Bipartisan Letter from U.S. Senators on Drug Patent Thickets

In June, U.S. Senators Leahy (Democrat) and Cornyn (Republican) (and others) sent a letter to the United States Patent and Trademark Office requesting that the USPTO review practices concerning granting “an excessive” amount of patents on pharmaceuticals, such as biologics, that may be driving up drug pricing costs. 

The press release concerning the letter states:

Senators Patrick Leahy (D-VT) and John Cornyn (R-TX) led a bipartisan letter Wednesday asking the U.S. Patent and Trademark Office to address an issue that is a significant cause of soaring drug prices.  Senators Richard Blumenthal (D-CT), Susan Collins (R-ME), Amy Klobuchar (D-MN), and Mike Braun (R-IN) also joined the letter.

The senators explained that drug companies and other large companies sometimes artificially extend the period in which they can charge high prices by filing many patents on nearly the same invention, creating a so-called patent thicket of dozens of patents on a single drug.  Those thickets make any challenge to the patents, or to the drug companies’ pricing of the covered drug, nearly impossible.  Because of the exorbitant cost of taking on each of the patents in these patent thickets, generic manufacturers are impeded from entering the market, hurting competition and raising prices for American consumers.  The secondary patents, which are similar to the originals, often receive less scrutiny from the Patent Office but have an outsized effect on everyday Americans who struggle to afford expensive medication.

Leahy believes the Patent Office has the ability to address this abusive practice, and he is asking the agency to take action to rein in this misuse of the patent system.  The letter requests that the Patent Office look into specific ideas for curbing the abuse and “take regulatory steps to improve patent quality and eliminate large collections of patents on a single invention.”  The Patent Act clearly states an inventor may obtain a single patent for a single invention, not dozens.  The senators believe the Patent Office can and should stop these large companies from undermining the patent system, obstructing appropriate competition, stifling innovation, and hurting Americans, who end up paying for all of this at the pharmacy.

The letter contains several ideas for the USPTO and the public to consider concerning future potential rule-making:

1. Terminal disclaimers, allowed under 37 C.F.R. 1.321(d), allow applicants to receive patents that are obvious variations of each other as long as the expiration dates match. How would eliminating terminal disclaimers, thus prohibiting patents that are obvious variations of each other, affect patent prosecution strategies and patent quality overall?

2. Currently, patents tied together with a terminal disclaimer after an obviousness-type double patent rejection must be separately challenged on validity grounds. However, if these patents are obvious variations of each other, should the filing of a terminal disclaimer be an admission of obviousness? And if so, would these patents, when their validity is challenged after issuance, stand and fall together?

3. Should the USPTO require a second look, by a team of patent quality specialists, before issuing a continuation patent on a first office action, with special emphasis on whether the claims satisfy the written description, enablement, and definiteness requirements of 35 U.S.C. § 112, and whether the claims do not cover the same invention as a related application?

4. Should there be heightened examination requirements for continuation patents, 2 to ensure that minor modifications do not receive second or subsequent patents?

5. The Patent Act requires the USPTO Director to set a “time during the pendency of the [original] application” in which continuation status may be filed. Currently there is no time limit relative to the original application. Can the USPTO implement a rule change that requires any continuation application to be filed within a set time frame of the ultimate parent application? What is the appropriate timeframe after the applicant files an application before the applicant should know what types of inventions the patent will actually cover? Would a benchmark (e.g., within six months of the first office action on the earliest application in a family) be preferable to a specific deadline (e.g., one year after the earliest application in a family)?

6. The USPTO has fee-setting authority and has set fees for filing, search, and examination of applications below the actual costs of carrying out these activities, while maintenance fees for issued patents are above the actual cost. If the up-front fees reflected the actual cost of obtaining a patent, would this increase patent quality by discouraging filing of patents unlikely to succeed? Similarly, if fees for continuation applications were increased above the initial filing fees, would examination be more thorough and would applicants be less likely to use continuations to cover, for example, inventions that are obvious variations of each other?

