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Is it Worth it for Generics to Challenge Patented Drugs. Copyright © Building Biotechnology

Is it Worth it for Generics to Challenge Patented Drugs? Copyright © Building Biotechnology

The FTC is reportedly seeking $1 billion from pharmaceutical companies for the role in paying generic companies not to challenge their patents. Despite first appearances, these agreements for a generic company not to challenge a patent, called ‘reverse settlements’, may actually be good for innovation.

The rationale for reverse settlements is discussed in my textbook, Building Biotechnology, and the box “Is it worth it for generics to challenge patented drugs?” summarizes some of the financial considerations behind patent challenge.

Is it too Easy to Challenge a Patent?

Consider the case of Abilify, which had sales in excess of $6 billion last year. Under provisions the Hatch-Waxman Act, the first generic challenger to defeat a patent on a drug is eligible for 180 days of generic exclusivity. In this period, the generic tends to sell for roughly 80% of the price of the branded drug, due to there being no other alternatives.

So, the math for a generic company is pretty clear. In an ideal case, on winning a patent challenge, the generic would get 80% of the revenues (due to the lower sale price) of half the market share of the patented drug for six months, or roughly $2.4 billion dollars (I realize the math is very rough here, but it’s simply to illustrate a point). The cost of litigation may be roughly $10 million dollars (AIPLA Economic Survey). And there are stage-gates along the litigation path that enable a patent challenger to limit their legal expenses, meaning they can ‘test’ their patent challenge before committing to the full amount.

The potential for generic challengers to obtain a better-than 100-fold return-on-investment on patent litigation creates the potential for innovative firms to become mired in potentially frivolous patent litigation. While the cost for each challenger may be $10 million dollars, the innovator could face dozens of lawsuits and therefore face substantial budget drains to reactive patent protection, which would limit their ability to invest in new drug development. Accordingly, innovative firms have been paying generic companies not to challenge their drugs. This effectively changes the financial incentives for the generics. If they feel that they have a particularly strong case, then they should certainly go ahead and challenge a patent to obtain their 100-fold ROI. But if they feel that there is a chance they will not win the challenge, then obtaining a financial settlement to withdraw their challenge may be preferable.

But isn’t this anti-competitive and monopolistic behavior?

Perhaps, but consider that patents themselves are essentially tools that create temporary monopolies. The reason why the government provides these temporary monopolies is to incentivize innovation. To quote Building Biotechnology once more:

…patents provide a means by which the public can gain valuable cutting-edge scientific knowledge and abilities in exchange for a temporary grant of monopoly, which allows innovators to recoup their investments in research and development.

So, while reverse settlements, and patents, may negatively impact competition in the near-term, they are part of a large scheme which drives long-term innovation by providing temporary benefits to innovators. When these benefits expire, society as a whole wins because the innovations become freely available and normal competition can drive down prices and ensure wide-spread adoption.

What do you think? Is there a case for reverse settlements? Sound off in the comments below.

Journal of Commercial Biotechnology This paper is part of the free Open Access archive of the Journal of Commercial Biotechnology

A maturing industry: Strategic patenting trends, US and academic dominance, and the global biotechnology landscape

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ABSTRACT: Patent analytical data has proved itself a key enabler in measuring the commercial focus and activity taking place within highly research and development (R&D) intensive industries such as biotechnology. Marks & Clerk has assessed biotechnology patent application and grant records from a range of international patent office and proprietary databases, with a view to gauging the industry's commitment to R&D and the particular areas of biotechnology that are attracting investment...

The Journal of Commercial Biotechnology is a unique forum for all those involved in biotechnology commercialization to present, share, and explore new ideas, latest thinking and best practices, making it an indispensable guide for those developing projects and careers within this fast moving field.

