4 challenges, you may have heard that — kind of that shorthand lingo, are one of the basis on which the generic companies, when they’re applying for — when they are going into the process, they need to notify the basis on which they’re entering a challenge to the patent.  Maybe claiming that there wasn’t a patent, or that it’s not infringed, and then they are going to pursue that through litigation.  So what this information tracks is — you can kind of see all the way on the left, the time period here is from 1995, which is when the data kind of began, all the way through 2014.  So in the early years, we take a look at the red line.  It’s really only 10 to 20 percent of molecules that experienced one of these Paragraph 4 patent suit filings.  And as you can see in the blue line, which is the period of time between the brand launch when they had that first sale to when the Paragraph 4 filing took place, was substantially kind of after the brand launched.  So 15, 16, 19 — you know, 19 years.  So fast forward all the way to the right hand side of the graph, and what you see is that really virtually all of the molecules that we’re looking at, have experienced a Paragraph 4 filing, so you’re basically looking at 80 percent in those years and in fact, luckily somewhat higher since.  And the period of time after launch that one of those suits is filed, so the brand needs to be litigating that, is down to now under six years in 2014.  So many more generic challenges and happening much earlier in the process.   The last slide I want to share with you — the flip side of that is, all right, well the intent of Hatch-Waxman is a great balance between incentives for innovation on the one hand, so we keep that pipeline robust and continuing, and on the other hand, you know, aggressive, spirited, generic entry and price competition at the end of that protected period.  So how we’ve doing on that second dimension.  So what this really shows is over time the market impact of generic entry on the brand has intensified.  So let’s take a look at the top line, which is sort of in yellow and the bottom line in red, which shows that between — for the — sort of for the cohort of drugs that experienced first generic entry in 1999/2000.  By the end of 12 months, which is the far right hand side of the graph, about half of the brand units had gone to the generic about 12 months after initial generic entry.  And that for each of the years subsequent to that, you can see that line pushed down further and further so that by the time you hit the red line at the bottom, you’re talking about essentially 90 percent of prescriptions for that molecule being on the generic side.  So there’s only 12 percent left for the brand at 12 months.  So think what’s notable about these kind of slides taken together is that although Hatch-Waxman, as we think of it today, just sort of this very immediate generic entry plunging brand shares, you know, low — low prices, et cetera.  It took a while for that process to really develop and be fully realized.  It did not happen overnight, but what we really see here is sort of a steady progression.  As payers responded by managing their formularies and benefit designs, automatic substitution became the norm.  All of those kinds of things.  So it’s been 35 years that we’ve had the Hatch-Waxman framework and you can kind of get a sense across this picture of these three views as to how that has changed over time.   If you want to flip to the next slide, I’ll go through these quickly, because I’m sure I’m cutting into the time we have for questions.  A critical question that we have now is, all right, so we want that process, we saw how Hatch-Waxman has sort of evolved over time in the 35 years it’s taken to get to where we are.  You know, we want a comparable balance for biologics and biosimilars.  The details are going to look different because the markets are different and how competition plays out is different.  But what’s that balance going to look like there?  So what will those markets look like?   So the quick summary here of the relevant legislation, which is the biologic price competition innovation act.  So in 2010 we got for the first time a framework for biologics and their corresponding biosimilar, so you can kind of see — here it has a somewhat different structure and lastly at the bottom, it also has a different structure for raising and resolving patent disputes.  Go to the next slide.   Much discussion around what are the differences between these markets.  So when we think from a patent point of view, how’s that going to look different, and how is competition going to develop, how is that going to be different?  You know, what’s the world going to look like as sort of the biosimilar market develops.  One of the things that we, you know, kind of really have to start with is that the two sets of molecules are completely different in terms of their complexity.  So it may not be possible to completely characterize the molecular structure today or sufficient to guarantee that those two are identical, will have identical effects, making clinical trials necessary.  So that’s a fundamental difference, sort of, between these two.  So in addition, it also means that on the one hand, for small molecules, we’re really accustomed to a highly predictable chemical synthesis process.  But on the right, we’re really faced with a more variable living cell production system environment, which is potentially going to be affected by really very small changes in the environment.  So one implication of this is that companies that make advances