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« Court Report | Main | Myriad Sticks to Its Business Model »

October 18, 2009


The important point in this article is that 42% of patents challenged were found not valid, that is, the public at large were paying monopoly prices for medicines that were not inventions at all!!

Dear Marcos:

Not exactly fair - if the medicines were not inventions, why weren't they available already? There is a case to be made that, even if something isn't an "invention" it might make sense to give some exclusivity to the company that gets it through clinical trials and on the market. That's one reason for a 5-year data exclusivity term, separate and apart from any patent exclusivity.

But you are right, the number is much higher than might be expected - it would be interesting to look at the "whys" of the "losses," since "doesn't infringe" is just as good a reason for a loss, and some generics might have designed around the innovator's formulation just enough to not infringe (which is different from a "not a patentable invention" verdict).

Thanks for the comment.

It's difficult to see how the table makes any case that exclusivity should be increased. The EU (with the most generous exclusivity) and US (with the least) both have an R&D:sales ratio of about 20%, while Japan and Canada (in the middle) have 10%.
I believe, though I haven't looked for evidence to support this, that the increase in para. IV filings, including the doubling in the last couple of years, is the result of increasing challenges to "follow-on" patents as older compounds lose basic patent protection (think LIPITOR, for example, which loses basic protection next year).

Dear Derek:

The authors present the case in absolute rather than relative amounts. Their point is that a company can't invest money in R&D that it didn't make and that Paragraph IV litigation promotes behavior antithetical to new drug development.

Once again, we have the tools to see if anything would change if we increased the data exclusivity term, and we can do it one of two ways. We can change the term and see what happens or we can wait and watch Europe to see if they regain their former preeminence in the pharma field due to the effects of the longer data exclusivity term their drugs receive in the EP.

Thanks for the comment.

Lawsuits would go up anyway... where there's lots of money involved and decreasing returns from selling your goods... companies start suing for more.

Having previously worked as an industrial chemist, I have my doubts as to whether much of these "lost revenues" would be invested back into R&D.

A PhD chemist fresh from grad school today makes about 1.5 times what he or she would have made in 1985. Over the same period of time the CPI has doubled. Thus, research chemists have received an effective 25% pay cut over the last quarter-decade. Meanwhile, many other white-collar professionals have experienced breathtaking salary increases during the same time period (e.g., attorneys, finance professionals, marketing professionals, etc.). Big Pharma's collective stinginess toward chemists has played a big hand in depressing their salaries relative to other similarly educated professionals. And salary expenditures are generally a reflection of corporate priorities.

R&D investment does not yield a quick bottom-line payoff. At the same time, you can squeeze R&D and not feel a pinch for years to come. So in a world where short-term profits reign supreme, chemists have become expendable, and glorified party planners (i.e., drug sales reps) have become essential. But on the other hand, it's hard to innovate if you lay off your chemists, and provide few professional incentives to the chemists who remain. That's where Big Pharma finds itself today.

Certainly P-IV challenges have contributed to the drying up of the pharma pipeline. But the bigger culprit is Big Pharma's relentless drive for short-term profits.

Sure, a longer period of data exclusivity would probably increase profits a bit. But Big Pharma's track record gives no indication that this additional revenue would go to rebuilding the companies' R&D enterprises.

I do tend to think that a two-tiered approach to data exclusivity is better, i.e., longer for true NCEs, and shorter for enantiomers, prodrugs, polymorphs, formulations, and methods of use. Maybe 10/3 or 12/3? This would create greater incentives to innovate, and decrease the incentives to invest in lifecycle extensions.

Dear Bob:

Thanks for your perspective. While I'm sure the reason for the small molecule pipeline problem involves many factors, these authors make a surprising point no one else is making.

Thanks for the comment.

I agree with Bob. There is no reason for polymorphs, prodrugs or enantiomers should get the same data exclusivity period as real NCEs unless there is significant incremental innovation involved.

Also, if this is implemented, it may make sense to allow generic / other branded companies an opportunity to oppose a patent "pre-grant". There is no reason why something that is frivolously patented should stand throughout the exclusivity period and only be challenged thereafter. This will ensure that such frivolous patents are overturned at the very outset and only the ones that merit exclusivity get monopoly status.

Thank you Mr. Noonan for beginning a good discussion of our article. I would like to offer one clarification, however: We were careful not to suggest that challenges are responsible for the dramatic drop-off in new small molecule drugs. In fact, we said explicitly that this decline is due to several factors (see first paragraph), one of which we contend is the H-W challenge regime, particularly as it is being used today. As economists, we know that incentives matter. Our main point was that the incentives to do R&D in the first place have been undermined by the challenge regime, and its expanded use. We stressed that H-W rightly tried to strike a balance between access and innovation, but our concern is that the balance has swung recently away from the latter. When the incentives to do something are eroded, it is less likely that the thing will be undertaken (in this case, innovation). That is our point on this score, in a nutshell.

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