Protecting Patient Safety or Preserving Profits: California’s Biosimilars Bill

The California legislature recently passed legislation essentially regulating when pharmacists can substitute a biosimilar for a prescribed biologic.  Apparently, the Governor of California has not yet signed the legislation.  The legislation is opposed by the generic pharmaceutical industry because it arguably creates a burden on the pharmacist to substitute a biosimilar for a biologic and thus makes it more difficult or maybe less likely a pharmacist will do so.  This, in turn, may allow biologic companies to prevent the usage of biosimilars and thus maintain a supracompetitive price.  While there are concerns with safety and efficacy concerning biosimilars that are different than traditional small-molecule drugs, those concerns would have been addressed by the U.S. Federal Drug Administration (FDA) already.  There is a concern with patient disclosure, but again, the FDA should have dealt with the concerns that matter most to the patient.  Notably, the California Public Employees’ Retirement System (CalPERS) board voted to oppose the legislation and the FDA has expressed concerns about the legislation.  Amgen and the Biotechnology Industry Organization are strong supporters of the legislation. The legislative digest and (mark up) text of the legislation is available here.  Additional commentary concerning the legislation is here, here and here. The FDA Law Blog has helpful commentary as well as The Biosimilars State Legislation Scorecard, here.  Notably, California is often considered a "laboratory" or leader in creating state legislation (we certainly create a lot of it.). 

EU Commission looking at Generics and Patents

There's a detailed report emanating from Bloomberg Businessweek which explains a little bit about the EU's current investigation into the branded and generic drug markets. The European Commission has been looking into the market place and is worried - just like the US government - that major branded pharmaceutical companies are misusing the patent system to ham consumers (and at least in Europe the government, which ultimately pays for much of European health care directly or indirectly through the tax system). The concern is of course, that pharmaceutical companies file invalid and follow-on patents to prevent their generic competitors bringing out substitute drugs.

The EU commission has now - following unannounced inspections - also called raids- on drug companies last year - started a so-called monitoring exercise to review the activities of the branded pharmaceutical companies. The report quotes Joaquin Almunia, the EU's competition commissioner in stating that patent settlements “are an area of particular concern because they may delay the market entry of generic medicines,” Joaquin Almunia, the EU’s competition commissioner, said in the statement.

Over in Germany, the VFA - the German Association of Research-based pharmaceutical companies has been active in arguing the case for branded medicines. The message is directed at the current reforms to the German health system being promoted by the Federal Ministry of Health. In many ways the issues are the same: how to ensure adequate and affordable health care whilst providing sufficient funds to research companies through the health system to incentivise research. It's clear that no pharmaceutical company can live on grants from the government alone - and the health care, whilst it is by no ways perfect, provides a mechanism to ensure that successful innovative products are rewarded. Patents play a crucial role here in protecting and defining the bounds of the innovation. On the other hand there is a need to reduce the costs of the health care system and clearly generic drug producers have a major role here - this author will normally ask his local (German) pharmacist for "ASS" tablets or wait to stock up on the generic aspirins when he is in the US (note: Aspirin (R) is a registered trademark in Germany). Where are the boundaries between efficient innovation and cost-effective health care? There's almost certainly non "one-size" fits all - the control through the European Commission is probably the only way of policing the marketplace to ensure that there is a fair playing field.

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European Union, Patent, Generic Pharmaceuticals

When Proprietary Harry Meets Generic Sally

I recently had lunch with a UK colleague with a distinguished background in patent litigation matters, in general, and pharmaceutical-related litigation, in particular. During the conversation he confirmed my understanding that, as far as client representation was concerned, you either represent proprietary pharmaceutical companies or generic manufacturers, but not both. The thrust of the position is that there is a type of IP Continental Divide, where the headwaters either flow in a proprietary or a generic direction, but never come together under the same corporate roof.

His comment led me to recall a chapter published over a decade ago by my late colleague, A. David Cohen, entitled "The Intellectual Property Characteristics of a Generic Company", in Intellectual Property in the Global Market Place (2nd ed. 1999), edited by M. Simensky, L.G. Bryer and (full disclosure) N.J. Wilkof. A. David Cohen served as the Manager of the IP Department at one of the world's largest companies in the generic patent protection industry.

The particular focus of the chapter was an effort by Cohen to describe how this company, despite its historical commercial raison d'etre in manufacturing and selling "plant protection chemicals initially developed by a different (usually) research-based company, but after the plant patent has expired," was in the process of evolving into a research-based plant protection company. As set out by Cohen, it is worth noting the salient differences in IP protection during each of these stages in maintaining the company's the patent protection business.

Generic Stage

1. The company focuses primarily on assessing the validity of patents to avoid infringement and assessing the extent to which use can be made of the patents.
2. If the company does file patents, it is usually for processes; only later might patents also cover formulations.
3. The company is active in oppositions of patents and will seek compulsory licences when possible.
4. The company is also involved in invalidation proceedings regarding patents that cover products that the company wants to commercialize, oftentimes with an eye towards obtaining a license.
5. The company has a strong interest in taking full advantage of the experimental use exception, if applicable, for existing patents.
6. The company vigorously challenges patent term extensions.
7. The company at a later stage of its generic-focused activities will engage in a "picket-fence" strategy to block the proprietary product beyond its basic stage (the company will run experiments "and file one or more patent applications covering either a new process to prepare the product, a new process to prepare a key intermediate, selected mixtures, new formulations and/or new uses").

