Thursday, 10 March 2011

The Crisis in the Drug Industry: Where Do Patents Fit In?

The headline from the article that appeared in the 6 March issue of the New York Times had the clarion ring of crisis: "Drug Firms Face Billions in Losses in '11 as Patents End" here . The immediate problem is the spectre that patent expirations in 2011 will mean that drug companies will lose exclusivity over more than 10 major medicines with combined sales of nearly $50 billion, thus exposing, it is claimed, the reliance of the industry on blockbuster products.

At a more systemic level, the drug industry faces a whole set of daunting challenges, including "a drought of big drug breakthroughs and research discoveries: pressure from insurers and the government to hold down prices; regulatory vigilance and government investigation and thousands of layoffs in research and development." Finding the solution for any one of these factors is difficult enough; finding the right mix of solutions for these various factors taken together, can only be described as herculean in difficulty.

Taking Pfizer as an example, the industry is talking about "reinventing itself", "fixing our innovative core", and "refocusing on niche products rather than blockbusters, including branded generics". All of this, at least in Pfizer's case, is to be carried out while reducing R&D spending by 30%, so that R&D is directed only "on the most potentially profitable prospects".  The U.S. Government, on its part, through the National Institute of Health, dissatisfied with the pace of current drug development, is talking about the establishment of a billion-dollar centre dedicated to drug development -- this, despite the question why NIH will be able to do a better job of drug development than the companies themselves. In any event, the article then goes on the describe various aspects of the factors, described above, that amount to a potential perfect storm that will challenge the long-term prospects for the industry.

In reading this article from the IP perspective, one thought kept running through my mind. On the one hand, the expiry of more and more patents key to protecting blockbuster drugs is apparently a material proximate cause to the woes facing the industry. On the other hand, the article does not explicitly mention any measures regarding the patent function that might improve the industry's position.

At a certain level, this seems a bit odd. If the patent function is so central, why is there no explicit consideration of that function when considering the steps that the industry can take to reestablish itself. Better R&D--yes; better innovation--yes; but as for better patent strategy, the article is largely silent.

Several thoughts occurred to me:

Linguistic Alignment-- The thinking here is that, when the industry uses terms such as "rediscovery" and "renewed innovation", these notions inherently fold into them proper patent practices. Under this view, patents are an exogenous result of successful execution of these strategic measures. As such, there is no need to consider patents per se separately.

Strategic Potential-- To the contrary, it might simply be that patents are a less exogenous output, but rather an additional source for renewed strategic considerations. One way to think about this is as follows. Much attention has been devoted lately to the fashioning of a new corporate position--Chief Intellectual Property Officer--with high-level C-Suite responsibility to promote and enhance the role of IP (especially, but not exclusively patents) within the company. The CIPO is intended, presumably, to release IP from the silo of the corporate IP department, which more often than not provides patenting services for the company, but without much input at the more strategic level.

And so my question: would such a CIPO (or other form of restructuring of the patent function within corporate strategy) contribute to the efforts of the drug industry to improve its position in the current circumstances? One answer is that this is already taking place, even if these considerations were not discussed in the article. But another possible answer is that patents, as a strategic consideration, need to be reconsidered together with the other factors discussed above.

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