Trump to Push Pharma on Drug Pricing

President Trump is continuing his push to fulfill campaign promises.  Apparently, he is meeting with pharmaceutical companies this week to negotiate lower drug prices.  This seems to be in response to his supposed Executive Order to link the drug prices that Medicare is charged to prices paid by foreign nations.  This was not an exciting development to pharmaceutical companies and they canceled a scheduled meeting with the President to discuss it.  It will be interesting to see if pharmaceutical companies will be willing to "play ball" with President Trump given the election.  For sure, part of the calculation is whether Presidential Candidate Joe Biden's administration would be better for pharmaceutical companies.  My guess is no.  However, I think the Obama Administration did not do as much as it could have on drug pricing directly--except that President Obama signed the Leahy-Smith America Invents Act into law which included rules concerning Inter-Partes Review Proceedings.  Also, pharmaceutical companies may be worried about additional Democratic appointees to the U.S. Court of Appeals for the Federal Circuit, where the battle over the scope of patent eligible subject matter is being waged (See American Axle en banc denial), and appointees to the U.S. Supreme Court.  FTC and DOJ antitrust enforcement is another issue as well as trade agreements.  Bayh-Dole Act march in rights could be an issue.  Moreover, under President Trump, pharmaceutical companies may be seeing some light at the USPTO concerning patent eligible subject matter.  Let's see if pharmaceutical companies are going to give President Trump a big win with Seniors (aka people who reliably vote). A compromise setting Medicare pricing near the most developed European countries would be interesting and an improvement.  

President Trump's Executive Orders to Address Drug Pricing

In July, President Trump issued three Executive Orders designed to decrease the cost of prescription drugs.  The executive orders are part of a fulfillment of his campaign promise to address the high cost of healthcare and specifically the high cost of pharmaceuticals.  The first is directed at importation of safe drugs from other countries.  The second is directed to reducing the price of insulin and epinephrine.  The third executive order concern rebates and middleman, such as pharmacy benefit managers.  The third order states in relevant part:

By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:

Section 1.  Purpose.  One of the reasons pharmaceutical drug prices in the United States are so high is because of the complex mix of payers and negotiators that often separates the consumer from the manufacturer in the drug-purchasing process.  The result is that the prices patients see at the point-of-sale do not reflect the prices that the patient’s insurance companies, and middlemen hired by the insurance companies, actually pay for drugs.  Instead, these middlemen — health plan sponsors and pharmacy benefit managers (PBMs) — negotiate significant discounts off of the list prices, sometimes up to 50 percent of the cost of the drug.  Medicare patients, whose cost sharing is typically based on list prices, pay more than they should for drugs while the middlemen collect large “rebate” checks.  These rebates are the functional equivalent of kickbacks, and erode savings that could otherwise go to the Medicare patients taking those drugs.  Yet currently, Federal regulations create a safe harbor for such discounts and preclude treating them as kickbacks under the law.

Fixing this problem could save Medicare patients billions of dollars.  The Office of the Inspector General at the Department of Health and Human Services has found that patients in the catastrophic phase of the Medicare Part D program saw their out-of-pocket costs for high-price drugs increase by 47 percent from 2010 to 2015, from $175 per month to $257 per month.  Narrowing the safe harbor for these discounts under the anti-kickback statute will allow tens of billions in dollars of rebates on prescription drugs in the Medicare Part D program to go directly to patients, saving many patients hundreds or thousands of dollars per year at the pharmacy counter.

Sec. 2.  Policy.  It is the policy of the United States that discounts offered on prescription drugs should be passed on to patients.

Sec. 3.  Directing Drug Rebates to Patients Instead of Middlemen.  The Secretary of Health and Human Services shall complete the rulemaking process he commenced seeking to:

(a)  exclude from safe harbor protections under the anti-kickback statute, section 1128B(b) of the Social Security Act, 42 U.S.C. 1320a–7b, certain retrospective reductions in price that are not applied at the point-of-sale or other remuneration that drug manufacturers provide to health plan sponsors, pharmacies, or PBMs in operating the Medicare Part D program; and

(b)  establish new safe harbors that would permit health plan sponsors, pharmacies, and PBMs to apply discounts at the patient’s point-of-sale in order to lower the patient’s out-of-pocket costs, and that would permit the use of certain bona fide PBM service fees.

Sec. 4.  Protecting Low Premiums.  Prior to taking action under section 3 of this order, the Secretary of Health and Human Services shall confirm — and make public such confirmation — that the action is not projected to increase Federal spending, Medicare beneficiary premiums, or patients’ total out-of-pocket costs.

. . . DONALD J. TRUMP

THE WHITE HOUSE,
July 24, 2020.

Where will the Great Brand Odwalla Land?

In a past post, I wrote about how great brands and products never die.  I provided two examples: the first, was Sesame Street; and the second, was Hostess products.  There’s another example of a great brand and product that is on the chopping block: Odwalla smoothies and juices.  Coca-Cola has announced that it is terminating the Odwalla brand.  According to CNN, this is a reaction, in part, to changing consumer demand and simplifying their supply chain.  Those smoothies do have a lot of sugar!  

Notably, Coca-Cola has over 500 brands.  Unlike Hostess, which was in bankruptcy, it will be interesting to see whether Coca-Cola will sell the brand.  If Coca-Cola truly wants to exit the smoothie business, then perhaps they won’t be concerned about a future competitor in that business line.  Coca-Cola does have other juice products.  However, even if demand for smoothies is falling off, I do wonder whether the demand will pick up again.  Interestingly, last year, Coca-Cola offered a zero calorie smoothie—perhaps they didn’t invest enough in marketing the new product.  For sure, it does take a while for trademark abandonment to kick in.  We’ll have to wait and see what happens.  Oh, and by the way, Odwalla was purchased for US $181 million almost two decades ago.  (And, if you are curious about my children's politics--now 15, 12 and 11--they think "cancel culture" is very troubling (everybody makes mistakes, redemption and what happened to free speech). They would vote for Biden if they could, but are relatively lost about what he stands for except that he's the alternative to President Trump--I think some debates will help.  They are concerned about Biden's comments about how if African Americans don't vote for him then they're not black and are somewhat mollified by his back-tracking.)

