US pharma patents are under greater threat than ever before

US pharma patents are under greater threat than ever before

Life sciences companies in the United States are under increasing pressure. Campaigners for changes to the patent system are working to prevent what they see as abusive practices – and it looks as if they are winning the argument.

Few innovators depend more on IP protection than those in the pharmaceuticals and biotech sectors. Patents are essential in allowing life sciences companies to recoup their huge investments in R&D and regulatory approval processes. With the average cost of bringing an asset to market estimated by Deloitte to have risen from $1.18 billion in 2010 to $1.99 billion in 2017, patent protection has never been so crucial to pharma innovators.

At the same time, the patent system as it applies to pharmaceutical and life sciences inventions is coming under an unprecedented degree of criticism and scrutiny in that sector’s most important market: the United States. Against a background of soaring drug prices and relatively low competition from generic/biosimilar copycats, pharma patents and patent strategies are facing a growing chorus of condemnation, not only from advocacy groups and generic companies but also from the press, legislators and the Trump administration itself. This critical barrage accuses the patent system – and alleged abuses of it – of allowing pharma companies to claim excessively long periods of exclusivity and of giving them too many advantages in disputes with producers of copycat drugs.

However, many of the reforms proposed would negatively affect pharma companies’ ability to protect their innovation or enforce their IP rights. While not all of their critics are singing from the same hymn sheet, life sciences innovators should now be thinking more seriously than ever about what they need to do to counter these growing anti-patent narratives.

Table 1. Price increases for top 12 best-selling drugs, 2012-2018

Humira (AbbVie)144%
Rituxan (Biogen/Genentech)25%
Revlimid (Celgene)79%
Enbrel (Amgen)155%
Herceptin (Roche/Genentech)-58%
Eliquis (Pfizer/BMS)69%
Remicade (Johnson&Johnson)18%
Avastin (Roche)16%
Xarelto (Johnson&Johnson)87%
Eylea (Bayer/Regeneron)6%
Lantus (Sanofi)114%
Lyrica (Pfizer)163%

Attacks on rights holders by the Trump administration

There has always been a critical discussion surrounding pharmaceuticals in the United States, but attacks on rights holder strategies have come from unexpected quarters in recent times. “We have to fight gaming the system of patents and exclusivity by drug companies” is not a statement you might expect to hear made by a conservative Republican former Eli Lilly executive; but these were the words of Alex Azar, then President Trump’s nominee for secretary of health and human services, when speaking at the Senate Health, Education, Labour and Pensions Committee hearing in November 2017.

Azar reiterated this message when addressing the Senate Finance Committee in January 2018, saying that there was a need to clamp down on the “gaming or exploitation of exclusivities or patents by branded drug companies” in order to promote greater and more effective competition from generic and biosimilar drugs.

In making these comments, Azar – who was later confirmed – was going with rather than against the grain of his nominator. In the early stages of his term, Trump perturbed pharmaceutical companies when he commented that they are “getting away with murder”. In 2018, he once again struck a critical tone when he insisted that “our patent system will reward innovation, but it will not be used as a shield to protect unfair monopolies”.

Azar and Trump are not the only members of the current administration to have called out branded pharma IP strategies. In late July, US Food and Drug Administration (FDA) Commissioner Scott Gottlieb (another Trump pick) condemned patent evergreening – the practice of acquiring large numbers of follow-on patent rights to extend the length of a drug’s monopoly.

This, Gottlieb claimed, is an anti-competitive tactic employed “purely… to deter the entry of approved biosimilars”. What he described as “anaemic” competition from these cheaper copycat treatments – many fewer of which are available in the United States than in Europe – plays an important role in raising healthcare prices for US patients. “New steps to challenge some of the gaming tactics would have to be taken,” argued Gottlieb, who vowed to collaborate with legislators and the Federal Trade Commission (FTC) to tackle such behaviour.