Each issue publishes peer-reviewed, authoritative, cutting-edge articles written by the leading practitioners and researchers in the field, addressing topics such as:

  • Management
  • Policy
  • Finance
  • Law
  • Regulation
  • Bioethics

For more information, see the Journal of Commercial Biotechnology website

For those who missed the live presentation, here is the discussion of the 2014 Scientific American Worldview scorecard, featuring myself, Mike May (Worldview Editorial Director), David Brancaccio ( public radio’s Marketplace), and Caroline Rugierri (Access Life Sciences).

Some of the themes we discussed were:

  • Innovation’s true “value proposition” and the ways in which investing in science has multilayered societal returns
  • The biggest issues in biotech that continue to “flatten” the world and create common missions among countries
  • The ever-changing landscape of international innovation and the ways government and industry can best support life science development

I hope you enjoy the preview. You can see past issues of Worldview at www.saworldview.com, and the 2014 issue will be launched at the BIO 2014 convention in San Diego.

2013 and 2014 have been very good for biotechnology public markets. 35 biotechnology companies went public in 2013, and well over a dozen have gone public in the first few months of 2014.

nasdaq-biotech-index-1m

Figure 1: Nasdaq Biotech Index since February 1 2014

With the surge in public launches, one must ask the question: “How long can it last?”

Just a few days ago Barrons’s cautioned about a potential bubble, and as Figure 1 (courtesy of MSN Money) shows, recent drops have effectively wiped out NASDAQ biotechnology industry gains since February 1st of this year.

While this quick rise and fall of value may be sobering, long-term value investors should take some comfort in the bigger picture. The recent IPOs enabled many companies which had been sitting on the sidelines for years to raise public cash and to offer exit opportunities to investors — both of which will support future growth in the sector, and the NASDAQ biotechnology index has generally been on a tear for the past five years (Figure 2).

Nasdaq biotechnology index March 2004 - March 2014

Figure 2: Nasdaq biotechnology index March 2004 – March 2014

So, the short-term question remains — is this a short-term correction, a closing of the IPO window, or the start of a larger correction?

Susan Kling FinstonThis is a guest post from Susan K Finston, President of Finston Consulting. Do you have a response to Susan’s post? Respond in the comments section below.

Have you heard the urban legend about Egypt’s compulsory license for Viagra, following declaration of a national emergency for erectile dysfunction?  Its a whale of a tale, combining crony capitalism, low-quality generics, and a fun therapeutic category.

Just one problem – it never actually happened.

The facts are these:

  • In early October 2002, the New York Times published an article highlighting the recent passage of Egypt’s new intellectual property law, including updated patent law provisions intended to bring Egypt into compliance with its World Trade Organization (WTO) patent obligations by 2005.
  • The same article went on to say that an identified MOH official had issued a statement to the effect that it would soon authorize copy-cat products for Pfizer’s recently approved Viagra, noting that the patent law was not yet in place.
  • As rejoinder, the NYT also quotes Egyptian IP expert (and my friend) Karem el-Helaly, who stated that while the patent amendments were not yet in place, “Viagra is entitled to data exclusivity protection under Egyptian law for five years after its market authorization.”

What does this mean?

There was no pharmaceutical compulsory licensing in Egypt – then or now.

In fact, by mid-2002 Egypt had implemented data exclusivity to protect the commercially valuable clinical dossiers lodged by companies with any application for marketing approval.  The IP Amendments included a number of lacunae and compulsory licensing provisions that gave industry heartburn, to be sure, but were passed more than 3 years ahead of the deadline.

While Egypt’s early implementation of its data protection obligations suffered from occasional  (and not uncommon) backsliding, in this case it turned out the MOH official had spoken out of turn, and was not expressing official Egyptian policy.  Following consultations between the Egyptian Ministry of Commerce, the Pharmaceutical Research & Manufacturers of America (PhRMA), and the two governments, the Government of Egypt renewed its commitment to provide the required  protection for pharmaceutical clinical dossiers.

Recognizing the progress made in Egypt through passage of the IP Amendments in 2002, the PhRMA 2003 “Special 301” submission to the US Trade Representative recommended that Egypt be promoted from the “Special 301” Priority Watch List to the Watch List, and supported continuing U.S. technical assistance to ensure implementation of the patent amendments and full exclusivity for clinical dossiers.