Senator Tillis' New Proposed Patent Eligible Subject Matter Legislation

Senator Thom Tillis has been busy.  He has proposed a new act to clarify patent eligibility doctrine in the United States.  This is definitely a relatively broad vision of patent eligibility.  Some work on the pricing side of pharmaceuticals/biologics would be helpful if this gets passed.  I am wondering if this may get tacked on to another piece of legislation—the timing is interesting.  The Press Release states:

U.S. Senator Thom Tillis (R-NC) introduced the Patent Eligibility Restoration Act of 2022, legislation that will restore patent eligibility to important inventions across many fields, while also resolving legitimate concerns over the patenting of mere ideas, the mere discovery of what already exists in nature, and social and cultural content that everyone agrees is beyond the scope of the patent system. This bill affirms the basic principle that the patent system is central to promoting technology-based innovation. 

“I have long said that clear, strong, and predictable patent rights are imperative to enable investments in the broad array of innovative technologies that are critical to the economic and global competitiveness of the United States, and to its national security,” said Senator Tillis. “Unfortunately, our current Supreme Court’s patent eligibility jurisprudence is undermining American innovation and allowing foreign adversaries like China to overtake us in key technology innovations. This legislation, which is the product of almost four years of consensus driven stakeholder conversations from all interested parties, maintains the existing statutory categories of eligible subject matter, which have worked well for over two centuries, and addresses concerns regarding inappropriate eligibility constraints by enumerating a specific but extensive list of excluded subject matter. I look forward to continuing to work with all interested stakeholders on this important matter. Passing patent eligibility reform remains one of my top legislative priorities during my second term.”

Background:

Unfortunately, due to a series of Supreme Court decisions, patent eligibility law in the United States has become confused, constricted, and unclear in recent years. This has led to inconsistent case decisions, uncertainty in innovation and investment communities, and unpredictable business outcomes. This has resulted in a wide range of well-documented negative impacts.

As of 2021, all 12 judges of the United States Court of Appeals for the Federal Circuit have lamented the state of the law. Witnesses and stakeholders from a wide array of industries, fields, interest groups, and academia have testified and submitted comments confirming the uncertainty and detailing the detrimental effects of patent eligibility confusion in the United States. And there is now widespread bipartisan agreement in Congress and across all recent Administrations that reforms are necessary to restore the United States to a position of global strength and leadership in key areas of technology and innovation, such as medical diagnostics, biotechnology, personalized medicine, artificial intelligence, 5G, and blockchain.

The proposed legislation states, in part:

SEC. 2. PATENT ELIGIBILITY. (a) IN GENERAL.—Chapter 10 of title 35, United 8 States Code, is amended— (1) in section 100— (A) in subsection (b), by striking ‘‘includes a new use of a known process’’ and inserting ‘‘includes a use, application, or method of manufacture of a known or naturally-occurring process’’; and (B) by adding at the end the following: ‘‘(k) The term ‘useful’ means, with respect to an invention or discovery, that the invention or discovery has a specific and practical utility from the perspective of a person of ordinary skill in the art to which the invention or discovery pertains.’’;

and (2) by amending section 101 to read as follows: ‘‘§ 101. Patent eligibility ‘‘(a) IN GENERAL.—Whoever invents or discovers any useful process, machine, manufacture, or composition of matter, or any useful improvement thereof, may obtain a patent therefor, subject only to the exclusions in sub section (b) and to the further conditions and requirements of this title.

‘‘(b) ELIGIBILITY EXCLUSIONS.— ‘‘(1) IN GENERAL.—Subject to paragraph (2), a person may not obtain a patent for any of the following, if claimed as such: ‘‘(A) A mathematical formula, apart from a useful invention or discovery. ‘‘(B) A process that— ‘‘(i) is a non-technological economic, financial, business, social, cultural, or artistic process; ‘‘(ii) is a mental process performed solely in the human mind; or ‘‘(iii) occurs in nature wholly independent of, and prior to, any human activity. ‘‘(C) An unmodified human gene, as that gene exists in the human body. ‘‘(D) An unmodified natural material, as that material exists in nature.  ‘‘(2) CONDITIONS.— ‘‘(A) CERTAIN PROCESSES.—Notwithstanding paragraph (1)(B)(i), a person may obtain a patent for a claimed invention that is a process described in such provision if that process is embodied in a machine or manufacture, unless that machine or manufacture is recited in a patent claim without integrating, beyond merely storing and executing, the steps of the process that the machine or manufacture perform. ‘‘(B) HUMAN GENES AND NATURAL MATERIALS.—For the purposes of subparagraphs (C) and (D) of paragraph (1), a human gene or natural material that is isolated, purified, enriched, or otherwise altered by human activity, or that is otherwise employed in a useful invention or discovery, shall not be considered to be unmodified.  