Considering that the president, the health secretary and the FDA commissioner have all voiced strong criticisms of pharma rights holders, one might conclude that there is a serious prospect of the current administration reforming the IP system in a way that is unfavourable to innovators.

However, there are reasons to doubt that the Trump administration is quite as hostile to the pharma patent system as these comments suggest. After all, Azar was addressing bipartisan Senate committees before being sworn into office. And much of what he said was decidedly moderate in tone: he was frank about the fact that there was no silver bullet for healthcare problems and acknowledged that any reforms should take into account the need to incentivise innovation.

Pharma patent owners would also have been reassured by the Executive Office of the President of the United States’ February 2018 white paper, “Reforming Biopharmaceuticals Pricing at Home and Abroad”, which struck a more positive tone on pharmaceutical IP rights, emphasising the importance of “preserving incentives to innovate”. Trump has not yet implemented any policy or supported any legislation that would adversely affect pharma innovators’ IP rights, while Andrei Iancu – his appointment as USPTO director – has taken a pro-patent position on issues such as patent-eligible subject matter, while also looking to make changes at the PTAB, that perennial source of pharma frustration.

Nevertheless, the criticisms expressed by Trump, Gottlieb and Azar are highly significant, because they are part of – and respond to – a broader surge in attacks on pharma patent strategies and the US pharma patent system in the last couple of years. Pharmaceutical exclusivity rights have come under increasing scrutiny, with many commentators, activists and politicians claiming that abuse is unfairly stifling competition from generic and biosimilar drugs, thereby inflating medical costs.

Criticisms have not just been made by advocacy groups, such as the AIDS Healthcare Foundation, Make Medicines Affordable and the Initiative for Medicines, Access & Knowledge (I-MAK). In the past 18 months, a torrent of articles making this argument have been published by major media outlets, including Bloomberg, The Wall Street Journal and The Washington Post, as well as on TV channels such as CNBC and NPR. More worryingly for pharma companies, these have been echoed in the rhetoric of a growing number of disgruntled legislators.

Table 2. US patent protection for the 12 best-selling drugs

Average number of patent applications filed125
Highest number of patent applications filed247 (Humira)
Average number of patents granted71
Highest number of patents granted132 (Humira)
Average length of patent protection sought38 years
Greatest length of patent protection sought48 years (Roche/Genentech, Herceptin)

Discontent with high drug prices

Underlying this criticism is an increasing dissatisfaction with the high drug prices paid in the United States. According to 2017 statistics from the Organisation of Economic Cooperation and Development, US patients spent an average of $1,112 on prescription medicines – 44% higher than in the next most expensive jurisdiction, Canada, and more than double paid by patients in the United Kingdom.

The burden has grown significantly in recent years, with the country’s 12 best-selling drugs rising in price by an average of 68% since 2012. Only one of those has fallen in price over this period, while the cost of Amgen’s Enbrel has jumped by 155%, Pfizer’s Lyrica by 163% and AbbVie’s Humira by 144%. Turing Pharmaceuticals made international headlines in late 2015 when it abruptly increased the price of Daraprim – a drug not under patent – by over 5,000%. The BBC wrote an article asking whether Turing’s CEO Martin Shkreli (later convicted of securities fraud) had become “the most hated man in America”.

Understandably, US voters now see this as a vital issue. According to “Reforming Biopharmaceuticals Pricing at Home and Abroad”, 2017 polling data showed that 40% of adults in the United States regard lowering prescription drug prices as an “extremely important” priority for Congress – a higher proportion than those calling for the reduction of the budget deficit or the raising of the minimum wage. Reducing medical costs was the greatest concern for independents and Democrats, and is considered “extremely important” by 30% of Republicans.

Against this background, Trump has repeatedly described the lowering of drug prices as one of his top political priorities and has proposed a number of policies to achieve this – including regulatory and insurance reform, as well as measures to prevent foreign “free-riding” by linking drug prices to an international index. When addressing the Senate committees, Azar described lowering medical costs as the most important of his four main aims if he were to be confirmed as health secretary.