Extra Protection for the Bayh-Dole Act Needed in the United States?

Bayh-Dole 40 is a new coalition of supporters of the landmark legislation concerning technology transfer—the Bayh-Dole Act.  The Bayh-Dole 40 has an attractive website with information concerning the history of the Act and its impact.  The press release states: 

Today, a diverse group of research and scientific organizations, as well as those directly involved in commercializing new products, launched Bayh-Dole 40, a coalition that will celebrate and protect the University and Small Business Patent Procedures Act of 1980, better known as the “Bayh-Dole Act.”

The Bayh-Dole Act has empowered universities, small businesses, and nonprofits that have received federal grants to retain ownership of any patented inventions — and license those patents to private firms, who then turn promising ideas into real-life products that improve peoples’ lives. Thanks to Bayh-Dole, the public and private sectors have worked together to translate basic scientific research into life-saving drugs and medical devices, internet and GPS technologies, rechargeable lithium-ion batteries, and countless other innovations.

“Bayh-Dole made the United States the engine of global innovation,” said Bayh-Dole 40 founder and executive director Joseph Allen, who helped enact the law as a member of Senator Birch Bayh’s U.S. Senate Judiciary staff. “The Act reinvigorated research and development in America, spawning breakthrough discoveries ranging from high-yield crops to advanced medicines.”

Thanks to Bayh-Dole, over 200 new therapies — including drugs and vaccines — have been created since 1980. The legislation has also bolstered U.S. economic output by $1.3 trillion, supported 4.2 million jobs, and led to more than 11,000 start-up companies.

Bayh-Dole 40’s founding members include AUTM, Biotechnology Innovation Organization, BioHealth Innovation, Council on Governmental Relations, Information Technology and Innovation Foundation, Licensing Executives Society, and PhRMA, spanning the entire U.S. innovation ecosystem. The coalition will educate lawmakers to ensure the Act is utilized in the way Senators Birch Bayh and Bob Dole envisioned.

“Misusing Bayh-Dole to undermine the existing framework for public-private technology transfer and development, as some lawmakers are suggesting, would jeopardize the future of U.S. life-sciences innovation,” said Stephen Ezell, Vice President of Global Innovation Policy at the Information Technology and Innovation Foundation. “We look forward to engaging Congress on these issues to ensure the United States remains a life-sciences R&D powerhouse.”

About Bayh-Dole 40: Bayh-Dole 40 is a coalition of research and scientific organizations, as well as those directly involved in commercializing new products, dedicated to celebrating and protecting the University and Small Business Patent Procedures Act of 1980, better known as the “Bayh-Dole Act.” The coalition was formed to educate policymakers about Bayh-Dole’s positive impact on medical innovation and defend the Act against imminent threats during its 40th anniversary year.

Bayh-Dole 40’s members include the Association of University Research Parks, AUTM, BIOCOM, BioHealth Innovation, Biotechnology Innovation Organization, California Life Sciences Association (CLSA), Columbia Technology Ventures (CTV), Council on Competitiveness, Council on Governmental Relations, Fuentek, Information Technology and Innovation Foundation, IPWatchdog, Lehigh University Office of Economic Engagement, Licensing Executives Society (LES), Licensing Executives Society (LES) Silicon Valley Chapter, National Venture Capital Association, Pharmaceutical Research and Manufacturers of America, Pristine Surgical, STC.UNM, the IDEA Center at the University of Notre Dame, Wisconsin Alumni Research Foundation, and the Yale Office of Cooperative Research.

It is interesting that the existence of the coalition is necessary to protect the Bayh-Dole Act.  There is some polling to support that U.S. Senator Bernie Sanders could defeat President Trump in an election, but I wonder if anyone really believes that polling (besides Sanders supporters) after the results of the last Presidential election. Maybe the concern will be what happens in the election after this one.  

U.S. House of Representatives Passes Marijuana Banking Law

Congress is one step closer to resolving one of the very thorny issues concerning the legal marijuana business in the United States—access to banking because of its illegal status at the Federal level.  The SAFE Banking Act of 2019 has reportedly passed the U.S. House of Representatives and must then be passed by the Senate.  Of course, the bill will still have to be signed by President Trump, which may not be a sure thing.  He seems to change his mind on this issue frequently, and we are approaching an election year. There is also speculation that because of the current impeachment controversy in the Congress concerning President Trump that very little will be accomplished from a legislative perspective—that could also impact passage of patent eligible subject matter reform and drug pricing legislation.  A summary of the Safe Banking Act of 2019 states: 

This bill generally prohibits a federal banking regulator from penalizing a depository institution for providing banking services to a legitimate marijuana-related business. Specifically, the bill prohibits a federal banking regulator from (1) terminating or limiting the deposit insurance or share insurance of a depository institution solely because the institution provides financial services to a legitimate marijuana-related business; (2) prohibiting or otherwise discouraging a depository institution from offering financial services to such a business; (3) recommending, incentivizing, or encouraging a depository institution not to offer financial services to an account holder solely because the account holder is affiliated with such a business; (4) taking any adverse or corrective supervisory action on a loan made to a person solely because the person either owns such a business or owns real estate or equipment leased or sold to such a business; or (5) penalizing a depository institution for processing or collecting payments for such a business.

As specified by the bill, a depository institution shall not, under federal law, be liable or subject to forfeiture for providing a loan or other financial services to a legitimate marijuana-related business.

The bill is available, here.  I’ve previously written on this issue, here. 

Tax Credit System for Video Games not Working Well in the United Kingdom?

The United Kingdom’s Tax Watch has an interesting report on the alleged abuse of the tax credit system in the United Kingdom by video game maker, Rockstar North, Take-Two Interactive and related companies.  Rockstar North and Take-Two Interactive are two of the related companies responsible for the hugely popular video game Grand Theft Auto.  Despite making 6 billion US dollars, Rockstar North has apparently not paid any corporate tax in the United Kingdom and has claimed 42 million UK pounds in tax credits.  The Report states: 

Video Games Tax Relief was introduced by the UK government in 2014 to provide targeted support for games that were “culturally British”, with a particular focus on support for small and medium sized businesses.

