IP and Capital

In 2020, the volume of medicines used globally reached about 4.5 trillion doses and cost $1.4 trillion, an increase of 29% to 32% from 2015, compared to an increase of 35% in the prior five years.1 Over 50% of the world’s population will consume more than one dose per person per day of medicines, up from one-third of the world in 2005.1 The use of medicines in 2020 included about 943 new active substances introduced in the prior 25 years, and new medicines will be weighted to specialty drugs and biologics (e.g., gene therapies and immunotherapies).¹

The pharmaceutical sector is clearly an area in which innovation impacts the bottom line, and such innovation is a key determining factor for the success of a drug manufacturer. The cost of bringing a new product to market is about $5 billion and can take nearly 15 years to achieve.

Patents are the vehicle by which pharma companies protect their innovation, and a well-constructed patent portfolio provides a mechanism by which an organization can recoup its investments that are incurred during the research, development, and regulatory stages of drug development.

However, patent strategy in the pharma industry presents a unique challenge. In this space, an active ingredient (e.g., small molecule or biologic) is the target of protection. The patents covering the active ingredient are typically the first filings made by a company, well before the active ingredient has gone through clinical trials and completed the regulatory process to become an approved medicine. Accordingly, by the time an active ingredient has been approved, a significant amount of patent term on the initial patents protecting the active ingredient has been used.

A recent study found that even though a patent term is generally 20 years, patent office and regulatory approval delays can decrease the nominal patent term to 15.9 years, and generic competition can result in an effective market exclusivity of only 12.2 years.­² This effective market exclusivity is less than the 16 years that a commentator suggests is necessary to recoup a company’s fixed costs for research, development, and clinical testing.³

To address this issue, drug companies must define a patent strategy that extends beyond the initial patents that cover the active ingredient. Such an approach, when properly implemented, provides a strategy to lengthen the period of exclusive rights of a developed product, thereby allowing the company to recoup its substantial investments in R&D and regulatory approval.

To implement an effective strategy, these additional filings must be focused on potential business opportunities. Specifically, innovations discovered during the development and clinical trials process should be leveraged to extend exclusivity for the business opportunities. A good patent strategy is not primarily about technology in a vacuum. Rather, it should focus on leveraging technological insights to create commercially relevant barriers to entry against defined competitors.

A well-conceived patent strategy provides multiple layers of protection. The focus on creating commercial barriers against defined market competitors should extend to cover features of a product as earlier patents expire. Importantly, a product should be covered by a suite of claims across numerous different filings. Such claims should have differing scopes and focus on unique elements of the product. Select filings should include claims broader than the product being developed to create barriers that block design-arounds. In that manner, there is no single approach to bust the patent coverage on a product and a company can extend patent exclusivity past the expiration of its initially filed patents on the active ingredient. These later-filed patents provide an opportunity for a company to delay or prevent entry by competitors.

Particularly, a combination of follow-on additional patents and strong primary patents covering the active ingredient creates a barrier to entry around a product because others may delay or simply decline entry when faced with the prospect of defeating such a suite of patents. The power of an effectively developed patent portfolio is that costs to a third party can be compounded when there are several patents at issue with respect to a single product. That creates a position in which the cumulative cost of invalidating all the patents that cover a product becomes daunting. A company is then able to obtain an exclusive market position beyond the originally filed patents on an active ingredient, thereby properly allowing the company to recoup its substantial investments in R&D and regulatory approval and drive continued innovation.

References

1. IMS Institute for Healthcare Informatics, Report on “Global Medicines Used in 2020.”
2. Congressional Research Services (https://crsreports.congress.gov), “Drug Pricing and Pharmaceutical Patenting Practices,” 2020, citing: C. Scott Hemphill & Bhaven V. Sampat, Evergreening, Patent Challenges, and Effective Market Life in Pharmaceuticals, 21 J. Health Econ. 327 (2012).
3. Congressional Research Services (https://crsreports.congress.gov), “Drug Pricing and Pharmaceutical Patenting Practices,” 2020, citing: Emily Michiko Morris, The Myth of Generic Pharmaceutical Competition under the Hatch-Waxman Act, 22 Fordham Intell. Prop. Media & Ent. L.J. 245, 267-268 (2012).

Adam Schoen, JD, Partner, Life Sciences Practice Group, Brown Rudnick