Protecting profits

Abstract

With several successful drugs due to come off-patent soon, pharmaceutical companies are starting to worry about future revenues. But changes in EU legislation could offer respite for these firms by granting tighter controls over generic drugs makers. Pelle Neroth investigates.Pharmaceuticals are big business. It is the world's most profitable industry: in 2002, (according to author and former New England Journal of Medicine editor Marcia Angell) the combined profits of the top ten drugs companies in the Fortune 500 list were greater than the profits of the 490 other companies in the list combined, at US$56 billion. But the sources of future earnings are looking increasingly uncertain.Extortionate prices for many drugs mean that governments in the developing world are invoking compulsory-purchase orders to bypass patent protection for essential drugs. High domestic prices for drugs in the USA are pushing consumers to Canada to buy cheaper drugs. And, most importantly, several drugs that previously raked in huge sums for large companies are coming to the end of their patent periods, after which generic drugs companies can make and sell cheaper copies to consumers.The list of products with soon-to-expire patents includes Eli Lilly's Prozac; AstraZeneca's Prilosec, which at its peak brought in a astonishing $6 billion a year; and Bristol–Myers Squibb's Glucophage. Unfortunately for the pharmaceutical industry, there are few genuine new drugs to take their place.In the 1980s, pharmaceutical companies argued successfully for patent protection to be increased to 20 years, from 8. The extra years of exclusivity would allow them to recoup the costs of researching and investing in wonder drugs, they argued, and provide funds to invest in new projects.But, far from boosting innovation, the extended patents seem to have made the companies lazy. Floating on a bonanza of the drugs they had already developed, the 1990s saw big pharma invest little in genuinely novel research. Of the 78 drugs approved by the US Food and Drug Administration in 2002, only 17 contained new active ingredients, and only seven of these were classified by the FDA as improvements over older drugs. The other 71 approved drugs were variations of old drugs or deemed no better than drugs already on the market.Without guarantees of future blockbusters, leading pharmaceutical companies are turning to other methods of protecting profits. One strategy is to use huge marketing budgets to push doctors into prescribing compounds that may be little different to their predecessors.A prime example of this technique in action is Nexium, AstraZeneca's successor to Prilosec. Nexium is a mirror image molecule of its predecessor and showed only a 3% performance improvement in clinical tests. But when the earlier drug went off patent, AstraZeneca immediately pulled it from the market and launched a marketing push for on-patent Nexium, which was four times more expensive. Initial discounts to health-care providers prescribing the new product have helped ensure that nearly half of doctors in the USA now prescribe Nexium.Another strategy that is boosting the profitability of research and development concerns intellectual property legislation. Companies are lobbying legislators to try to negotiate tighter controls to stop generic drugs companies copying successful products.A spokesperson for the European Generics Association (EGA), a lobby group for generic drugs companies, says big pharma is increasingly benefiting from “dual lock” intellectual property protection: patents and data exclusivity. These two protections are essentially independent, so if a drug is currently covered by either then no one can make a similar compound.Generics firms may be hit by tighter rules designed to stop counterfeitingView Large Image Copyright © 2004 APThis intellectual protection mechanism is applied at the end of the research process and before marketing begins, usually around 8 years after application for patent.Today, data exclusivity lasts 10 years beyond this, so usually expires before the 20-year patent does. Only a few named drugs, which took a particularly long time in research and development, benefit from the extra protection. An example is Aventis's innovative drug leflunomide (Arava) for rheumatoid arthritis, which took 17 years of trials to develop and whose huge costs would have had to be recouped in 3 years without additional data exclusivity protection.But although only a few named drugs currently benefit from this rule, the future could see data exclusivity lengthen to 15 or 20 years, which would mean most drugs with 20-year patents enjoying several years of subsequent monopoly via data exclusivity.Another potential boost to the industry is a process known as evergreening, whereby drugs companies can patent more widely than they could in the 1980s. Today, patents can cover everything from aspects of the manufacturing process to tablet colour. A molecule can therefore be covered by up to 40 patents, applied for and issued at different points in its lifetime. But this complicated web of legal protection makes it hard for generics manufacturers to know when they are breaking the law. When they start producing a copy, they are vulnerable to being sued by pharmaceutical companies claiming that one or several patents are being breached. The courts have to decide who is right—and the complexity of pharmaceutical legislation means the task is difficult and long. While they are being sued, the generics firms are prevented from producing named-drugs copies. Since court cases can last for up to 2 years, the pharmaceutical company can continue to accrue profits from their named drug that will compensate for any damages they have to pay if they lose.The USA has been a bigger battleground for such cases so far, but some fear that these aggressive tactics are coming to Europe too. Europe is as much of a source of profits as the USA for big pharma, and Brussels, the headquarters of the EU, is the legislative