Our analysis shows that the amount claimed by Rockstar North is the equivalent of 19% of the total relief paid to the entire video games industry in the UK since the programme came into effect. This raises serious questions as to whether the relief is being properly targeted, at a time when the industry is lobbying for the relief to be expanded and made more generous.

This report also raises questions as to whether an appropriate amount of profit has been allocated to the UK companies involved in the game’s development. Seven active companies based in the UK, using the Take-Two and Rockstar names, declared a total profit before tax of £47.3m in the UK between 2013 and 2018. However, over the same period we estimated the operating profit of games published by Rockstar to be in the region of $5bn.

Despite the minimal allocation of profits to the UK, Take Two interactive placed a substantial amount of value on the work of Rockstar employees, including those based in the UK. These key employees were given the rights to substantial amounts of the profit generated by the company in relation to games released under the Rockstar label.

It is our opinion that a more appropriate allocation of profit between the US and UK would have resulted in substantially more profit being allocated to the UK. This would have meant that Rockstar North would not be eligible for a payable tax credit. Instead, Take-Two and the Rockstar companies should have had a substantial tax liability in the UK.

It would be interesting to see data on the supposed overall economic benefit of having the development of Grand Theft Auto in the United Kingdom; although I take that type of data with a “grain of salt.”  Part of the conclusion of the Report states: 

Take-Two appears to believe that it is reasonable that close to 100% of the profit should flow to their US based parent companies and senior management, whilst almost no profit flows back to the UK companies involved in either making or selling the game. We do not believe that this division of profits can be justified under the so-called “arm’s length” standard found in international tax law.

There is no evidence that HMRC have challenged this set-up or that Take-Two or any of the individuals named in this report has acted illegally. However, it is open for HMRC to challenge the allocation of profit under the transfer pricing system and we urge them to investigate this case urgently.

My understanding is that some prominent video game makers suffered a stock price drop soon after President Trump's criticism of violent video games.  The full Report is available, here.  (Hat tip to George Turner)

Mayer Brown Cybersecurity and Data Privacy Report

The law firm of Mayer Brown has published its 2019 Outlook: Cybersecurity and Data Privacy Report.  The 20 page Report warns that cybersecurity breaches are likely to increase in 2019.  Helpfully, the Report provides an overview of numerous new and potentially forthcoming regulatory changes in the United States and other countries.  For example, the Report covers U.S. Department of Transportation and Federal Drug Administration regulation.  The Report also raises the National Association of Insurance Commissioners model data security law that was adopted by the state of South Carolina, Ohio and Michigan.  The Report also covers some potential differences in law across countries such as maintaining privilege and preserving documents in anticipation of litigation.  On trade secrets, the Report notes:

Trade Secret Theft. Companies should expect the current Administration to remain focused on the threat to American economic prosperity and national security posed by economic espionage in 2019. In 2015, China and the United States publicly committed to not engage in the cyber-enabled theft of intellectual property for commercial gain. Recent statements from senior administration officials and high-profile indictments brought by the Department of Justice indicate the view of some leading government officials that China has failed to adhere to that commitment. For example, the Department of Justice indicted two Chinese nationals associated with the Chinese Ministry of State Security of numerous hacking offensives associated with a global campaign to steal sensitive business information. Congress is also likely to consider legislative responses to trade secret theft and economic espionage. These actions suggest that 2019 is likely to see further disputes with China over cyber theft of trade secrets. Companies—especially those in industries that have previously been targeted by espionage campaigns— are likely to benefit from tracking developments in this space.

President Trump noted that he is continuing to push China on cybersecurity issues concerning trade secret theft in his recent State of the Union address:

We are now making it clear to China that after years of targeting our industries, and stealing our intellectual property, the theft of American jobs and wealth has come to an end.

Therefore, we recently imposed tariffs on $250 billion of Chinese goods -- and now our Treasury is receiving billions of dollars a month from a country that never gave us a dime. But I don't blame China for taking advantage of us -- I blame our leaders and representatives for allowing this travesty to happen. I have great respect for President Xi, and we are now working on a new trade deal with China. But it must include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs.

Mayer Brown has also issued a discussion of the European Union Agency for Network and Information Security ("ENISA") 2018 Threat Landscape Report. 

Trump Requests Comments for Joint Strategic Plan on IP Enforcement

The President Trump's U.S. Office of Management and Budget has released a Federal Register request for comments from the public to help develop the U.S. 3-year Joint Strategic Plan on Intellectual Property Enforcement.  A summary of the request states:

The Federal Government is starting the process to develop a new 3-year Joint Strategic Plan on Intellectual Property Enforcement. By committing to common goals, the U.S. Government will more effectively and efficiently promote and protect our intellectual property. In this request for comments, the Executive Office of the President (``EOP''), Office of the U.S. Intellectual Property Enforcement Coordinator invites public input and participation in shaping the Administration's intellectual property enforcement strategy. The Office of the U.S. Intellectual Property Enforcement Coordinator (``IPEC'') is charged with developing, with certain Federal departments and agencies, the Administration's Joint Strategic Plan on Intellectual Property Enforcement for submission to Congress every three years. The previous 3-year Joint Strategic Plans were issued in 2010, 2013, and 2016. To assist IPEC and Federal agencies in our preparation of the fourth 3-year plan, IPEC requests input and recommendations from the public for improving the U.S. Government's intellectual property enforcement efforts, along the lines of this Administration's four-part strategic approach, described in greater detail below.

The prior 3-year joint strategic plan can be found, here.  We previously discussed the 2013 plan, here.  The complete Federal Register request can be found, here. 

Trump Administration FDA Moves to Speed Up Biosimilar Process in United States

The high cost of health care in the United States is a significant issue.  Some research points to two causes of the high cost in the United States: 1) high pharmaceutical cost; and 2) high wages for health care workers.

Notably, two pharmaceutical companies, Novartis and Pfizer, recently announced that they would not implement pharmaceutical price increases on certain drugs.  This is apparently from pressure from the Trump Administration.  