‘‘(c) ELIGIBILITY.—  ‘‘(1) IN GENERAL.—In determining whether, under this section, a claimed invention is eligible for a patent, eligibility shall be determined—  ‘‘(A) by considering the claimed invention as a whole and without discounting or disregarding any claim element; and ‘‘(B) without regard to— ‘‘(i) the manner in which the claimed invention was made; ‘‘(ii) whether a claim element is known, conventional, routine, or naturally occurring;  ‘‘(iii) the state of the applicable art, as of the date on which the claimed invention is invented; or ‘‘(iv) any other consideration in section 102, 103, or 112.  

‘‘(2) INFRINGEMENT ACTION.— ‘‘(A) IN GENERAL.—In an action brought for infringement under this title, the court, at any time, may determine whether an invention or discovery that is a subject of the action is eligible for a patent under this section, including on motion of a party when there are no genuine issues of material fact. ‘‘(B) LIMITED DISCOVERY.—With respect to a determination described in subparagraph (A), the court may consider limited discovery relevant only to the eligibility described in that subparagraph before ruling on a motion described in that subparagraph.’’.

U.S. FDA Sends Letter to Push USPTO Concerning Drug Patents and Access

The U.S. Federal Food and Drug Administration (FDA) recently sent a letter to the U.S. Patent and Trademark Office concerning the FDA’s concerns regarding pharmaceutical patents and their impact on innovation and access. Some of the concerns include the use of continuations to build patent thickets to raise litigation costs as well as resulting in possible delays of generic entry; evergreening practices; and product-hopping.  Notably, the FDA is generally interested in increasing communication and collaboration to address those issues, including offering expertise, collecting additional information regarding IPRs and other post-grant procedures as well as inquiring whether examiners need more time to review patent applications. While the Trump Administration also had concerns regarding drug pricing, President Biden’s recent Executive Order concerning competition is the impetus for this letter’s push for increased collaboration. 

Another Government Report Tackling Pharmaceutical Pricing in the United States that Takes Aim at Patenting Practices

The State of Minnesota has recently released a 94 page report on drug pricing and access titled, “Report of Minnesota Attorney General’sAdvisory Task Force on Lowering Pharmaceutical Drug Prices.”  The Executive Summary of the very thorough report points to several problems leading to the high cost of pharmaceuticals in the United States and the state of Minnesota, including 1) product hopping; 2) abuse of the patent system, including the creation of patent thickets (with Humira as the example); 3) pharmaceutical benefit manager practices and a lack of transparency with respect to pricing; and 4) pharmaceutical company practices with respect to direct marketing to consumers and price discounts to consumers for selecting brand name drugs.  The report has many recommendations, including the formation of a commission to investigate and deal with pharmaceutical pricing and other issues; importation of four important drugs from a vendor (insulin, epipens, Truvada and Naloxon); create price gouging legislation; “Strengthen Minnesota’s consumer fraud laws;” “Enact a state anti-kick back law;” “Strengthen Minnesota’s antitrust laws;” advocate for change to federal patent and data exclusivity laws; heavily regulate pharmaceutical benefit managers; ensure greater transparency; more utilization of the federal 340B drug pricing program; and improved usage of bulk purchasing.  The report also includes action steps for the various recommendations. The report details the impact of high drug prices on citizens of Minnesota as well as case studies of drug prices that are “excessive.”  

