Looking Beyond the Patent Cliff

Driven by technological advances and the importance of a more collaborative commercial model, management of intellectual property (IP) has morphed from a technical backwater to a showcase strategic activity attracting some of the industry's most creative thinkers. To patent and prevent are no longer words that ring in unison; instead, the function is now seen as a source of new ideas in leveraging neglected knowledge assets to create entirely new businesses. And the policy dialogue around IP grows more uncharacteristically fecund and lively by the month, with one CEO quoted as associating patents with a cuss word, while a European industry spokesman has expressed his frustration with IP reforms by advocating a common language for patent translations modeled on Star Trek's Klingon dialect. More important, decisions of individual companies on IP continue to shape basic issues of access, price, and quality for medicines valued by millions of patients around the world.

There is also the intersection between technology, freedom, and power, highlighted by the basic decision: To patent or not to patent? Scientific advances like decoding of the human genome make this a far more complex calculation than in the past.

To add fresh perspective to this changing landscape, Pharm Exec sat down this month with Roy Waldron, Senior Vice President and Chief Counsel, Intellectual Property at Pfizer. Our Q&A below reveals how the world's biggest biopharmaceutical company—and a historic lead player in IP, having led the fight to ratify the 1994 TRIPS Agreement—is putting its stamp on the effort to reposition IP as a key partner to the business. — William Looney, Editor-in-Chief

Pharm Exec: I think we agree that patents remain the lifeblood of today's biopharmaceutical enterprise—it's arguably the only big industry left where that statement remains true. What are the critical external and internal drivers that highlight patents as the embodiment of a company's knowledge assets?

Waldron: Changes in the business environment and commercial model have accentuated the role of all forms of intellectual property (IP). Thirty years ago, Pfizer and other drug companies existed as highly integrated organizations with a mission to "capture" knowledge and commercialize it, relying almost exclusively on in-house expertise and technologies. There was little collaboration across companies and markets, while geographies were narrowly segmented with a strong focus on developed countries with established IP regimes. Today the balance of power has shifted; a revolution in information technology and the pace of globalization have combined to make knowledge a "floating asset," largely accessible to all.

Industry has to mitigate the risks of rapid technological, environmental, and market changes through partnerships. Patents are critical to this task because they provide a predictable and measurable structure to transfer and develop technologies around this new collaborative model. Because the parties to a partnering transaction are also so diverse, patents help manage expectations, avoiding the "tragedy of the commons" that plague many well-meaning multilateral initiatives that take too long to consummate and often yield little of value to patients.

Pharm Exec: Many economists are making the point that rapid changes in the technology base render the "push to patent" obsolete, because by the time a patent is approved, the novelty and utility of the invention has been surpassed by competing improvements. This has been advanced as an explanation for the loss of interest in other industries—like computer software—in patenting as a commercial tool.

Waldron: I don't accept this argument. No industry can grow without IP protection. Absent patents, you are left with unlimited free association, no boundaries, and the assumption that all resources are inexhaustible. I don't know of any business that wants to operate that way. "Open source" is an interesting academic concept but it does not create the internal incentives that bring complex new medicines to the marketplace. Biopharmaceutical science is transforming as rapidly as any other business sector; patents build out certainty for the long term and thus makes the risk and cost of lengthy development cycles more predictable. In fact, Pfizer is using IP to facilitate better licensing agreements and novel partnerships around deals that once might have been considered too risky because the outcomes were not pre-ordained or the relationships are new. We see IP as a proactive instrument to help us build a lead position in this collaborative business model—to become industry's preferred partner of choice.

Pharm Exec: Another issue is how scientific advances have opened up new therapeutic pathways and modes of delivery that expand the commercial opportunities for industry. How does IP relate to these emerging areas of engagement?

Waldron: We are a knowledge industry, where in addition to developing and delivering medicines we share with customers the vast stock of expertise and capabilities that go with it. Patents allow us to push this parameter hard and venture into new areas like companion diagnostics or gene sequencing that expand the research community's overall awareness of disease states. Current case law is a bit muddled on what can be patented in these new areas, particularly gene sequencing and follow-on uses. It is in the interest of society to clarify the terms so that all parties—including the academic research institutions—have the incentives to keep moving the science forward. Academia is increasingly important to industry, for a simple reason: Universities are very good at explaining to us what these complex new tools mean for drug development and identifying useful pathways to commercialization. The odds are that if you multiply these collaborations you will have a better hit rate than by acting alone. You need to have more people with means and resources working on these disease challenges, not less.

Pharm Exec: The past few years have seen an increase in the regulatory and compliance burden on industry, driven largely by risk-averse government agencies. Don't patents contribute to the burden by raising the bar on entry to the business?