The Commissioner of Trump's Food and Drug Administration, Scott Gottlieb, MD, recently released comments concerning pricing reform for a Brookings Institution discussion on pharmaceuticals.  His comments define the problem with rising drug costs by placing a focus on biologics and the very slow movement in the United States for biosimilars to reach the marketplace.  His comments further explain how improving competition can lead to decreased prices and savings for the United States.  He details some solutions to the problems, including increased cooperation with regulators outside the United States to speed up biosimilar approval.  He further points to how intellectual property tactics taken by biologic owners are slowing down the process for biosimilars to reach consumers and how the FDA plans to work with the Federal Trade Commission to address these tactics.  Here is an excerpt of his comments:

While less than 2 percent of Americans use biologics, they represent 40 percent of total spending on prescription drugs.

So, enabling a path to competition for biologics from biosimilars is a key to reducing costs and to facilitating more innovation.

By enabling a path for competition from biosimilars, we also give innovators an added incentive to invest in further research that’ll lead to the discovery of even better drugs that deliver additional benefits for patients.

At the FDA, we’re focused on advancing policies that make the process for developing biosimilars more efficient.

To achieve these goals, I’m pleased to announce today that we’re releasing our Biosimilars Action Plan. This plan is an important piece of the Administration’s bold Blueprint to Lower Drug Prices and demonstrates the progress being made against the deliverables the President laid out.

Our plan is aimed at promoting competition and affordability across the market for biologics and biosimilar products. Before I focus on some of the details, I’d like to talk about some of the broader goals we’re focused on.

. . .

Biologics represent 70 percent of the growth in drug spending from 2010 to 2015. And they’re forecasted to be the fastest growing segment of drug spending in the coming years.

To make sure that the next generation of breakthroughs remains affordable, it requires vibrant competition from biosimilars. But it also means that we must consider new payment approaches. Models that allow us to take advantage of the competition that biosimilars offer.

Our current payment system, which reimburses drugs based on their average sales price, was designed in a single-source world. It was a market of biologics where there was typically only one drug in a category. And there wasn’t a lot of therapeutic variety or competition.

At the time, there was only one EGFR inhibitor on the market, and just one VEG-F inhibitor. I was there when this system was designed and implemented. And I can tell you many of us didn’t envision a world where there’d be so much competition in these therapeutic categories.

So a system was designed that accepted the fact that government programs, like Medicare, would be price takers.

We didn’t have the advantage of drug competition to enable the development of formularies, bidding and market-based negotiations like we have under Part D prescription drug plans.

So the system we designed—using the average sales price as a benchmark for reimbursement—was designed to help make sure that drug makers wouldn’t be able to take big price increases once the drugs reached the market. But it wasn’t a system designed to take advantage of price competition. Because we didn’t foresee that there would be multiple drugs in these different categories.

                . . .

While the FDA has approved 11 biosimilars through 2018, only three are now marketed in the U.S.

Competition is, for the most part, anemic.

It’s anemic because consolidation across the supply chain has made it more attractive for manufacturers, Pharmacy Benefit Managers, Group Purchasing Organizations and distributors to split monopoly profits through lucrative volume-based rebates on reference biologics—or on bundles of biologics and other products—rather than embrace biosimilar competition and lower prices.

It’s anemic because litigation has delayed market access for biosimilar products that are, or shortly will be, available in markets outside the U.S. several years before they’ll be available to patients here. These delays can come with enormous costs for patients and payors.

Let me give you one measure of those costs.

At the FDA, we did an analysis of biosimilar competition across all Organisation for Economic Co-operation and Development (OECD) markets. We looked at what would have happened if all the biosimilars that the FDA approved in the U.S. were successfully marketed here in a timely fashion.

We’ll release the full details on this analysis soon. But I want to give you a sense today of what we found.

To measure the potential impact of this biosimilar competition, we assumed that the savings achieved in the U.S., in terms of price discounts, would have been on par with the experience enjoyed in the other OECD nations.

Based on these assumptions, our analysis showed that if Americans had the opportunity to purchase successfully marketed, FDA-approved biosimilar prescription drugs, they could have saved more than $4.5 billion in 2017.

These are large savings. They’re about half of the nearly $9 billion in total savings in 2017 from all of the 2017 generic drug approvals, according to earlier FDA work.

This analysis assumes that all of the biosimilars that the FDA approved were successfully marketed.

But we know that’s not the case. We know that litigation blocked a lot of these launches. Yet our study found that entry of a single biosimilar product in non-U.S. OECD markets lowers prices relative to the reference product by 30 percent; markets with three to four biosimilar entrants have prices 35 to 43 percent lower than their reference biologics.

Our savings estimate doesn’t include additional potential savings from biosimilars approved in 2018. Estimated savings would therefore be significantly greater than $4.5 billion if these additional FDA-approved biosimilars were also marketed at or near the time of their approval.

Biologic manufacturers have a right to defend their legitimate intellectual property interests. And we want them to continue to offer the benefits of improved versions of originator biologics. These benefits might include biologics that target disease in new ways, such as delivering a toxic payload directly to cancer cells, or biologics that target multiple targets of disease at the same time.

. . .

But rebating schemes or patent thickets that are purely designed to deter the entry of approved biosimilars are spoiling this sort of competition. Long-dated contracts are another toxin. The branded drug makers thwart competition by dangling big rebates to lock up payors in multi-year contracts right on the eve of biosimilar entry.

We’re also concerned that volume-based rebates may encourage dysfunctional clinical treatment pathways. We’ve heard from multiple sources that some payors are requiring step-therapy or prior authorization on the reference biologic before patients can access a biosimilar. We see no clinical rationale for these practices, since a biosimilar must demonstrate, among other things, that it has no clinically meaningful differences from the reference product as a part of demonstrating biosimilarity.

The branded drug industry didn’t build its success by being business naïve. They are smart competitors.

But that doesn’t mean we need to embrace all of these business tactics, or agree that they’re appropriate.

Some of these tactics should be unacceptable to every member of the drug supply chain.