I am sure the issue regarding the cost of healthcare and pharmaceuticals in the United States will receive a lot of attention in U.S. presidential race this year.  Last April, Chris Holman and I co-organized a conference at University of the Pacific, McGeorge School of Law, in Sacramento, California, on pharmaceutical IP and pricing that tackled the issue. The conference website is available, here.  We may offer a follow-up conference next year after the presidential election.  If you have an interest in attending or participating, please let me know.  

Heavily Taxing Billionaires to Promote Innovation

An important issue confronting the world concerns the high concentration of wealth and redistribution of that wealth through the tax system. Part of the problem is what to do with the wealth gained from additional taxation of billionaires (and what is a politically defensible use of that additional revenue). Democratic presidential candidates are starting to create a "dream list" of things to do with billionaires' money.  Well, why not use that money to invest in research and development which may lead to more jobs, innovation (even life saving innovation), and additional tax revenue.  

Professor Michael Simkovic from University of Southern California Gould School of Law takes on general claims that taxing billionaires may lead to less innovation in a short five page article titled, “Taxes, Spending and Innovation.”  Professor Simkovic points to studies concerning patents and Nobel Prize winners.  Professor Simkovic states:

Public policy can be used to promote innovation by raising taxes and extensively funding high quality science, math, and engineering education, or by encouraging immigration of people with those skills.

There has been a general decline in the amount of federal funding in terms of real dollars for some time for the National Institutes of Health.  Well, billionaires give to universities and other charities, right?  We don't need to heavily tax them as they choose to give their wealth to charitable organizations that innovate.  Professor Simkovic notes that voluntary gifts to charity, including to universities, is relatively small at “2% of GDP”—for gifts from all donors.  He concludes we should look to peer-reviewed empirical work to test claims and that, “Claims that we can drive more innovation and growth through a higher concentration of resources in the hands of a small number of billionaires—while providing fewer resources to middle and upper middle--‐class knowledge workers—are not empirically supported.”  [Hat Tip to Professor Paul Caron’s Tax Prof Blog]. 

Hatch-Waxman Integrity Act is Introduced in U.S. House of Representatives

U.S. Representative Tom Flores has introduced the Hatch Waxman Integrity Act in the House of Representatives.  The Act has also been introduced in the Senate.  The Act is designed to curb the use of some methods to challenge patents at the United States Patent and Trademark Office.  A Press Release from Representative Flores’ Office states:

The Hatch-Waxman Integrity Act of 2018 would require a generic manufacturer wishing to challenge a brand-name drug patent to choose between the Hatch-Waxman framework, which affords certain advantages such as being able to rely on the drug innovator’s safety and efficacy studies for FDA approval, and inter partes review, or IPR, which is cheaper and faster than Hatch-Waxman litigation but does not provide the advantages of a streamlined generic approval process. The bill would apply similarly to patents on biologics.

The bill would preserve Hatch-Waxman as the standard path for generic manufacturers to challenge brand patents, while keeping IPR as an option where other interests come into play. It would not have any impact on the use of IPR by the tech community.

Senators Thom Tillis and Orin Hatch have released statements concerning the bills along with Representative Flores:

The Hatch-Waxman Integrity Act ensures that America remains a leader in developing life-saving and accessible therapies, cures and treatments for patients," said Flores. "It restores an effective balance between the interests of brand-name and generic drug manufacturers so that innovation and competition will continue to flourish.  It is fulfilling to work with Senator Hatch to modernize the Hatch-Waxman Act so that hardworking American families continue to benefit from health care innovation."

"As the coauthor and namesake of Hatch-Waxman, I have a keen interest in ensuring we have a well-functioning generic drug industry," said Hatch. "This means making sure that generic companies are able to develop drugs while also ensuring that brand companies have sufficient protections in place to recoup their investments. Hatch-Waxman struck a careful balance that achieved these goals and in doing so helped to create the modern generic drug industry. The Hatch-Waxman Integrity Act, which I’m pleased to be introducing today with Senator Tillis and Representative Flores, will help preserve that careful balance going by ensuring that newer, alternative procedures for challenging drug patents do not give one side an unintended advantage."