When the Picket Fence Strategy is Breached

Interim Stage

1. The company faces the prospect of declining market share, as more companies enter the generic space and the larger multinationals acquire smaller generic companies.
2. To maintain sales, the company shifts from selling not only its own technical material but also its formulated material, leading to patenting of the formulations.
3. Because of the distinctive nature of agribusiness, the company obtains agricultural registration for its products on a country-by-country basis.
4. The company is less active in seeking compulsory licences, engaging in invalidation actions, or in challenging patent term extensions.
5. The company begins to view patent protection as a means for protecting its commercial interests.
6. The company strengthens its patent validity activities and the implementation of its picket fence strategy.

Proprietary Company

1. The company engages in fully-fledged R&D to develop proprietary products and/or licensing-in proprietary technology for product development.
2. The company maintains a patent registration program to protect its own proprietary products.
3. In so doing, the company must decide on whether to include in the first basic patent, as well as the product itself, all known uses, alternative processes and synergistic mixtures.
4. This requires the company to consider both patent prosecution costs and up-front research costs as well as to weigh the risk that a comprehensive patent whose filing is delayed to assure its comprehensiveness may allow a competitor to sneak in with its own prior application.
5. The company begins to find ways to counteract the picket-fence strategy of others.
6. The company actively supports patent term extensions to provide additional protection for its products.
7. The company seeks the optimal way to balance the existing generic business with the emerging proprietary emphasis and to maximize the joint revenue from both.

What arises from Cohen's discussion is the dynamic nature of these processes. In his own words,

"... the generic company's attitude toward and its experiences with intellectual property may both prepare and push it toward becoming a research-based company."

If that observation was true a decade ago, it is even more so now. Even the world leader in the generic pharmaceutical business, Teva Pharmaceutical Industries, is also an active participant in the commercialization of proprietary products.

The upshot is that the generic/proprietary divide in the pharmaceutical industry seems less and less germane, if it all. Unless, of course, you are engaged in patent litigation. There, even as your client is constantly searching for ways to achieve the right generic/proprietary mix for its own business, the approach to litigation, perhaps out of necessity, perhaps out of legacy, continue to take a Manichean view of the pharmaceutical world.

Ruminations on the Pfizer-Wyeth Merger

Amidst all the economic doom and gloom coming out of Washington, London and Davos (I think they had to do without Sharon Stone and Angelina Jolie this year), this week's announcement of the Pfizer-Wyeth merger was notable. If consummated, the $68 billion merger will be the largest business wedding of its kind in the pharmaceutical industry. The fact that deal is being made in the current economic climate is all the more remarkable. Based principally on a New York Times podcast of the proposed transaction, the principal reasons for the merger seem to be driven by three main factors.

First, patent protection for Pfizer's main product, LIPITOR, the cholesterol drug, is set to expire in 2011. LIPITOR is reported to constitute 25% of Pfizer's revenues. While the lapse of patent protection does not necessarily mean that sales of LIPITOR will totally then cease, it appears that Pfizer will face significant competition from generic competitors. We like our MBA students to consider that a powerful brand may enable a patented drug to successfully withstand the loss of patent protection. If the LIPITOR mark cannot accomplish this in a big way, then maybe it is time to stop relaying the story how the NutraSweet saved the post-patent day for Aspartame, since it will be no longer relevant.

Second, Pfizer seems to have relatively poor product prospects in its pipeline, so it has to look elsewhere. Much has been written during the last several years over the increasing inability of Big Pharma to come up with a new generation of products. Wyeth appears to provide a partial solution for at least two reasons.

The end of the patent pipeline?

First, Wyeth is reported to be particularly strong in the vaccine area and in biotech (where one report had the company listed as no. 3 in the industry). Second, Wyeth continues to enjoy revenues from the well-known OTC pain reliever--ADVIL. Assuming that there is no patent protection that is about the expire, it would seem that ADVIL promises a continued flow of revenues irrespective of any special IP coverage. Left unclear is whether Wyeth's patent prospects are materially better than those of Wyeth and doubts have been expressed.

Third, there is a view that economic forces are driving Big Pharma towards merger and consolidation. The rationale for this is not fully convincing. I imagine that size and resources may have advantage, at least to some extent in R&D and product development, not to mention marketing and advertising.

Bigger may not be better ...

That view is, however, not universally accepted. On August 24, 2007, an article appeared in Fortune by John Simons entitled "Why a Pfizer-Wyeth Merger is a Bad Idea." Simons concluded as follows:

"The Pfizer/Wyeth merger scenario is far-fetched, particularly because Pfizer would inherit another troubled pipeline and more big-sellers whose patents expire in the same concentrated period of 2010 and 2011. "Would the idea behind the merger be that misery loves company?" queries Standard & Poors pharma analyst, Herman Saftlas. "Most mergers in this sector haven't panned out from an earnings growth perspective. But even worse, these two companies are in the same boat."

Perhaps Simons was wrong in his analysis in 2007. If so, one wonders why the deal did not take place then. Alternatively, if Simons was correct 16 months ago, then what has changed since then, other than financial meltdown, cash flow misery, and the cratering of the real economy, that now makes the merger more compelling? The answer is not clear.