Biosimilars may be relatively new, but manufacturers’ tactics to delay and frustrate Congress’ legislative intent to promote competition in drug pricing date back decades.

These tactics were first honed in battles between branded companies and manufacturers of small molecule generics after the passage of the Hatch Waxman Act in 1984.

And these battles played out for a time. But ultimately competition prevailed, and so did the benefits of generics.

In 1983, generic drugs accounted for only 13 percent of U.S. prescriptions. Today, in 2018, it’s 90 percent. And generics can cost 75 to 90 percent less than their branded competitors.

Robust competition has led to generic drug prices that are often less expensive here in the U.S. than in other developed markets in Europe and Asia. The Association for Accessible Medicines, a trade group that represents generic drug makers, estimates that generic medicines have saved the U.S. well over $1 trillion over the last decade.

The generics market that we see today, while not perfect, is robust in most respects. But it took about two decades to develop. It took a long time for providers to grow comfortable prescribing generics and patients to be confident in taking them. It took a long time to work through legal tactics that were put in the way of competition. It took a long time for the coverage systems to be changed to take brisk advantage of generic entry.

Sometimes it feels as if we’re seeing the biosimilars version of “Groundhog Day,” with brand drug makers replaying many of the same tactics, and all of us being too susceptible to many of the same misconceptions about biosimilars’ safety and efficacy relative to originator biologics.

We’re falling into some of the same doubts and policy constraints that were used to deter competition from generics in the years after the Hatch Waxman Act.

But we’re not going to play regulatory whack-a-mole with companies trying to unfairly delay or derail the entry of biosimilar competitors. We’re not going to wait a decade or more for robust biosimilar competition to emerge.

Expanding access to affordable biosimilars, and slowing the rise of health care inflation, is an even more critical issue today than it was in 1984. The higher costs, and longer timelines, required to develop biosimilars relative to generics means that these delaying tactics can make it uneconomical for biosimilar sponsors to postpone entry for extended periods of time. I’m worried that the biosimilar manufacturers may pull out of these endeavors altogether if the brand drug makers are able to lock up markets even in cases where there’s a fully interchangeable competitor.

Ultimately, this behavior is also putting innovative drug development at risk by eroding public confidence in market-based pricing mechanisms. Too many people now are shooting at the branded drug makers. And the shrapnel isn’t just going to tear apart the gaming tactics that we might agree are gratuitous and ill conceived.

I’m worried that the shrapnel could also fray the fragile market-based rewards that support new innovation.

Our Biosimilars Action Plan applies many of the lessons learned from our experience with generic drugs to accelerate biosimilar competition with four key strategies.

First, improving the efficiency of the biosimilar and interchangeable product development and approval process.

Second, maximizing scientific and regulatory clarity for the biosimilar product development community.

Third, developing effective communications to improve understanding of biosimilars among patients, providers and payors.

And fourth, supporting market competition by reducing gaming of FDA requirements or other attempts to unfairly delay market competition to follow-on products.

I don’t want to get into the details of the entire plan in my remarks today. We’ve issued a plan that lays out all of the discrete elements of our approach.

But I want to highlight a few key actions that we’re taking.

I believe some of these actions can be transformative for sponsors’ ability to bring high quality biosimilars to market.

As part of this effort, the FDA is seeking to strengthen its partnerships with regulatory authorities in Europe, Japan and Canada. Such partnerships can enable greater efficiency in developing safe and effective biosimilars.

For example, we’re actively exploring whether data sharing agreements could give us better insights into biosimilars’ real-world safety and efficacy and, in some circumstances, facilitate the increased use of non-U.S.-licensed comparator products in certain studies to support an application under Section 351(k).

We know that when those developing biosimilars use biologics sourced ex-U.S. as their comparator product, it can lower the cost of clinical studies since many of these products can be procured more easily, and cheaply, in European and Asian markets.

We’ll also be updating the Purple Book and evaluate how we can incorporate additional information into that resource to give product developers more transparency.

And we’re also taking new steps to make the biosimilar development process more efficient.

. . .

Today, the FDA issued its final guidance on biosimilar labeling. The FDA wants to make sure that biosimilar products have labeling that allows health care practitioners to make informed prescribing decisions for their patients. Our guidance gives recommendations to applicants on how to prepare this labeling for review by the FDA.

We’re also going to be updating guidance to provide additional clarity on how biosimilar manufacturers can carve out indications from their labels where a branded drug maker might still maintain some IP. And we’re going to describe how these indications can be efficiently added into a biosimilar label once that IP on the branded alternative has lapsed.

We are also currently developing and implementing new FDA review tools, such as standardized review templates, that are tailored to applications for biosimilar and interchangeable products. We’ve already adopted similar approaches when it comes to generic drugs. These templates will improve the efficiency of the FDA’s review.

We’re also developing an index of biosimilars’ critical quality attributes relative to their reference products.

Such an index can allow sponsors to better understand how the FDA evaluates data from comparative analytical studies performed to support a demonstration of biosimilarity, and how to use suitable analytical methods.

And we’re going to be taking new steps to challenge some of the gaming tactics I talked about earlier. This includes new efforts to coordinate with the Federal Trade Commission (FTC) to address anti-competitive behavior.

A video of the Brookings Institution talk along with panelist responses can be found, here. 

Trump Administration Releases Annual IP Report to Congress

The White House U.S. Intellectual Property Enforcement Coordinator has released its Annual Intellectual Property Report (Report) to Congress (around 170 pages!).  The Report outlines the Trump Administration’s approach to intellectual property policy and provides information concerning the activity of the various agencies in the U.S. government with duties related to intellectual property.  The bulk of the Report includes appendices which are descriptions of the work of each agency concerning intellectual property over the last year or so. 

The general thrust of the Trump Administration’s approach to intellectual property is stated by a President Trump quote:

“We will safeguard the copyrights, patents, trademarks, trade secrets, and other intellectual property that is so vital to our security and to our prosperity. We will uphold our values, we will defend our workers, and we will protect the innovations, creations, and inventions that power our magnificent country.” 