"The biotechnology and life sciences industry undertakes tremendous risk and costs to develop new, life-saving drugs, with the vast majority of products never making it to the market at great expense to the manufacturer. These drugs save millions of lives every year and are a critical component of our nation’s healthcare system. While it is important to call out bad actors who price gouge, we must allow sufficient time and balance so companies can continue to develop life-saving drugs and help people with the countless illnesses and diseases that affect millions of Americans," said Tillis. "The Hatch-Waxman Integrity Act of 2018 will restore a proper balance in the market so that companies will continue to spend billions of dollars to develop life-saving and life-altering treatments. I want to thank Senator Hatch for his leadership on this issue and I look forward to building support for this bill within the Senate."

A copy of the bill is here, and a summary analysis of the bill is here. 

Bloomberg Tracking Pharmaceutical Prices

One way the Trump Administration appears to attempt to control drug prices is through use of the “bully pulpit.”  Wikipedia states that the “bully pulpit”: “is a conspicuous position that provides an opportunity to speak out and be listened to. This term was coined by United States President Theodore Roosevelt, who referred to his office as a "bully pulpit", by which he meant a terrific platform from which to advocate an agenda.”  

President Trump has used strong language to apparently shame pharmaceutical companies from raising drug prices.  Indeed, two pharmaceutical companies announced they would not raise prices for their drugs.  Those two examples make great headlines for President Trump, but are drug prices as a whole getting lower in the United States.  Bloomberg seeks to answer that question and is tracking the pricing of "widely used" and "well known" drugs across several different disease categories and updating that information as time passes.  Notably, prices (excluding Pfizer's drugs, who announced it would not raise prices) appear to be moving up.  Interestingly, the price increases are mostly hovering around 9% to 10%.  Also, the prices tracked by Bloomberg do not include the rebates that are provided by pharmaceutical companies, but are the list prices.  

The Trump Administration is moving on other fronts to try to control drug prices, but many experts state that some of those attempts will not impact the cost of drugs in the United States by much.  It will be interesting to see if actions taken by the Food and Drug Administration discussed here will make a significant difference.  

New Trump Administration U.S. FDA Working Group on Importation of Pharmaceuticals

The U.S. Secretary of the Department of Health and Human Services, Alex Azar, has recently directed the Food and Drug Administration (FDA) Commissioner Scott Gottlieb to establish a working group to explore importing “safe” pharmaceuticals from other countries in the case of a dramatic price hike by a pharmaceutical company.  The Press Release is careful to note that this would not include pharmaceuticals covered by “patents or other exclusivities.”  However, there is the recent U.S. Supreme Court case in Impression Products v. Lexmark International concerning an international exhaustion rule for U.S. patents.  The Press Release states:

As part of the Trump administration’s efforts to lower drug prices and put American patients first, Health and Human Services Secretary Alex Azar requested today that FDA Commissioner Scott Gottlieb establish a working group to examine how to safely import prescription drugs from other countries in the event of a dramatic price increase for a drug produced by one manufacturer and not protected by patents or exclusivities.

“We look forward to working with Commissioner Gottlieb and the FDA to explore how importation could help address price hikes and supply disruptions that are harming American patients,” said Secretary Azar. “We have seen a number of both branded and generic examples in recent years where a single manufacturer dramatically hikes the price for a drug unprotected by patent or exclusivities. In the 2015 case of the drug Daraprim, we saw the list price of a drug approved by the FDA in 1953 increase by more than 5,000 percent.

“Safe, select avenues for importation could be one of the answers to these challenges. When HHS released the President’s Blueprint for putting American patients first, I said we are open to all potential solutions—assuming they are effective, safe for patients, and respect choice, innovation, and access.

“Importation may well fit that bill in some instances. We look forward to working with Commissioner Gottlieb on this issue, and appreciate the voluminous work FDA has done to increase competition in America’s drug markets.”