Controversies surrounding evergreening

Association for Accessible Medicines' deputy general counsel Rachel Sher believes that patents are awarded for developments that do not constitute true innovation. She would like to see a strengthening of the inter partes review process.

Association for Accessible Medicines' deputy general counsel Rachel Sher believes that patents are awarded for developments that do not constitute true innovation. She would like to see a strengthening of the inter partes review process.

By far the most pervasive complaint against pharma rights holders – as demonstrated by Azar and Gottlieb’s comments – is that they engage in patent evergreening to unjustly prolong their products’ market monopolies and to keep prices high. Many argue that the IP system allows pharmaceutical companies to acquire patents for relatively trivial follow-on innovations, which ought not to qualify for protection. By applying for large numbers of secondary rights (often towards the end of an active ingredient’s patent’s lifecycle), it is argued, companies can build a thicket of patents, which significantly extends a drug’s exclusivity or makes it easier to tie up biosimilar and generics producers in expensive and time-consuming litigation.

This is a major concern for the Association for Accessible Medicines (AAM), which represents the country’s generic drug companies. “We believe in innovation and in the patent system. Innovation is critical to patients, generics and branded pharma,” says deputy general counsel Rachel Sher. “But too often branded companies are seeking to patent features of the drugs that don’t represent true innovation. In our view, that is done in an effort to stifle competition, with the most common tactic being to build patent thickets. This often results in years of litigation, and in practice, it is a deterrent to potential competitors.”

This critique was made most cogently by the Initiative for Medicines, Access & Knowledge (I-MAK) in its August 2018 report “Overpatented, Overpriced: How Excessive Pharmaceutical Patenting is Extending Monopolies and Driving up Drug Prices”. The report revealed that an average of 125 applications have been filed by the United States’ top 12 best-selling drugs, with on average 71 patents being granted for each treatment and the mean length of patent exclusivity claimed for these drugs being 38 years – almost twice the 20-year exclusivity period offered by a drug’s core patent. This, the authors argue, constitutes “systemic abuse” of patent laws, which were intended only to provide 20 years’ exclusivity. Evergreening, they say, is “a root cause” of the country’s drug pricing crisis.

Figure 1. Americans’ top priorities for Congress through the end of the year

Humira patent settlements

The issue of evergreening has received greater public attention – and attracted controversy – recently because of a number of high-profile patent litigation settlements relating to Humira, which was developed by AbbVie.

While its US active ingredient patent for the arthritis treatment expired in 2016, the Illinois-based company owns a plethora of secondary rights for innovations relating to the world’s best-selling drug, which generated $18.4 billion in revenues in 2017 and is expected to earn the company $20 billion in 2020. Having applied for 247 Humira-related US patents, AbbVie has been granted 132 – some with terms that extend to 2034 and 53 of which were applied for in 2015 and 2016.

AbbVie has asserted large numbers of these patents in a series of recent disputes with producers of potentially cheaper Humira copycats. A great deal of anger has been sparked by the company’s success in keeping these biosimilars off the US market. In recent months, AbbVie has reached favourable litigation settlements with Amgen, Samsung Bioepis, Fresenius Kabi, Mylan, Novartis and Sandoz – all of which have agreed to delay US market launch until 2023, although European biosimilar entry has been agreed for late 2018. The copycat producers have also agreed to pay royalties to AbbVie.

It was in response to Humira patent settlements that Gottlieb and many others expressed their concerns about biologics patent thickets. These worries have been accompanied by allegations that AbbVie made anti-competitive reverse payments to secure the deals. US senators Amy Klobuchar (Democrat) and Charles Grassley (Republican) have both called upon the FTC to inspect the Humira agreements for antitrust violations, especially reverse payments by which a rights holder delays market entry by making a payment (not necessarily monetary) rather than depending on the strength of its patents. Echoing the arguments of advocacy group Patients for Affordable Drugs, the senators claimed that the decision to allow biosimilars to launch in Europe in 2018 could constitute a payment to secure later US market launches.