The Report outlines the Administration’s four-part strategic approach, which includes: 

• engagement with our trading partners; • effective use of all our legal authorities, including our trade tools; • expanded law enforcement action and cooperation, and • engagement and partnership with the private sector and other stakeholders.

Under the first strategic approach, the Report outlines various initiatives and activities across different agencies to engage and educate trading partners, including the USPTO’s Global Intellectual Property Academy.  Under the second strategic approach, the Report notes that the Trump Administration will strengthen the Committee on Foreign Investment in the United States as well as utilize the WTO Dispute Settlement process.  On the third strategic approach, the Report notes:

 At the end of FY 2017, the FBI had 228 pending IPR investigations. The largest number of investigations deal with the theft of trade secrets (79), copyright infringement (79),31 and trademark infringement (64).32 During FY 2017, the FBI initiated 44 new investigations, made 31 arrests, got 23 convictions, and had seizures totaling $750,205, forfeitures totaling $86,949, restitution totaling $53,396,003, and FIRE (Frozen, Indicted, Restrained, Encumbered) totaling $750,000. 

In FY 2017, the number of CBP and HSI IPR seizures increased more than eight percent, to 34,143 (from 31,560 in FY 2016). The total estimated Manufacturer’s Suggested Retail Price (MSRP) of the seized goods, had they been genuine, was $1,206,382,219.

In FY 2017, ICE-HSI initiated 713 intellectual property investigations and had 457 arrests, 288 indictments, and 240 convictions.

In FY 2017, the IPR Center vetted 27,856 investigative leads; of these 16,030 were referred to law enforcement partners. Additionally, the IPR center de-conflicted 4,750 investigative targets for partner agencies and industry. While performing these de-conflictions, the IPR Center identified 321 situations where two or more entities were investigating the same target. Finally, the IPR Center referred 959 leads to private industry for follow-up.  . . .

U.S. law enforcement and Federal agencies participated in Operation Pangea X, which was conducted from August 19, 2017 to September 19, 2017, with the participation of 123 countries, and culminated with a week of action, where participating countries and agencies conducted and/or reported the results of their respective operations. U.S. and Mexican authorities typically participate in Pangea independent of each other. However, in FY 2017, ICE-HSI, CBP, and Mexico collaborated during the U.S. operational phase of this operation. On September 25, 2017, INTERPOL issued a press release highlighting the results of Operation Pangea X, which resulted in 3,584 websites taken off-line, 400 arrests worldwide, and the seizure of 470,000 packages with an estimated value of $51 million in potentially dangerous medicine.

The IPR Center’s Operation Apothecary addresses, analyzes, and attacks potential vulnerabilities in the entry process that might allow for the Internet-facilitated smuggling of commercial quantities of counterfeit, unapproved, and/or adulterated drugs through international mail facilities, express courier hubs, and land borders. During FY 2017, Operation Apothecary resulted in 59 new cases, 38 arrests, 37 indictments, and 41 convictions, as well as 567 seizure incidents of counterfeit items.

On standard setting, the Report notes:

Standards Setting: Many of America’s economic competitors engage strategically in standards setting organizations (SSOs), often to the detriment of American innovators. As the Administration and American industry engage with SSOs, it will be important to ensure that SSOs are being used fairly to promote the adoption of new technologies, rather than impeding the ability for American innovators to continue creating and inventing.  And as SSOs promote the adoption of new technologies, such technologies should be available to industry under fair, reasonable and non-discriminatory terms.

White House Releases Memorandum on Actions against China

President Trump has released his directions to the United States Trade Representative concerning China.  In the Presidential Memorandum on the Actions by the United States related to the 301 Investigation, the President states:

First, China uses foreign ownership restrictions, including joint venture requirements, equity limitations, and other investment restrictions, to require or pressure technology transfer from U.S. companies to Chinese entities.  China also uses administrative review and licensing procedures to require or pressure technology transfer, which, inter alia, undermines the value of U.S. investments and technology and weakens the global competitiveness of U.S. firms.

Second, China imposes substantial restrictions on, and intervenes in, U.S. firms’ investments and activities, including through restrictions on technology licensing terms.  These restrictions deprive U.S. technology owners of the ability to bargain and set market-based terms for technology transfer.  As a result, U.S. companies seeking to license technologies must do so on terms that unfairly favor Chinese recipients.

Third, China directs and facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and to generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.

Fourth, China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies.  These actions provide the Chinese government with unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications, and they also support China’s strategic development goals, including its science and technology advancement, military modernization, and economic development.

It is hereby directed as follows:

Section 1.  Tariffs.  (a)  The Trade Representative should take all appropriate action under section 301 of the Act (19 U.S.C. 2411) to address the acts, policies, and practices of China that are unreasonable or discriminatory and that burden or restrict U.S. commerce.  The Trade Representative shall consider whether such action should include increased tariffs on goods from China.

(b)  To advance the purposes of subsection (a) of this section, the Trade Representative shall publish a proposed list of products and any intended tariff increases within 15 days of the date of this memorandum.  After a period of notice and comment in accordance with section 304(b) of the Act (19 U.S.C. 2414(b)), and after consultation with appropriate agencies and committees, the Trade Representative shall, as appropriate and consistent with law, publish a final list of products and tariff increases, if any, and implement any such tariffs.

Sec. 2.  WTO Dispute Settlement.  (a)  The Trade Representative shall, as appropriate and consistent with law, pursue dispute settlement in the World Trade Organization (WTO) to address China’s discriminatory licensing practices.  Where appropriate and consistent with law, the Trade Representative should pursue this action in cooperation with other WTO members to address China’s unfair trade practices.

(b)  Within 60 days of the date of this memorandum, the Trade Representative shall report to me his progress under subsection (a) of this section.

Sec. 3.  Investment Restrictions.  (a)  The Secretary of the Treasury (Secretary), in consultation with other senior executive branch officials the Secretary deems appropriate, shall propose executive branch action, as appropriate and consistent with law, and using any available statutory authority, to address concerns about investment in the United States directed or facilitated by China in industries or technologies deemed important to the United States.

(b)  Within 60 days of the date of this memorandum, the Secretary shall report to me his progress under subsection (a) of this section.

