Patent expiration: Innovate or die
*Pharma is unprepared for the blockbuster patent expirations due over the next few years. Angelo DePalma argues that innovation is the only strategic solution*
By on Feb 3, 2011First, the bad news. Over the next five years, patent exclusivity will expire for drugs with combined annual sales of $140 billion.
Now, the really bad news. The industrystuck in a decades-old model of mergers, acquisitions, and line extensionsmay never, collectively, recoup most of that revenue.
The most straightforward way to avoid the patent cliff is to hold the rights to enough late-stage pipeline compounds to replace aging blockbusters.
During a recent Merck R&D and business briefing, company executives used the word patent or patented eleven times, mostly within the context of expirations.
In each case, the company pointed to one or several pipeline drugs in response to the loss of a patented product.
Close examination of the companys portfolio suggests that Merck will be safe from the worst effects of patent expirations for about a decade.
One area expected to replenish sales losses is biologics.
Peter Kim, executive VP of Merck Research Laboratories, noted that 40 biologics, valued at $60 billion in yearly sales, will lose patent protection by 2015.
Mercks response: Invest $1.5 billion over five years in Merck BioVentures, a new business unit charged with uncovering new and follow-on biologic agents. (For more on biologics, see Forecasting the future of biosimilars.)
Just a handful of companies enjoy Mercks financial resources and depth of intellectual property, particularly after its $41 billion acquisition of Schering-Plough in 2009.
These firms include Pfizer, which last year acquired Wyeth for $68 billion, and Roche, which doled out $47 billion to complete its takeover of Genentech, begun in 1990.
Yet the race to replenish pipelines through acquisitions has not been uniformly successful.
Observers note that acquisitions serve as temporary balms for what really ails big pharma, namely a dearth of innovation.
Consider that, with one exception (caused by a glitch in US regulations), over the last 14 years marketing applications to the US Food and Drug Administration for innovative drugs have been flat.
Financial markets have not favored mergers either, at least on the more modest scale that we have become accustomed to over two decades.
Will the story be different for the recent mega-mergers?
Making a problem twice as big rarely makes it twice as easy to solve.
Softening the impact of patent expiration
Steven Hochhauser, Ph.D., senior consultant for Frost & Sullivans healthcare practice, suggests three strategies for softening the impact of patent expiration.
The most obvious in the US is to obtain an additional six months exclusivity by providing regulators with data on pediatric use.
Astrazenecas Crestor cholesterol-lowering drug, the antidepressant Lexapro from Forrest Labs, and Pfizers Relpax migraine agent are three recent success stories.
This strategy has its limits, though, since the drug should have a legitimate pediatric use.
Moreover, despite the incentive, fewer than half of all drugs are accompanied by pediatric data, most likely due to onerous safety monitoring requirements.
The second tack is to introduce an improvement in the molecule or formulation that justifies issuance of a new patent.
The chiral switch popularized in the 1990s is the most clever of these strategies (e.g., Prilosec to Nexium; Albuterol to Xopenex).
Chiral switches were expected to effect far-ranging safety and efficacy benefits but the data has been mixed at best.
Formulating two drugs together as combination products has been successful as well.
The highest-value products in this categorywhich carry a distinct regulatory designation and whose approval is far from trivialcombine medicines often used together.
Thus salmeterol plus fluticasone equals Advair and formoterol plus budenoside equals Symbicort. Both products treat asthma.
Numerous examples exist of changes to formulation, salt form, dosage form, delivery vehicle, and other characteristics, some significant but many downright trivial.
But when all else fails, Hochhauser advises companies to make the best of a drugs going generic.
Numerous sponsorsfor example, Schering (with Claritin) and Proctor & Gamble (Prilosec)have taken their blockbuster products over-the-counter and re-established the brand name in the consumer marketplace with great success.
Other firms, like Merck and Novartis, have set up their own generic divisions a la Novartis/Lopressor to Sandoz/metoprolol. (For more on generics, see The future of pharma: Get ready for an Asian game changer.)
Leveraging clinical data
The question is whether these strategies provide sufficient revenue to sponsors, or enough perceived value to consumers, to justify the significant pricing premium their success demands.
In the US, branded over-the-counter (OTC) medicines cost up to four to five times as much as unbranded competitors.
Brand loyalty is one thing; paying $20 for a drug whose generic competitor sells for $4.99 is quite another.
One can ask the same question, with respect now to pharmacy benefit plans (or national payers), regarding the more esoteric strategies, like combination products and chiral switches.
With the former, the acceptable price point equals exactly the cost of the two drugs sold separately, plusperhapsa small premium for convenience and improved adherence.
Patients and plans might also be concerned about the one-size-fits-all nature of two drugs in one pill.
Chiral switches were promoted based on the potential of one isomer to better fit into receptors and metabolizing enzymes.
Chemists and biologists will recall here the handedness of biological molecules.
Yet the pharmacologic benefits of isomer-switching were minor at best.
It depends on the patient and drug, Hochauser observes.
The Prilosec to Nexium advantage was questionable. Even the sponsor, AstraZeneca, claims only that Nexium might benefit patients who are poor metabolizers of the R isomer (about 10% of Caucasians and 20% of Asians).
By contrast, albuterol makes many people jittery while Xopenex does not.
While not technically a safety issue, the newer drug certainly eliminates an undesirable side effect.
That may have been sufficient at the time of the Xopenex approval in 2002 for payers to prefer, or reimburse at a premium, the more expensive drug.
Today, no one is certain that payers would embrace such products.
Susan Bornstein, executive VP at clinical data specialist eClinical Solutions, believes that fully leveraging clinical data is crucial for exploiting a molecules full potential with respect to labeling, follow-on products, and intellectual property.