Waldron: We are a highly regulated industry—for reasons that are pretty clear. Regulators should continue to challenge us so that we retain our contract with society and thus our license to operate. It is important to remember that a patent is itself a form of disclosure that expands the knowledge base. By distributing know-how more broadly and establishing a temporary financial incentive through market exclusivity for follow-on improvements, it leads to the development of better products that surpass the requirements of the regulator and fulfill real medical needs. Of course, regulation needs to be done right so that it helps move promising ideas forward rather than inhibiting them.

Pharm Exec: What are the best new messages that the industry should employ in defense of a strong patent system?

Waldron: New messaging is important, but the old arguments still count. Policy makers continue to confuse patents with monopoly, a premise we must refute because it carries the assumption that if you weaken IP, more people will be able to initiate new projects. The monopoly thesis also provides a rationale for those, like some regulators, who believe that patents restrict competition. In both cases, the reality is the opposite. Money follows incentive, and without incentive you will have more rent-seeking activity rather than the long-term investments required to commercialize something as risky and complex as a new drug. One new approach is to align ourselves with the interests of a key business constituency in emerging and developing countries: the small and medium sized enterprise (SME). SMEs, not the multinationals, are the backbone of local industry. Patents provide the stability that leads to compound growth rates and the competitive scale required for SMEs to become global players.

Pharm Exec: So is this new approach actually one of leading by example and precedent instead of trying to educate people around technical elements of the function?

Waldron: Exactly. Industry can only prove the merits of the case with real-life evidence. We should not be afraid of anecdotes and testimonials, as building new constituencies to support a strong IP system is fundamental; for a message to resonate, you must begin with an audience that shares an interest in the topic. For example, the university community is a key ally in promoting IP because of the income-generating potential from patenting new medical technologies. New York University holds more than 500 patents, and 60 percent of these have been licensed to the private sector for commercialization.

Pharm Exec: Can we learn anything from other industries on promoting the merits of IP?

Waldron: Experience with IP practitioners in other sectors shows that we need to spur fundamental changes in attitude and approach. IBM was one of the first big companies to embrace the collaborative model because it faced the collapse of its business built around selling mainframes and desktops to cheaper competitors. In realigning its strategy around services to users, it had to adjust its stance on IP as well. The same for Microsoft, which had to face down regulators determined to close the most profitable segment of its business. Big Pharma has not yet gone so far as to embrace an open innovation model. But we are clearly in consensus that productivity on the research side has to improve. Hence our approach to patenting must allow us to cast the net wider to obtain the most promising new leads, whatever the source.

Pharm Exec: A string of recent US court cases appears to be showing more ambiguity around basic elements of the IP system, including the criteria for patenting new technologies.

Waldron: There is a perception that case law is changing the ground rules. Some decisions in the US appeared to have raised the threshold in requiring a patent applicant to demonstrate evidence of utility. Conversely, the Supreme Court Bilski case on business method patents seems to open the door to a slightly broader definition on what kind of technologies will be patentable in the future. The overall trend seems in line with the notion that innovation stems from many sources, and it evolves, and that more flexibility in the operating rules for patents is good for society. In other cases there seems to be less of an appreciation for, or acknowledgement of, the importance of follow-on or improvement inventions—an area where there is a deeply felt need for development and where value for patents is very great. Nonetheless, I don't see any of these cases as real "game changers" at present. They represent unfortunate trends that have been coming for a while. However, we continue to observe the situation for the impact on other stakeholders—especially the academic community—in their willingness to commit to investments in basic, early stage research.

Pharm Exec: Is there anything on the horizon that could change that calculation and create a serious challenge to the patent landscape?

Waldron: The industry is looking closely at a case—Therasense v. Becton, Dickinson—now pending on rehearing at the Federal Circuit. The case may generate a clearer set of rules for defining what is "inequitable conduct"—alleged fraudulent behavior in obtaining a patent at the US Patent Office. Many practitioners feel there is confusion over the standards of materiality and intent inherent in a fraud analysis and simply want to know when they are in compliance. The penalty for a finding of inequitable conduct is draconian; it prevents the patent owner from enforcing a patent—so clarity is very much needed. Any guidance from the courts that creates a more predictable and clear environment is desirable.

Pharm Exec: Moving to the global arena, what is Pfizer and the industry doing to address the widespread view that patents are a barrier to medicines access, especially for neglected populations in developing countries?