News agencies are reporting that tariffs will be assessed on around $50 billion of Chinese imports, here and here.  CNN reports that the U.S. companies that stand to lose in a U.S./China trade war include Intel, 3M, Boeing, Apple and others.  However, there is the question of how much those companies are losing because of intellectual property theft that may be supporting competitors based on stolen intellectual property in markets outside of China. 

Trump White House Releases Biopharmaceutical Pricing Reform White Paper

The White House Council of Economic Advisers recently released a report titled, “Reforming Biopharmaceutical Pricing at Home and Abroad.” [Report]  The Report points to basically two problems: 1) overpricing in the United States; and 2) underpaying outside the United States.  The Report states:

U.S. patients and taxpayers alike have mainly financed the returns on R&D investments to innovators. Unlike other developed countries with single payer systems, which nearly all impose some sort of price controls on pharmaceuticals, the U.S. drug market is less financed by the public sector and more open to private market forces. In a free market, prices of products reflect their value as opposed to prices in government-controlled markets, which reflect political tradeoffs. CEA estimates that because of the American market system, more than 70 percent of OECD patented pharmaceutical profits come from sales to U.S. patients even though the United States only represents 34 percent of OECD GDP at Purchasing Power Parity (OECD 2016). Thus, innovators across the world rely heavily on Americans paying market prices to underwrite the returns on investments into products that improve their health because governments abroad use their monopsony power to set prices below market-levels. The United States both conducts and finances much of the biopharmaceutical innovation that the world depends on, allowing foreign governments to enjoy bargain prices for such innovations. This indicates that our current policies are neither wise nor just.  Simply put, other nations are free-riding, or taking unfair advantage of the United States’ progress in this area. In addition, prices paid by Americans for many drugs are too high, particularly so when paid for in government programs. This is the result of poorly designed reimbursement policies and regulations that inhibit price competition, and it is therefore a poor use of taxpayer money. 

The Report further notes that, “The U.S. market makes up 46 percent of OECD sales of brand name innovative drugs, funds about 44 percent of world medical R&D, invests 75 percent of global medical venture capital, and holds the intellectual property rights for most new medicines (BMI 2017; Moses et al. 2015; TEC 2017). Furthermore, publicly funded medical research in the United States has produced two-thirds of the top-cited medical articles in 2009, underlying the university research that often leads to medical breakthroughs (Moses et al. 2015).”

The Report points to issues regarding Medicaid, including opportunity for pharmaceutical companies to game and artificially raise prices.  The Report further provides suggestions concerning Medicare as well as the Pharmacy Benefit Manager Market.  Notably, the Report fails to address biosimilars in very much detail, but notes that there may be two more years before final regulations concerning interchangeability are issued.  This delay is raised as a potential reason why interchangeability approval may be slow.

This Report could drive the Trump Administration's approach to dealing with the high cost of health care.  

China Changes Policy on Transfer of Technology for Market Access?

As previously discussed, China has been criticized for outright theft of trade secrets as well as requiring the disclosure of trade secrets to do business in China.  Keith Zhai, Bloomberg Technology, has reported in an article, “China Says Foreign Firms won’t be Forced to Turn Over Technology,” that a senior Chinese official has stated that market access in China will not require disclosure of trade secrets.  Notably, the article also states that China “pledged . . . to treat all companies equally" and the timing of the announcement came “close in time” to Trump’s exit from China.  It will be interesting to see if there are meaningful changes. 

China's Move Toward More Enforcement of IP

As China continues to work toward a services/innovation based economy, China has made several efforts to improve intellectual property enforcement.  Professor V.K. Unni of the Indian Institute of Management of Calcutta has authored a short, concise and interesting paper concerning intellectual property courts and enforcement in China, titled, Specialized Intellectual Property Enforcement in China: Implications for Indian Companies” in LiveLaw.in.  Professor V.K. Unni notes that, in addition to the IP specialized courts in Beijing, Shanghai and Guangzhou, China is creating “four new specialized IP Tribunals in Nanjing, Suzhou, Chengdu and Wuhan.”  He states that these tribunals will have jurisdiction that is regional and will extend beyond city limits.  Notably, he speculates that China may create a “national” appeals court similar to U.S. Court of Appeals for the Federal Circuit.  Professor V.K. Unni also states that: “It has been reported that during 2015 in the 63 IP disputes filed with the Beijing IP Court where foreigners were complainants, all the cases were won by foreigners.”  Notably, this progress is followed by the recent decisions concerning New Balance and Michael Jordan.

As reported by Bloomberg, China's Ministry of Commerce responded to Trump's action recently by stating that the U.S. should "cherish" its relationship with China and not harm the "business interests" of both countries' companies.   

The World Turns on IP: Trump, China and New Balance

As the world turns on intellectual property, Trump has refocused efforts on China and intellectual property.  He apparently leaned off China supposedly because of concerns with obtaining China’s help with North Korea.  Now he’s apparently back on track.  Interestingly, The New York Times has recently published a strongly worded Op-Ed by Dennis C. Blair (“former director of national intelligence and a former commander in chief of the United States Pacific Command”) and Keith Alexander (“former commander of the United States Cyber Command and a former director of the National Security Agency”) titled, “China’s Intellectual Property Theft Must Stop.”  The Op-Ed is strong endorsement for Trump’s focus on China’s asserted intellectual property theft.  The Op-Ed states in part:

Chinese companies, with the encouragement of official Chinese policy and often the active participation of government personnel, have been pillaging the intellectual property of American companies. All together, intellectual-property theft costs America up to $600 billion a year, the greatest transfer of wealth in history. China accounts for most of that loss.

Intellectual-property theft covers a wide spectrum: counterfeiting American fashion designs, pirating movies and video games, patent infringement and stealing proprietary technology and software. This assault saps economic growth, costs Americans jobs, weakens our military capability and undercuts a key American competitive advantage — innovation.

Chinese companies have stolen trade secrets from virtually every sector of the American economy: automobiles, auto tires, aviation, chemicals, consumer electronics, electronic trading, industrial software, biotech and pharmaceuticals. Last year U.S. Steel accused Chinese hackers of stealing trade secrets related to the production of lightweight steel, then turning them over to Chinese steel makers.