battleground on the issue intellectual property.The European parliament is a paradise for lobbyists and influence mongers: it has a powerful, yet inexperienced legislature, in which 80% of suggested amendments become law; and it receives little scrutiny from national public opinion.A parliamentary officer for the EGA, describes his organisation as representing the “good guys”. His job is to lobby the European parliament against adopting pan-European legislation overly favourable to the pharmaceutical industry, which has a very strong presence in Brussels.Several non-governmental organisations have raised the alarm about a piece of recent legislation passed in the European parliament that would make it even easier for big pharma to restrict generics in Europe. The legislation reverses the burden of proof from plaintiff to defendant, and makes it easier to slap injunctions on generics firms preparing to launch a product: suspicion, not proof, is required.British lawyers urged against it: 20 years ago, pre-emptive sequestration was introduced into English law, and, according to Ross Anderson a professor at Cambridge University and director of the Foundation for Information Policy Research, “judges and lawyers have spent 20 years rowing back”, hedging the law with limitations, such as the necessity of having the search warrant signed by a high court judge and having two legal teams present. European law, often accused of being badly drafted, will lack those provisos and risks cross-interacting with national laws in unexpected ways.Also, the legislation as drafted means only a “person in legal authority” need sign the search warrant. In the UK, this means a magistrate; some countries could interpret this to mean a lowly police officer.The law has potentially huge consequences. Its critics say that large firms hiring aggressive international lawyers will put intense pressure on local jurisdictions to protect the billion-dollar intellectual property rights of large multinationals, not only in pharmaceuticals, but also in all areas where intellectual property is used—from spare car parts to audiovisual media. The injunctions will be granted against generic drugs firms and small local producers who will be out of business as long as the court cases last—and these cases require only the flimsiest presumptive evidence.The Member of the European Parliament (MEP) responsible for this bill was Janelly Fourtou, a deputy for the Union pour la Démocratie Française, who is the wife of Rene Fourtou, the chief executive of Universal, the world's largest music company. His previous job was chief executive of Aventis.A new session of parliament has just started. What further legislation on pharmaceuticals is in the pipeline will soon be revealed. With several successful drugs due to come off-patent soon, pharmaceutical companies are starting to worry about future revenues. But changes in EU legislation could offer respite for these firms by granting tighter controls over generic drugs makers. Pelle Neroth investigates. Pharmaceuticals are big business. It is the world's most profitable industry: in 2002, (according to author and former New England Journal of Medicine editor Marcia Angell) the combined profits of the top ten drugs companies in the Fortune 500 list were greater than the profits of the 490 other companies in the list combined, at US$56 billion. But the sources of future earnings are looking increasingly uncertain. Extortionate prices for many drugs mean that governments in the developing world are invoking compulsory-purchase orders to bypass patent protection for essential drugs. High domestic prices for drugs in the USA are pushing consumers to Canada to buy cheaper drugs. And, most importantly, several drugs that previously raked in huge sums for large companies are coming to the end of their patent periods, after which generic drugs companies can make and sell cheaper copies to consumers. The list of products with soon-to-expire patents includes Eli Lilly's Prozac; AstraZeneca's Prilosec, which at its peak brought in a astonishing $6 billion a year; and Bristol–Myers Squibb's Glucophage. Unfortunately for the pharmaceutical industry, there are few genuine new drugs to take their place. In the 1980s, pharmaceutical companies argued successfully for patent protection to be increased to 20 years, from 8. The extra years of exclusivity would allow them to recoup the costs of researching and investing in wonder drugs, they argued, and provide funds to invest in new projects. But, far from boosting innovation, the extended patents seem to have made the companies lazy. Floating on a bonanza of the drugs they had already developed, the 1990s saw big pharma invest little in genuinely novel research. Of the 78 drugs approved by the US Food and Drug Administration in 2002, only 17 contained new active ingredients, and only seven of these were classified by the FDA as improvements over older drugs. The other 71 approved drugs were variations of old drugs or deemed no better than drugs already on the market. Without guarantees of future blockbusters, leading pharmaceutical companies are turning to other methods of protecting profits. One strategy is to use huge marketing budgets to push doctors into prescribing compounds that may be little different to their predecessors. A prime example of this technique in action is Nexium, AstraZeneca's successor to Prilosec. Nexium is a mirror image molecule of its predecessor and showed only a 3% performance improvement in clinical tests. But when the earlier drug went off patent, AstraZeneca immediately pulled it from the market and launched a marketing push for on-patent Nexium, which was four times more expensive. Initial discounts to health-care providers prescribing the new product have helped ensure that nearly half of doctors in the USA now prescribe Nexium. Another strategy that is boosting the profitability of research and development concerns intellectual property legislation. Companies are lobbying legislators to try to negotiate