Patents: A Threat to Innovation?

Abstract

In the Policy Forum “Balancing innovation and access: Patent challenges tip the scales” (16 October 2009, p. [370][1]), M. J. Higgins and S. J. H. Graham's claim that Paragraph IV patent challenges are “increasingly stifling new drug innovation” is misleading. Economists have repeatedly cautioned that correlation is not causation. The increasing number of Paragraph IV challenges, coupled with the decreasing number of FDA-approved new compounds is an interesting, but not causal, relationship. Declines in approvals could be due to a range of factors, including decreasing research productivity. Reasons for the decline in productivity include the increasing difficulty of understanding the science of more complex diseases and the focus of pharmaceutical companies on low-risk “me too” drug development ([ 1 ][2]). Not all Paragraph IV challenges lead to early generic entry. In research documenting Paragraph IV challenges between 2004 and 2006, I found that only 13 (11%) of the 115 lawsuits resulted in a generic win ([ 2 ][3]). When the branded company prevails, there is neither early generic entry nor revenue loss. Perhaps more important, 73% ended in settlements, of which a subset—about 60% ([ 3 ][4])—did not appear to result in early generic entry ([ 2 ][3]). Hence, a count of patent challenges is an unreliable indicator of losses for branded companies. The fact that so many of the lawsuits end in settlements precludes information on the patent strength and boundaries that is revealed through judicial determination. In addition to these factors, branded pharmaceuticals are increasingly retaliating by producing or licensing authorized generics that dampen their revenue loss and the incentives for future patent challenges. For instance, in 2003, Apotex was granted the 180-day exclusivity period for its generic version of Paxil, an anti-depressant marketed by GlaxoSmithKline (GSK). Apotex had expected to generate sales of approximately $575 million during its 6 month exclusivity, but the introduction of GSK's authorized generic lowered the actual sales to around $200 million ([ 4 ][5]). Paragraph IV challenges are an important mechanism for identifying patents that should not have been granted in the first place. They should be allowed to continue unless there is much more compelling evidence that they are in some way slowing innovation. 1. [↵][6] GAO, “New drug development: Science, business, regulatory, and intellectual property issues cited as hampering drug development efforts” (U.S. Government Accountability Office, GAO-07-49, November 2006); [www.gao.gov/new.items/d0749.pdf][7]. 2. [↵][8] 1. M. Manocaran , dissertation, Harvard Business School, Boston, MA (2009). 3. [↵][9] Details of settlements between branded and generic companies are not always made public, so it is not possible to confirm the true number of settlements that include provisions for early entry. This estimate may be overstated due to this lack of data. 4. [↵][10] 1. T. Gilbert , “Comment of Apotex Corp. in Support of Citizen Petition Docket No. 2004P-0075/CP1” (Food and Drug Administration, 24 March 2004); [www.fda.gov/ohrms/dockets/dailys/04/apr04/040204/04P-0075-emc00001.pdf][11]. [1]: /lookup/doi/10.1126/science.1176116 [2]: #ref-1 [3]: #ref-2 [4]: #ref-3 [5]: #ref-4 [6]: #xref-ref-1-1 View reference 1 in text [7]: http://www.gao.gov/new.items/d0749.pdf [8]: #xref-ref-2-1 View reference 2 in text [9]: #xref-ref-3-1 View reference 3 in text [10]: #xref-ref-4-1 View reference 4 in text [11]: http://www.fda.gov/ohrms/dockets/dailys/04/apr04/040204/04P-0075-emc00001.pdf