Waldron: This issue has long been a reputational drain on the industry. The only way to shift the balance in our favor is by showing that patent protection will increase the number of options—from medicines to service platforms and new delivery technologies—required to treat and cure neglected diseases. It's not the solution; its just part of the fabric of confidence that clothes the response. A good example is how developing countries—in fact, most countries outside the US—are unwilling to grant "use patents" to facilitate the commercialization of second uses for existing drug compounds. The position contradicts what developing countries and the multilaterals like WHO say they want: finding that an existing anti-infective might carry a therapeutic benefit in treating schistosomiasis. Use patents take away some of the risk of conducting that research.

We also have to squarely address the opposition to data exclusivity, which is behind some opposition to key bilateral trade agreements. The industry is working on evidence that data exclusivity does not raise drug prices but is, in a larger sense, a driver of balanced industrial development.

Pharm Exec: Brazil and India are leaders in the effort to limit the scope of internationally accepted standards for patent protection, such as the TRIPS Agreement of the World Trade Organization. How do you account for their positioning?

Waldron: I'd point out a number of developing countries present us with a puzzle of contradictions. Many advocate internationally for what they do not follow in the domestic arena, where innovation is embraced and the number of patents filed each year is soaring. A number of them have adopted strong patent regimes on the books, but what we are looking for is proof that patents are actually worth the paper they are written on. Does the judiciary in these countries have the will to enforce patents? Some interesting upcoming decisions might shed more light on that.

Pharm Exec: Given the scope of the transformations affecting the IP climate worldwide, how is Pfizer aligning itself internally to address them?

Waldron: The group I presently lead—Global Patents and IP Policy—is part of our legal division, which is a platform function that serves the R&D function and six business units. I supervise about 130 professionals here and outside the US engaged in activities ranging from patent procurement and local counseling to international policy development. The remit is much broader than in the past, where patent staff interacted primarily with R&D. Our mission is to position IP as a strategic support to the business—a tool to make our commercial practices more innovative and useful to the customer. Our people are now "embedded" in each of the business units, working closely with many functions as part of the management team.

Likewise, we are deeply engaged in our business development group, in helping to structure licensing deals that are increasingly important in fueling our pipeline. This gives us opportunity to move that collaborative business model forward, through more creative application of our knowledge assets. You can analogize patents as the skeleton of a cow, which offers potentially everything from milk to meat. If you want to buy a cow, you don't just want the skeleton. There are many other parts of the asset that can be exploited, but it is patents that help identify where to target the effort and are the solid support on which relationships and understandings and value are built. This is another way of describing the value perspective we bring to the business.

Pharm Exec: Is it still part of your mandate to patent widely—some might say indiscriminately?

Waldron: Pfizer decides to patent based on the simple criteria of whether it makes good business sense. Thus, we do take a broad approach. And it complements what we do on the business and policy front. If we as an industry say that a good patent system will help governments develop their economies, and then refuse to be a player, then the message is, "Well, I don't file patents in your country but I have a lot of advice for you anyway." It's a disconnected argument.

Pharm Exec: Is Pfizer ready for the patent cliff? What is your response to recent comments by another leading industry CEO that pharmaceutical companies would be better served by moving into areas less dependent on patent protection?

Waldron: The combination with Wyeth as well as the move into adjacent businesses will compensate for patent losses, positioning Pfizer for more vigorous revenue and profitability growth in the future. Referencing the comments about patents, I would only say that patents remain an essential part of how this industry works. You can't build an integrated pharmaceutical business without them, given the long product cycle and all the post-marketing commitments imposed by regulators. It is not a process where you can easily reinvent an innovation every two years. And of course, once you get a substance approved, you cannot change it—it is predictability that regulators want in medicines. So it's hard to see how the industry can continue to grow and continue to bring new products to market without engaging in areas that benefit from access to patenting.

Pharm Exec: You serve as chair of the PhRMA IP Task Force. In that role, how do you evaluate the state of the relationship with the major patent and trademark offices and the World Intellectual Property Organization (WIPO).

Waldron: Overall, the relationship is productive. All of these organizations are committed to improving the outreach to customers because of the huge backlog of patent applications. It's a major crisis that can only be resolved with increased resources. Our contribution should be to help these organizations make their case to those that hold the purse strings and to society, by working to help them demonstrate the economic spinoffs and jobs that stem from the patents they register and the innovation that patents represent.

Pharm Exec: What is your vision of the future on IP and patents?

Waldron: Bottom line is that I see IP as keeping pace with the rapid rate of discovery in basic science. We have a steep learning curve on the biology of medicines—and we will likely never have a full understanding of what is going on in something as complex as the individual cell. But we have a fighting chance if we can get more people working on the problems and thinking about the practical solutions that result in new medicine. That is where the patent system yields an advantage. The patent system is flexible enough to accommodate this level of complexity and provide the basis for the ultimate solutions.