tighter controls to stop generic drugs companies copying successful products. A spokesperson for the European Generics Association (EGA), a lobby group for generic drugs companies, says big pharma is increasingly benefiting from “dual lock” intellectual property protection: patents and data exclusivity. These two protections are essentially independent, so if a drug is currently covered by either then no one can make a similar compound. This intellectual protection mechanism is applied at the end of the research process and before marketing begins, usually around 8 years after application for patent. Today, data exclusivity lasts 10 years beyond this, so usually expires before the 20-year patent does. Only a few named drugs, which took a particularly long time in research and development, benefit from the extra protection. An example is Aventis's innovative drug leflunomide (Arava) for rheumatoid arthritis, which took 17 years of trials to develop and whose huge costs would have had to be recouped in 3 years without additional data exclusivity protection. But although only a few named drugs currently benefit from this rule, the future could see data exclusivity lengthen to 15 or 20 years, which would mean most drugs with 20-year patents enjoying several years of subsequent monopoly via data exclusivity. Another potential boost to the industry is a process known as evergreening, whereby drugs companies can patent more widely than they could in the 1980s. Today, patents can cover everything from aspects of the manufacturing process to tablet colour. A molecule can therefore be covered by up to 40 patents, applied for and issued at different points in its lifetime. But this complicated web of legal protection makes it hard for generics manufacturers to know when they are breaking the law. When they start producing a copy, they are vulnerable to being sued by pharmaceutical companies claiming that one or several patents are being breached. The courts have to decide who is right—and the complexity of pharmaceutical legislation means the task is difficult and long. While they are being sued, the generics firms are prevented from producing named-drugs copies. Since court cases can last for up to 2 years, the pharmaceutical company can continue to accrue profits from their named drug that will compensate for any damages they have to pay if they lose. The USA has been a bigger battleground for such cases so far, but some fear that these aggressive tactics are coming to Europe too. Europe is as much of a source of profits as the USA for big pharma, and Brussels, the headquarters of the EU, is the legislative battleground on the issue intellectual property. The European parliament is a paradise for lobbyists and influence mongers: it has a powerful, yet inexperienced legislature, in which 80% of suggested amendments become law; and it receives little scrutiny from national public opinion. A parliamentary officer for the EGA, describes his organisation as representing the “good guys”. His job is to lobby the European parliament against adopting pan-European legislation overly favourable to the pharmaceutical industry, which has a very strong presence in Brussels. Several non-governmental organisations have raised the alarm about a piece of recent legislation passed in the European parliament that would make it even easier for big pharma to restrict generics in Europe. The legislation reverses the burden of proof from plaintiff to defendant, and makes it easier to slap injunctions on generics firms preparing to launch a product: suspicion, not proof, is required. British lawyers urged against it: 20 years ago, pre-emptive sequestration was introduced into English law, and, according to Ross Anderson a professor at Cambridge University and director of the Foundation for Information Policy Research, “judges and lawyers have spent 20 years rowing back”, hedging the law with limitations, such as the necessity of having the search warrant signed by a high court judge and having two legal teams present. European law, often accused of being badly drafted, will lack those provisos and risks cross-interacting with national laws in unexpected ways. Also, the legislation as drafted means only a “person in legal authority” need sign the search warrant. In the UK, this means a magistrate; some countries could interpret this to mean a lowly police officer. The law has potentially huge consequences. Its critics say that large firms hiring aggressive international lawyers will put intense pressure on local jurisdictions to protect the billion-dollar intellectual property rights of large multinationals, not only in pharmaceuticals, but also in all areas where intellectual property is used—from spare car parts to audiovisual media. The injunctions will be granted against generic drugs firms and small local producers who will be out of business as long as the court cases last—and these cases require only the flimsiest presumptive evidence. The Member of the European Parliament (MEP) responsible for this bill was Janelly Fourtou, a deputy for the Union pour la Démocratie Française, who is the wife of Rene Fourtou, the chief executive of Universal, the world's largest music company. His previous job was chief executive of Aventis. A new session of parliament has just started. What further legislation on pharmaceuticals is in the pipeline will soon be revealed. Business as usualThe pharmaceutical industry no longer commands the respect that once made it a beacon of innovation and achievement. Examine some recent headlines. GlaxoSmithKline agrees to pay US$2·5 million to fend off charges that it suppressed research showing the antidepressant Paxil was harmful to children. Pfizer pays $430 million to end claims concerning off-label uses of Neurontin. Bristol-Myers Squibb promises to pay $300 million to discontinue a lawsuit brought against it by shareholders. GlaxoSmithKline (again) pays $75 million for allegedly overcharging patients and insurers for its anti-inflammatory drug, Relafen. Full-Text PDF