Perhaps most concerning, China has targeted the American defense industrial base. Chinese spies have gone after private defense contractors and subcontractors, national laboratories, public research universities, think tanks and the American government itself. Chinese agents have gone after the United States’ most significant weapons, such as the F-35 Lightning, the Aegis Combat System and the Patriot missile system; illegally exported unmanned underwater vehicles and thermal-imaging cameras; and stolen documents related to the B-52 bomber, the Delta IV rocket, the F-15 fighter and even the Space Shuttle.

Citation to data backing up the claims in the Op-Ed would be helpful.  It is important to remember though that back in 2015, the New York Times published another article concerning China’s new antiterrorism rules for various foreign companies doing business in China.  The upshot of the rules basically required access to computer source code as a condition to doing business in China.  Industry was objecting at that time for several reasons, including national security as well as intellectual property.  It looks like that problem has not gone away. 

On a positive note, reports from China seem to indicate an uptick in enforcement for intellectual property law theft.  I’ve heard some say this is part of China’s transition to an innovation/services based economy and that they are hard at work at changing beliefs concerning intellectual property.  Notably, New Balance recently received a $1.5 million award concerning trademark infringement from a Chinese company in Suzhou.  This is reportedly the largest award by a Chinese court against a Chinese company in favor of a foreign company.  This award follows the recent decision favoring Michael Jordan and another $500,000 award in Hangzhou concerning New Balance. 

The PTAB Ruining the American Dream (?)

The BBC has a wonderful video of a “patent burning” outside the United States Patent and Trademark Office.  Who is burning patents?  American inventors who are protesting the Patent Trial and Appeal Board (PTAB), once called the, “Patent Death Squad,” by former Chief Judge Randall Rader.  The inventors are upset that the PTAB is killing the American Dream and are making an appeal to President Trump to overturn the Obama Administration’s creation.  (Yes, it is the PTAB not skyrocketing home ownership costs that is ruining the American dream.  I guess that bubble will pass as well.) 

This is a nice angle to take since getting the U.S. Supreme Court to overturn itself is much more difficult.  I wonder how attempts to overturn Alice legislatively are doing in Congress. 

Trump Administration Suspends Program for Visas for Entrepreneurs

The Trump Administration suspended an Obama Administration program about to go in effect that would provide visas to entrepreneur immigrants.  According to the Wharton School of Business, the program would help create jobs in the United States and had little downside.  The program is apparently similar to others created in Canada, France and Argentina.  Notably, the Trump Administration is supporting new legislation to radically reform the immigration system in the United States by moving to a supposed “merit” based system designed to reduce immigration by 50%.  The Wharton School of Business states:

Immigrants make up about 12% of the U.S. working population, [Hsu] added. Among STEM (science, technology, engineering and math) workers, immigrants make up 24% of bachelors and 47% of doctorates, he continued. “So [immigrant entrepreneurs] are punching above their weight in the talent pool for the workforce that we desire in the U.S.,” he said. He pointed to one much-cited statistic: foreign-born entrepreneurs make up about half the founders in the so-called “billion dollar club” of startups that are worth at least a billion dollars each. 

In an Op-Ed in Crain’s New York Business, Orin Herskowitz, the Senior Vice President of Intellectual Property and Technology Transfer of Columbia University and President of Columbia Technology Ventures, states that:

The rule, one of President Barack Obama’s final acts in office, provides so-called “startup visas” long sought by Silicon Valley. It is narrow, allowing foreign entrepreneurs to live in the United States for 30 months while building their companies. To qualify, applicants must show that they have reputable investment in their company of no less than $250,000 and the potential for a positive impact on economic growth and job creation. The rule has now been delayed until next March, and the Department of Homeland Security has given notice that the administration will propose rescinding the program before then. . . .

There are other storm clouds on the horizon. The president’s proposed budget reduces funding for basic science. And the legal playing field is beginning to tilt against innovators, most dramatically through a retreat from the respect for patent protection recognized by our Constitution more than two centuries ago as a bulwark of our economy. The former director of the U.S. Patent and Trademark Office, David Kappos, points out that a series of court decisions have rendered many biotech and software inventions un-patentable or at best uncertain in the U.S., causing the abandonment of promising research, or the repositioning of that research overseas to China, where affirmative steps have been taken to strengthen patent protection.

[Hat tip to Technology Transfer Central for the lead to the articles.] 

Trump Proposes to Cut Government Funding for Research

CNN recently reported on President Trump’s proposed budget and noted serious cuts to government funding for research.  Specifically, the article states:

The National Institutes of Health budget would be cut by $5.8 billion, meaning it would lose about 20%. The Environmental Protection Agency would face $2.6 billion in cuts, that's 31% of the agency's budget. The Department of Energy would lose $900 million, or about 20% of its budget. Health and Human Services would see a $15.1 billion or 18% budget cut; as part of that, it shifts costs to industry from the Food and Drug Administration budget. The National Oceanic and Atmospheric Administration would face an 18% budget cut.

As the article describes, a number of groups have criticized the proposed budget.  A recent Denver Post opinion piece by Noah Smith, a Bloomberg commentator, notes that the U.S. innovation system works well because we actually have a “pipeline” of new discoveries running to commercialized inventions.  Smith states that Trump is cutting off the new discoveries and essentially putting the U.S. at a disadvantage.  As this blog has noted, the Obama Administration basically kept funding for research almost level, but the budget was decreasing in terms of real dollars.  This was considered bad.  If we actually cut at the levels Trump wants to cut, we will be in a much worse position.  As Smith notes, the rust belt has somewhat been revitalized by biotech and cutting the NIH budget will retard the growth of one of the United States’ most promising industries. 

Importantly, Congress must pass the budget.  And, if my memory serves me correctly, President George W. Bush also proposed to cut government funding for research at the outset of his presidency and later retracted that proposal.  I imagine that someone explained to the Bush Administration how important government funding for research is for industry and the U.S. economy—hopefully that will happen for the Trump Administration.