However, the New York Times article spawned an enduring urban legend. The tale of Viagra compulsory licensing has become a world traveler, lately cited in an Indian Op-Ed taking comfort that at least India’s compulsory license issued against Bayer was for Nexavar (cancer therapy) and not for Viagra, like in Egypt.   As Mark Twain wrote, “A lie can travel half way around the world while the truth is putting on its shoes.”

About the author:
President of Finston Consulting LLC since 2005, Susan works with innovative biotechnology and other clients ranging from start-up to Fortune-100, providing support for legal, transactional, policy and “doing business” issues. Susan has extensive background and special expertise relating to intellectual property and knowledge-economy issues in advanced developing countries including India and South Asia, Latin America and the Middle East North Africa (MENA) region. She also works with governments, and NGOs on capacity building and related educational programs through BayhDole25. Together with biotechnology pioneer Ananda Chakrabarty, she also is co-founder of Amrita Therapeutics Ltd., an emerging biopharmaceutical company based in India with cancer peptide drugs entering in vivo research. Previous experience includes 11 years in the U.S Foreign Service with overseas tours in London, Tel Aviv, and Manila and at the Department of State in Washington DC. For more information on latest presentations and publications please visit finstonconsulting.com.

bioentrepreneurship-bootcampThe back-issues of the Journal of Commercial Biotechnology more than five years old are now free. For complete access, see the  archives at http://commercialbiotechnology.com/issue/archive.

The Journal of Commercial Biotechnology, in print since 1994, is the definitive international quarterly publication for bioscience business professionals. The Journal is designed specifically for those professionals who need to enhance their knowledge of biotechnology business strategy and management, improve and advance their product development or want to keep up-to-date with current issues and industry trends. It has been described as a “Harvard Business Review for biotechnology companies.”

Each issue publishes peer-reviewed, authoritative, cutting-edge articles written by the leading practitioners and researchers in the field, addressing topics such as:

  • Management
  • Policy
  • Finance
  • Law
  • Regulation
  • Bioethics

At the time of this posting, volume 15 number 1 and older are free. Check them out at http://commercialbiotechnology.com/issue/archive .

Journal of Commercial Biotechnology This paper is part of the free Open Access archive of the Journal of Commercial Biotechnology

How DanioLabs has evolved its relationship with the CIMR

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ABSTRACT: The commonest interaction of industry with academia is as the passive recipient of intellectual property. A much deeper and productive interaction is possible with the creation of closely knit collaborations. Here the barriers to achieving this and how they may be overcome are explored.

The Journal of Commercial Biotechnology is a unique forum for all those involved in biotechnology commercialization to present, share, and explore new ideas, latest thinking and best practices, making it an indispensable guide for those developing projects and careers within this fast moving field.

Each issue publishes peer-reviewed, authoritative, cutting-edge articles written by the leading practitioners and researchers in the field, addressing topics such as:

  • Management
  • Policy
  • Finance
  • Law
  • Regulation
  • Bioethics

For more information, see the Journal of Commercial Biotechnology website

I have posted a series of free biotechnology training videos at BiotechU.com .

biotechu_white_webThe course is derived from my textbook, Building Biotechnology, and covers the following topics:

  • Biotechnology Industry Introduction
  • The Development of Biotechnology
  • Preface: The Science of Biotechnology
  • Introduction to Molecular Biology
  • Drug Development
  • Tools and Techniques
  • Applications
  • Preface: Laws, Regulations, and Politics
  • Intellectual Property Regulation
  • Politics
  • Preface: The Business of Biotechnology
  • Biotechnology Company Fundamentals
  • Finance
  • Research and Development
  • Marketing
  • Licensing, Alliances, and Mergers
  • Managing Biotechnology
  • International Biotechnology
  • Final Words

I invite you to check out this free resource. Customized onsite bootcamps are also available — contact me for more information.