An article, by Matthew J. Higgins of the Georgia Institute of Technology and Stuart J.H. Graham of the University of California, Berkeley Law School suggests that the current Hatch-Waxman regime having a 5-year data exclusivity term and provisions for generic drug companies to challenge innovator drug patents is responsible for the dramatic drop-off in new small molecule drugs (from an average of 35 in 1996-2001 to 20 in 2002-07), and that the solution is to increase (indeed, double) the data exclusivity term for conventional drugs to 10 years, consistent with trends in Europe, Canada, and Japan

The authors start by reviewing the economic incentives for generic drug challenges to innovator drug patents. The biggest factor is the 180-day exclusivity period awarded to the generic challenger that is the first to file an Abbreviated New Drug Application (ANDA). The authors estimate that the average revenue garnered by a generic during this period is $60 million, which is 12 times the average cost of ANDA litigation ($5 million). This differential exists because during that 6-month period the first successful generic challenger can price the generic substitute just below the brand-name drug price (representing a "savings" to consumers). This potential windfall has motivated generic companies to engage in "prospecting" by filing numerous ANDAs with Paragraph IV certifications (that the patent protecting the innovator's drug is invalid). This conclusion is supported by a review of the number of ANDA lawsuits filed over the past ten years:

A total of 749 lawsuits have been filed challenging innovator drug patents during this period, involving 243 brand-name drugs. The authors note that the FTC has shown that "72% of Paragraph IV challenges filed between 1992 and 2000 resulted in litigation, with the generic drug challenger winning 42% of the time," citing Generic Entry Prior to Patent Expiration: An FTC Study (FTC, Washington, DC, 2002). Moreover, the drugs challenged in recent years have revenues of less than $100 million, showing that "blockbuster" drugs are no longer the only targets of Paragraph IV challenges.

The economic effect on innovator drug companies is large, averaging about a 12% loss in revenue. This loss "exceeded companies' gains from the patent extensions awarded to them," according to the authors, an outcome that is ironic considering the policy "balance" of the Hatch-Waxman regime between reducing the time needed for a generic drug to reach the market after innovator patent expiry and restoration of patent term lost to the period of regulatory review. Using Merck's Fosamax as an example, the authors state that Teva's successful Paragraph IV challenge permitted generic competition 4 years before Merck's patents were to expire, costing the company about $1.5 billion. (Teva is reported to have 160 pending ANDA filings and to be involved in 92 Paragraph IV challenges, "putting at risk over $100 billion in sales," citing Teva's Securities and Exchange Commission Form 20-F filing in 2007.) This lost revenue represents the cost of bringing two new drugs to market in the U.S.
As a result, innovator pharmaceutical companies are motivated to produce new branded drug offerings that bolster their existing franchises subject to generic challenge. However, these are not "new" drugs, but rather are predominantly reformulations representing only "marginal improvements" over existing forms of these drugs. The rate and number of successful Paragraph IV challenges is also reducing the average effective patent life for innovator drugs, particularly "blockbuster" drugs which remain the most attractive targets for Paragraph IV challenge (and the correspondingly higher value of the 180-day generic exclusivity term).
The authors suggest as a solution changing the data exclusivity term under the Hatch-Waxman act from 5 years to 10 years, using a comparison with other "Western" countries as justification:

Citing Professor Grabowski's research, as well as a report from the National Academies of Science and Engineering and the Institutes of Medicine (Rising Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future (National Academies Press, Washington, DC, 2007), the authors assert that extending the period of data exclusivity is necessary to overcome the "market failure" in the pharmaceutical industry caused by the Hatch-Waxman Paragraph IV challenges of patents on innovator drugs. While they also suggest other regulatory incentives for drug development in particular areas (such as Alzheimer's disease and osteoarthritis), "[a]t a minimum, we should all note that Paragraph IV challenges are contributing to this failure when discussing the future of health care and long-term access to new treatment."
The irony of this report will not be lost on anyone following the data exclusivity period debate over follow-on biologics, and the authors' conclusions provide a direct challenge to those advocating a shortened term for biologic drugs based on the "successes" of the Hatch-Waxman regime for small molecule drugs.