Backlash against Allergan’s Restasis deal

I-MAK co-founder Priti Krishtel says that the political environment has never been so ready for change in the patent system.

I-MAK co-founder Priti Krishtel says that the political environment has never been so ready for change in the patent system.

Another factor that appears to have spurred a growth in anti-pharma and anti-patent sentiment is Allergan’s 2017 attempt to shield its Restasis patents from administrative validity challenges by transferring the assets to the Saint Regis Mohawks tribe, which claimed that it had sovereign immunity from such challenges. Allergan CEO Brent Saunders stated that in seeking to bypass the controversial inter partes review proceedings established in 2012, he aimed to protect the company’s patents from “double jeopardy”; he called on legislators to reform the system of administrative challenges, which were unfairly hostile to rights holders.

A legal failure – the Mohawks’ arguments were rebuffed at the USPTO and the Federal Circuit – the move was also a PR disaster, triggering an immediate chorus of condemnation. One prominent Bloomberg commentator called the deal “ugly”, “sleazy”, “unscrupulous and just plain wrong”; federal judge William Bryson poured scorn on the strategy, which he argued was an attempt to enjoy the benefits of the US patent system without accepting its legally determined limitations; and Senator Claire McCaskill (Democrat) condemned the move, calling it inconsistent with the company’s espoused commitment to promoting affordable drug prices. In reaction to the deal, Republican Senator Tom Cotton spoke of the need to “make sure that unscrupulous patent holders can’t game the system and block their competitors from entering the market”.

What the future could look like

James Love of Knowledge Economy International says the current system “effectively kills people” and advocates for the de-linkage of R&D spending from drug prices.

James Love of Knowledge Economy International says the current system “effectively kills people” and advocates for the de-linkage of R&D spending from drug prices.

With anti-pharma patent narratives on the rise, there have been several proposals to reform the US IP system in a manner that would make it more difficult to patent life sciences inventions or that would make administrative or judicial procedures less favourable to biopharma innovators. However, critics have not yet converged on any single reform agenda and, in some cases, disagree on how to remedy perceived flaws in the system.

I-MAK supports a radical set of legal reforms to address the “epidemic of overpatenting” and to increase generic competition. It advocates “raising the bar for the inventiveness standard” in order to make it harder to acquire follow-on or secondary drug patents. And it calls for continuation applications to the USPTO to be banned so that applicants cannot make repeated attempts to patent the same invention. It also claims that expanding the grounds on which patents can be challenged in inter partes review and setting up pre-grant challenges in which third parties can file petitions would reduce the number of bad pharma patents.

Further, I-MAK seeks to amend legislation in order to stipulate that patents be removed from the FDA’s Orange Book when invalidated by administrative process. (At present, the law requires a federal or appellate court invalidation for a patent to be removed from the Orange Book.) It also suggests that the FDA be given greater authority to exclude patents from the Orange Book – and therefore from Hatch-Waxman litigation.

Even more radical is the vision of James Love, director of Knowledge Ecology International (KEI). He favours a patent system that differentiates between biopharma and other technologies and that has an expanded category of life sciences technologies for which exclusive rights cannot be granted. He also advocates for the de-linkage of R&D spending from drug prices, with increased government funding replacing revenues achieved by monopoly pricing.

“There is an excessive zeal to have a unitary system, where the norms apply to very different situations and technologies,” Love comments. “It makes little sense to not recognise the differences between software, drug development and areas where there are one or two patents, and areas where you need access to many. People should be more pragmatic about the patent system, which is after all just a form of government regulation, with plenty of limitations. In the area of medicine, the fact that the patent system effectively kills people, by denying them access to a known treatment, should be acknowledged as a pretty serious flaw.”