By data-mining early, and standardizing clinical data into a consistent, accessible, and reviewable format, pharmas can explore potential new indications or delivery methods to extend the patent life of a drug, Bornstein says. (For more on data, see The impact of value mining on market access.)
A data-centric approach, she argues, can support patent longevity, novel dosage forms within the standard exclusivity period, as well as line extensions afterward.
But only if companies begin the exercise early, perhaps before human testing, and continue throughout clinical development.
Legal challenges
The best one can say about patent expiration is that it is inevitable, even predictable.
The huge stakes involved in blockbuster drugs, however, assure that even apparently iron-clad patents are not safe.
In July, the US Senate rejected an amendment to, of all things, a war bill, which would have given the Federal Trade Commission (FTC) power to intervene in reverse payment deals between patent-holders and generic challengers.
Reverse payment refers to settlements between innovator companies and what are essentially corporate raiders seeking to exploit a technical flaw in the patent filing.
Big pharma sometimes pay settlements to avoid costly litigation and the possibility of losing years of exclusivity through questionable court action.
A single judge hears patent invalidation cases in the US.
The FTC has been lobbying for this power for some time.
In June 2009, the agencys chairman, Jon Liebowitz, argued that settlements were anti-competitive because they prevented generics from being introduced earlier.
Liebowitz described the deals as colluding with competitors to keep low-cost generic drugs off the market and stated that eliminating them is one of the Federal Trade Commissions highest priorities.
The FTC would not rule in these cases except either to allow a settlement, which is unlikely, or instruct opponents to litigate to the end.
The most famous such case involves Sanofi-Aventis and Bristol-Myers-Squibb, which held the rights to blood-thinning blockbuster Plavix, and Canadian generics house Apotex.
In 2001, Apotex sued to overturn the Sanofi/BMS patents, and in 2006 the companies reached an agreement that would keep generic Plavix off the market until patent expiry in 2012.
But in 2006, US anti-trust authorities ruled the deal illegal, which permitted Apotex to sell its knock-off Plavix.
But in March of last year, this decision was reversed.
Sanofi and BMS have since sued Apotex for patent infringement and economic damages.
Gil Bashe, executive VP at Makovsky & Co., a New York-based health policy firm, believes the FTCs obvious bias towards generic manufacturers threatens pharmaceutical innovation by injecting uncertainty into expected exclusivity periods.
The FTC would essentially be deciding the validity of the patents, Bashe says.
An unintended consequence of FTC intervention, Bashe says, is that lawsuit-happy challengers would avoid suing deep-pocket patent-holders and increasingly target smaller companies that face bankruptcy or near-total loss of revenue if they lose.
Merger mania
Shannon Mrksich, Ph.D., a former chemist and current attorney at the Chicago intellectual property firm Brinks Hofer Gilson & Lione, believes merger mania simply puts off the inevitable need to face the pharmaceutical industrys innovation shortage.
The likelihood of discovering the next Lipitor, Pfizers acquisition of Wyeth notwithstanding, is minuscule.
It seems likely, given the drugs astronomical annual sales and loyal customer and prescriber base, that Pfizer could execute a successful branded generic strategy.
There has been talk, thus far unsuccessful, in the US of selling cholesterol agents OTC as well.
Yet, given the historical 90% drop in revenues the day a medicine goes generic, the only replacement for a $13-billion drug for Pfizer will be another $13-billion drug.
But the chances of that new product being sold with a similar label as Lipitors, prescribed by the same caregivers, and taken by the same patient group, is very slim indeed, according to Mrksich.
There already are lots of good drugs out there, for a lot of important indications, says Mrksich.
You could improve on them, maybe, but who will use them? Who will pay for them?
In other words, once patent protection on a blockbuster drug is lost, through whatever process, those medicines are not easily replaced.
A research renaissance
This sentiment is clearly a product of the age of pharmacoeconomics, where health decisions are based on perceived value. (For more on pharmacoeconomics, see Health economics data and market access and How to build value through comparative effectiveness research.)
The implication is that once a best-in-class drug is introduced, its commercial value diminishes over the course of its patent life and eventually, when the medicines commercial exclusivity expires, it never returns.
Drug companies do best when they are familiar with a therapeutic goal, a target.
Thus, the eleven major cholesterol agents and perhaps a dozen or more natural remedies are purported to accomplish the same therapeutic end.
What companies should focus on, Mrksich suggests, are the difficult targets, new first-in-class drugs for unmet medical needs.
She mentions kidney disease, infectious disease drugs, and central nervous system disorders as three examples.
Discovering a handful of drugs within these categories, she says, will fuel research, and perhaps a renaissance, in drug discovery that can sustain the pharmaceutical industry for decades to come.
The idea of novelty is by no means limited to new diseases and mechanisms.
Talk of low hanging fruit being already harvested only holds meaning when it applies to known targets and molecular structures.
The recent discovery of small regulatory RNA, a field virtually unexplored six years ago, provides a scientific rationale for entirely new areas of pharmaceutical discovery within existing markets, even for known targets.
Funding a new era of drug research will require lots of money, however.
Established drug firms are reluctant to invest in speculative research, while venture capitalists prefer to back projects with a familiar ring.
Mrksich suggests that the current commercial investment climate continue on its present course, while governments begin devoting basic research funding to promising projects with a low probability of success.
The worst that could emerge from such a strategy is a deeper understanding of disease biology and, occasionally, a success that benefits everyone.
For more on patent expiration and all the latest trends in forecasting, join the industrys key players at Pharma Forecasting Excellence Europe on June 14 and 15 in Berlin.