Disincentivizing the Use of IPRs and PGRs Against Pharmaceutical and Biologic Patents

Senator Orrin Hatch has introduced legislation designed to curb the use of IPRs and PGRs against pharmaceutical and biologic patents by essentially denying the benefits to generic/biosimilar companies of the Hatch-Waxman Act and the Biologics Price Competition and Innovation Act.  Allowing the usage of IPRs against pharmaceutical and biologic patents was a serious oversight in enacting the America Invents Act.  Senator Hatch’s Office has released the following information concerning the new Hatch-Waxman Integrity Act of 2018 (which includes a section by section analysis):

In 2012, Congress enacted the America Invents Act to fix a problem unrelated to drug/biologic innovation and drug/biologic affordability; it created the inter partes review (“IPR”) and post-grant review (“PGR”) processes to combat the growing problem of patent trolls.

Even though Congress did not intend to upset its drug/biologic-specific Hatch-Waxman and BPCIA procedures with the enactment of the IPR and PGR processes, generic drug and biosimilars manufacturers have increasingly used the IPR process to circumvent the Hatch-Waxman Act and BPCIA patent challenge processes while nonetheless taking advantage of their abbreviated processes for drug entry.1  Moreover, hedge funds with no interest in manufacturing or marketing drugs have filed IPR challenges against drug patents with the goal of profiting from stock market declines triggered by the IPR filings—a type of market manipulation.

The Hatch-Waxman Integrity Act of 2018 would close the loophole unintentionally created by the America Invents Act. To restore the careful balance of the Hatch-Waxman Act and the BPCIA, and to prevent the IPR or PGR processes from undercutting them, the FD&C Act and the PHS Act would be amended to prevent using IPR (or PGR) challenges to circumvent the specific patent challenge processes for drugs and biologics painstakingly created by Congress. In addition, the federal securities rules would be clarified to indicate that filing IPR patent challenges and profiting from resulting stock price changes is a form of prohibited market manipulation.

The Press Release is available, here.  The text of the proposed legislation is available, here.  [Hat Tip to Professor Dennis Crouch’s Patently Obvious Blog]

The Coming Increased Transparency in Pharmaceutical Pricing in the United States?

Pharmaceutical pricing has been viewed as a black box type of affair.  However, a recent Wall Street Journal article authored by Jonathan D. Rockoff titled “How Pfizer Set the Costof Its New Drug at $9,850 a Month” reveals some of the process for at least one drug.  The author essentially observes that the process was mostly influenced by the price of other comparable drugs, the reaction of prescribing doctors to the price, and the amount of paperwork a health insurer may require a prescribing doctor to prepare to justify the medical necessity for the drug.  The amount of work by Pfizer in assessing some of those concerns and others is impressive.  The author makes a fascinating observation about his research: it seems that the price was not tied to the research and development cost for the particular pharmaceutical, which the author notes is the primary justification made by pharmaceutical companies for high prices.  So, would this mean that if insurers increased the amount of paperwork for prescribing doctors for drugs that cost more than $5,000 that the price would drop?  Could the solution be that simple?  My guess is no.  But, I do wonder about the amount of money expended on the marketing of new drugs.  On the other hand, the claimed cost of developing new pharmaceuticals often includes the cost of failure as well as the cost to directly develop a successful drug.  Moreover, it is clear from the article that commercialization costs, such as concerns about costly Food and Drug Administration trials are a large factor in bringing a drug to market.  It also doesn’t seem to be much of a shock that the pricing of new drugs would include analyzing the price of similar drugs which possibly may be non-infringing substitutes. 

The other interesting question is why the increased transparency now.  Well, for one, U.S. Democratic presidential candidate Hillary Clinton has set her sights on the pharmaceutical industry.  She has numerous proposals designed to lower the cost of prescription drugs, including reducing the exclusivity period for data for biologics.  Some proposals are similar to U.S. Democratic presidential candidate Bernie Sanders' proposals described on this blog, here, and some take them another step.  For example, one proposal focuses on pharmaceutical companies that receive Federal funding for research and development:

Clinton’s proposal would require pharmaceutical companies that benefit from federal support to invest a sufficient amount of their revenue in R&D, and if they do not meet targets, boost their investment or pay rebates to support basic research. If elected President, she will convene business leaders, experts on drug pricing, and consumer advocates to set new parameters for federal support in order to ensure this requirement. The basic principle is based on a provision of the Affordable Care Act that required insurance companies to pay rebates to consumers if their profits and administrative costs were an excessive share of benefits actually paid out to consumers.