Exclusive rights are not necessary for some areas, Love claims, and liability rules (freedom to operate, subject to remuneration) are an obvious fix to many situations. “Most CRISPR patents should be openly licensed, subject to remuneration,” he argues. “In medicine, full de-linkage of incentives to invest in R&D from prices is possible, because we already have third-party systems of financing the incentives, and the benefits of this reform are almost unmeasurably large, including the possibility of making access more equal globally, and rationalising the incentives so rewards are focused on innovations that improve rather than match health outcomes.”

However, none of these suggestions are embodied in the various legislative proposals currently before Congress. One notable bill – the Medicare Negotiation and Competitive Licensing Act – introduced to the House of Representatives in July 2018 by Lloyd Doggett (a Democrat from Texas) – instead seeks to bring down drug costs by mandating the government to negotiate prices with rights holders. It advocates the significant expansion of compulsory patent licensing where the outcome of negotiations is unacceptable to the government.

Amy Klobuchar and Charles Grassley, on the other hand, have proposed reforms to clamp down on so-called ‘pay-for-delay’ litigation settlements. Their Preserve Access to Affordable Generics Act would authorise the FTC to initiate proceedings against parties involved in any agreement to terminate a patent litigation regarding the sale of a drug, establishing a presumption that such settlements have anti-competitive effects, and give the FTC increased powers to impose civil penalties.

The Preserving Access to Cost Effective Drugs (PACED) Act was introduced in early 2018 by another bipartisan group of senators: Democrat Claire McCaskill and Republicans Pat Toomey, Joni Ernst, David Perdue and Tom Cotton. Responding to Allergan’s Restasis deal, they advocate making it explicitly illegal to use sovereign immunity as grounds to avoid inter partes review challenges.

AAM also has distinctive recommendations for reforming the patent system. Like I-MAK, it seeks to maintain and enhance the current inter partes review system. Sher said that the organisation supports a harmonisation of the Hatch-Waxman system with the inter partes review process by treating a final written decision of the PTAB as equivalent to a court decision for key Hatch-Waxman purposes. “Hatch-Waxman was written at a time when most invalidity decisions came from courts,” she says. “The patent litigation provisions in the act could be updated to reflect the reality that many patents are also challenged in post-grant proceedings. A patent that has been held invalid in an inter partes review should no longer be the basis for a stay on FDA approval.”

The association also advocates reforms that would make patent litigation more favourable to biologics and generics producers. “Brand companies often hold some patents in reserve and do not initiate litigation on such patents as a means of threatening generic and biosimilar companies with litigation carrying the possibility of massive damages liability later in the process,” Sher explains. “Congress could enact legislation that forces brand companies to assert all relevant patents promptly.”

Similarly, the generics industry representative would like Congress “to ensure that the so-called ‘patent dance’ commences earlier so that biosimilars developers must not wait for the filing of a biosimilars application to commence patent litigation that slows biosimilar market entry”. Sher expands: “For example, Congress could allow for the initiation of patent litigation at the point when a developer has a Type III development meeting with the FDA. This would accelerate the timeline of litigation and permit biosimilars to be marketed sooner, speeding their cost savings to patients.”

However, unlike I-MAK, AAM does not at present support changes to the patent law itself, to raise the inventiveness standard for pharmaceutical drugs, for example. “We are in the process of figuring out what further reforms might look like,” Sher admits. “The challenge is that when you talk about amending the patent law itself, it is difficult to think how to address generic and biosimilar industry issues in particular, without having a knock-on effect for other industry sectors.”

AAM is also unwilling at this point to back Doggett’s legislation to expand the use of compulsory licensing. In addition, it opposes Grassley and Klobuchar’s legislation in its current form. “The so-called ‘pay-for-delay bill’ is something that our members have a lot of concerns about,” Sher explains. “The FTC’s own numbers bear out that this is not a major problem any longer. The legislation might inadvertently make it more difficult to settle cases. There are many examples of pro-competitive settlements; and there could be situations in which generic entry is delayed because of these proposed reforms. We are working with the sponsors on this.”

The need for innovators to push back

At this stage, legislators, advocacy groups and the generic pharmaceuticals industry do not speak with one voice when it comes to reforming the patent system. Despite some of its rhetoric, the Trump administration seems unlikely to focus on patents in its attempts to bring down drug costs. And there is significant doubt as to whether any of the legislative proposals currently before Congress will be signed into law imminently, let alone the more radical changes advocated by I-MAK or KEI.

However, that is no reason for biopharma innovators to be complacent. If dissatisfaction with drug prices continues, calls for anti-patent owner reforms could gain even greater momentum and politicians may mobilise more effectively around a particular set of proposals.

The political mobilisation achieved so far is by no means negligible. The Medicare Negotiation and Competitive Licensing Act – whose proposed expanded use of compulsory licensing would have been unthinkable in the United States until recently – has gained 100 co-sponsors since its introduction to the House of Representatives.

Patent reform advocates also seem optimistic about their chances of bringing about change. “In our nearly two decades doing patent policy and education work, the environment has never been so ready,” reports I-MAK co-founder Priti Krishtel. “Americans are feeling the hit of drug costs tripling in the last decade. Since they are poised to double again, both cost and access are going to affect everyday families directly. Policy makers are hearing from their constituents at the federal and state level and health budgets for public and private payers are being hit hard by the drug pricing crisis.”

She continues: “Patent law is wonky at best and deliberately complicated at worst, but a growing number of stakeholders and influencers are engaging in this technocratic debate because families are being forced to make unimaginable choices. As education efforts grow and popularise this complicated area of law, we will see even more public engagement and ultimately, real lasting change.”

Sher also believes that reform may now be on the cards. “The level of dialogue and concern around drug pricing in the last year or two is higher than it has ever been before,” she says. “Scott Gottlieb has been a real champion of biosimilars and generics, which reflects the concerns this administration has about high drug prices. This is one of the biggest concerns among voters, too, and there is a real appetite for addressing these issues. This may be the moment to really start to look at the role of patents in drug pricing.”

Despite his own criticisms of the patent system, Gottlieb has warned of the prospect of radical anti-patent reforms. He has argued that anti-competitive practices are helping to create a situation in which many are “shooting at the branded drug makers” and he has cautioned that there is a danger that “the shrapnel could… fray the fragile market-based rewards that support new innovation”. In other words, there is a danger that a failure to address genuine problems with the way the patent system operates could lead to excessive or extreme IP reforms that will have an unduly negative impact on the rights of innovators in their most important market.

This change in the political climate has not gone unnoticed by rights holders. PhRMA, which represents the country’s major branded pharmaceutical companies, has significantly upped its lobbying outlay in recent times, increasing its spend from $19.62 million in 2016 to $25.43 million in 2017, and raising its output by a further 34.87% year-on-year in the first quarter of 2018.

However, greater investment in lobbying is hardly an effective counter to the growing anti-pharma and anti-patent narratives – rather it is perceived by many to vindicate them. It is not obvious how innovators ought to react to the present challenges; perhaps a better account will need to be given of the social value of patents (including follow-on drug patents) or maybe the emphasis should be on changing behaviour in response to some of the legitimate criticisms being made against industry players. Either way, life sciences companies will need to respond thoughtfully and proactively if hostile reforms are to be avoided.

Action plan

Pharmaceutical companies depend on strong patent protection to recoup R&D and fund further innovation. This is especially the case in the core US market. But against a background of fast-rising drug prices, US patients, advocacy groups and politicians are scrutinising the pharmaceutical patent system more rigorously than ever before.

  • Pharma innovators have been accused by many of seeking to game the system by evergreening patent protection on their drugs. AbbVie’s Humira patent strategy has received particularly widespread criticism.
  • Calls to reform the patent system in ways that would be adverse to rights holders have grown in recent years, with proposals ranging from changing the inventiveness standard and de-linking R&D from drug prices, to expanding the use of compulsory licensing and greater harmonisation of PTAB and Hatch-Waxman proceedings.
  • Rights holders must now think more seriously and creatively than before about how to respond to these growing challenges.

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