PhRMA has strongly opposed Clinton’s proposals, here, and so has the Republican Party, here.  The second reason for the transparency is the U.S. Senate’s recent hearings (started on Wednesday) on pharmaceutical pricing—which currently appear focused on generic pricing.  I expect that we’ll see more—rather than less—information released about how companies are pricing pharmaceuticals very soon. 

Trans-Pacific Partnership Agreement Leaked by WikiLeaks

The apparent final version of the Trans-Pacific Partnership Agreement (TPP) has been leaked by WikiLeaks.  A copy can be found, here.  While I have not reviewed the entire agreement in depth, here is the section concerning biologics that was apparently holding up the agreement, in part:

Article QQ.E.20: {Biologics}

1. With regard to protecting new biologics, a Party shall either: (a) with respect to the first marketing approval in a Party of a new pharmaceutical product that is or contains a biologic62,63, provide effective market protection through the implementation of Article QQ.E.16.1 and Article QQ.E.16.3 mutatis mutandis for a period of at least 8 years from the date of first marketing approval of that product in that Party; or alternatively (b) with respect to the first marketing approval in a Party of a new pharmaceutical product that is or contains a biologic, provide effective market protection: Without Prejudice

(i) through the implementation of Articles QQ.E.16.1 and QQ.E.16.3 mutatis mutandis for a period of at least 5 years from the date of first marketing approval of that product in that Party;

(ii) through other measures; and (iii) recognizing that market circumstances also contribute to effective market protection to deliver a comparable outcome in the market.

2. For the purposes of this Section, each Party shall apply this provision to, at a minimum, a product that is, or alternatively, contains, a protein produced using biotechnology processes64, for use in human beings for the prevention, treatment, or cure of a disease or condition.

3. Recognizing that international and domestic regulation of new pharmaceutical products that are or contain a biologic is in a formative stage and that market circumstances may evolve over time, the Parties shall consult after 10 years, or as otherwise decided by the TPP Commission, to review the period of exclusivity provided in paragraph 1 and the scope of application provided in paragraph 2, with a view to providing effective incentives for the development of new pharmaceutical products that are or contain a biologic, as well as with a view to facilitating the timely availability of follow-on biosimilars, and to ensuring that the scope of application remains consistent with international developments regarding approval of additional categories of new pharmaceutical products that are or contain a biologic.

[Footnote] 62 Nothing requires a Party to extend the protection of this paragraph to:

(a) any second or subsequent marketing approval of such a pharmaceutical product; or

(b) a pharmaceutical product that is or contains a previously approved biologic.

[Footnote] 63 Each Party may provide that an applicant may request approval of a pharmaceutical product that is a biologic under the procedures set forth in Article QQ.E.16.1(a)-(b) within 5 years of entry into force of this Agreement, provided that other pharmaceutical products in the same class of products have been approved by the Party under the procedures set forth in Article QQ.E.16.1(a)-(b) before entry into force of this Agreement.

[Footnote] 64 Drafters’ note: The Parties understand that Article QQ.A.5 applies to the provisions of this Chapter, including the definition of “biotechnology process” in this paragraph. Accordingly, the Parties understand that each Party may determine the meaning of biotechnology processes in its legal system and practice.

The Pharmaceuticals Research and Manufacturing Association (PhRMA) has already expressed displeasure with the term of data protection for biologics.   PhRMA’s president stated:

“We are disappointed that the Ministers failed to secure 12 years of data protection for biologic medicines, which represent the next wave of innovation in our industry.  This term was not a random number, but the result of a long debate in Congress, which determined that this period of time captured the appropriate balance that stimulated research but gave access to biosimilars in a timely manner.”

See more at: http://phrma.org/media-releases/phrma-statement-on-the-transpacific-partnership-negotiations#sthash.hhnHaxO9.dpuf”

For more information on the Copyright provisions concerning the TPP, see the Electronic Frontier Foundation.  The TPP still must be approved by Congress, and recently Democratic Presidential Candidate Hillary Clinton stated she does not support the agreement—reversing her earlier opinion and putting her at odds with the Obama Administration.  [Hat Tip to Professor Irene Calboli at the Texas A&M University School of Law]. 

Biotechnology Stock Value Swings

In a July 6, 2013 post, this blog discussed the upswing in biotechnology patenting and the rising numbers of biotechnology IPOs.  The blog also mentioned promising R&D and an increase in FDA approvals as a potential cause of the IPOs.  Fast forward to recent months and there is a substantial amount of chatter about a bubble in biotechnology stocks (here, here and here).  In late March, biotechnology stocks took a dive, rebounded soon thereafter and now look like they are headed for another dive.  So, why the swings in value?  On the positive side, there is promising R&D, FDA approvals and pharmaceutical companies with lots of funds to acquire biotechnology companies.  The negative side is described by a recent article by Gregory Zuckerman in the Wall Street Journal titled, Biotech’s Rally Fuels Bubble Fears:

Biotech shares in the Nasdaq now trade at almost 50 times their earnings over the past year, compared with a price/earnings ratio of 27.5 for the overall Nasdaq Composite. Nasdaq biotech shares trade at 31.5 times their expected earnings over the next 12 months, above the 21 ratio for the overall Nasdaq market, according to FactSet Inc.

Just like Amazon.com Inc., eBay Inc. and some other technology companies were growing companies with shares trading at sky-high valuations in 2000, some worry that today’s highflying biotech shares also are strong companies trading at prices that are too high. Celgene currently trades at a p/e ratio of 51.1. Biogen, Amgen and Gilead are at 36.6, 24.8 and 13.8, respectively.

I suspect that there are also two other reasons to worry about the value of biotechnology companies.  First, the FDA is moving toward approval of generics—biosimilars—for biologics, here.  Indeed, in March of 2015, the FDA approved the first biosimilar, Sandoz’s Zarxio, which is the biosimilar for Amgen’s Neupogen, a cancer treatment.  Second, there is growing discontent with the pricing of some drugs, particularly the amazing drug Solvaldi for Hepatitis C.  Notably, Gilead Sciences has moved to make its drug available at a lower cost in some countries such as India.  What do you think? 

California Governor Jerry Brown Vetoes California’s Biosimilars Bill

I recently wrote about California’s Biosimilars Bill which was passed by the California Legislation.  California Governor Jerry Brown vetoed the Biosimilars Bill today.  The Sacramento Bee discusses the veto, here.  The Bill arguably made it more difficult for a pharmacist to provide a biosimilar for a prescribed biologic, thus allowing biologic companies to place a barrier on the ease of substitution of biosimilars for biologics.  The generic pharmaceutical industry as well as the California Public Employees’ Retirement System (CalPERS) opposed the legislation.  The federal Food and Drug Administration also raised concerns about the Bill.  The Bill was supported by the Biotechnology Industry Organization and Amgen.  The Governor issued the following statement concerning the Bill:

To Members of the California State Senate:

Senate Bill 598 would effect two changes to our state’s pharmacy law.  First , it would allow interchangeable “biosimilar” drugs to be substituted for biologic drugs, once these interchangeable drugs are approved by the federal Food and Drug Administration (FDA).  This is a policy I strongly support. 

Second, it requires pharmacists to send notifications back to prescribers about which drug was dispensed.  This requirement, which on its face looks reasonable, is for some reason highly controversial.  Doctors with whom I have spoken would welcome this information.  CalPERS and other large purchasers warn that the requirement itself would cast doubt on the safety and desirability of more cost effective alternatives to biologics.

The FDA, which has jurisdiction for approving all drugs, has not yet determined what standards will be required for biosimilars to meet the higher threshold of “interchangeability.”  Given this fact, to require physician notification at this point strikes me as premature.

For these reasons, I am returning SB 598 without my signature. 

Nicely done, Governor.