Written by Gene Quinn

Teva Pharmaceutical Industries Ltd. issued a press release last week discussing the abbreviated new drug application (ANDA) containing a Paragraph IV certification for COPAXONE® (glatiramer acetate injection), filed by Mylan Pharmaceuticals Inc. Teva announced that it has filed a lawsuit against Mylan Pharmaceuticals, Inc., Mylan Inc. and Natco Pharma Ltd. for patent infringement in the U.S. District Court for the Southern District of New York. Mylan's filing of an ANDA for what they are calling a generic version of COPAXONE® was not unexpected, as the company announced its intention to do so over a year ago. Teva received Mylan's Paragraph IV certification notice referring to Teva's U.S. Patents, which cover the chemical composition of COPAXONE®, pharmaceutical compositions containing it, and methods of using it. These patents are listed in the U.S. Food and Drug Administration's (FDA) Orange Book and extend through May 24, 2014. While the press release and news accounts have not identified the patents in question, the prescribing information flyer available on copaxone.com lists the following patents as covering the drug - U.S. Patent Nos. 5981589, 6054430, 6342476, 6362161, 6620847, 6939539 and 7199098.

According to the press release, Teva will vigorously defend its COPAXONE® intellectual property rights against infringement wherever they are challenged and intends to pursue all relevant regulatory avenues via the FDA. Teva's lawsuit has been filed within the 45-day period provided under the Hatch-Waxman legislation and will triggers a stay of FDA approval for the Mylan ANDA until the earlier of the expiration of a period of 30 months or a district court decision in favor of Mylan.

According to Teva, COPAXONE® is a highly-complicated product to develop and manufacture, and given the inability to fully characterize the active ingredients of COPAXONE®, the company doubts any generic applicant's ability to demonstrate conclusively that the composition of its product is identical to that of COPAXONE®. In fact, Teva contends that any company that files an application for any glatiramoid substance, via an ANDA or 505(b)(2) application, should conduct full-scale, placebo-controlled clinical trials with measured clinical endpoints in MS patients to establish safety, efficacy and immunogenicity in this patient population. Internal research at Teva has indicated that even minor changes in the synthetic process and/or molecular weight distribution of a glatiramoid can have severe ramifications on the safety and mechanism of action of the product.

The patents covering COPAXONE® all seem exceptionally similar, which is not to be unexpected. The earliest patent, which appears to be the parent that spawned the others, explains that COPAXONE® is a drug used to treat multiple sclerosis, and is an apparently a significant improvement on the prior art. The patent explains:

Copolymer-1 is a synthetic polypeptide analog of myelin basic protein (MBP), which is a natural component of the myelin sheath. It has been suggested as a potential therapeutic agent for multiple sclerosis (Eur. J. Immunol. [1971] 1:242; and J. Neurol. Sci. [1977] 31:433). All references cited herein are hereby incorporated by reference in their entirety. Interest in copolymer-1 as an immunotherapy for multiple sclerosis stems from observations first made in the 1950's that myelin components such as MBP prevent or arrest experimental autoimmune encephalomyelitis (EAE). EAE is a disease resembling multiple sclerosis that can be induced in susceptible animals.

Copolymer-1 was developed by Drs. Sela, Arnon, and their co-workers at the Weizmann Institute (Rehovot, Israel). It was shown to suppress EAE (Eur. J. Immunol. [1971] 1:242; U.S. Pat. No. 3,849,550). More recently, copolymer-1 was shown to be beneficial for patients with the exacerbating-remitting form of multiple sclerosis (N. Engl. J. Med. [1987] 317:408). Patients treated with daily injections of copolymer-1 had fewer exacerbations and smaller increases in their disability status than the control patients.

Copolymer-1 is a mixture of polypeptides composed of alanine, glutamic acid, lysine, and tyrosine in a molar ratio of approximately 6:2:5:1, respectively. It is synthesized by chemically polymerizing the four amino acids forming products with average molecular weights of 23,000 daltons (U.S. Pat. No. 3,849,550).

It is an object of the present invention to provide an improved composition of copolymer-1.

The Israel based Teva Pharmaceutical Industries Ltd. is among the top 20 pharmaceutical companies in the world and perhaps the leading generic pharmaceutical company in the world, which is in itself ironic. COPAXONE® sales totaled $2.3 billion in 2008, accounting for over 20% of total revenues for Teva. Moving forward COPAXONE® was expected to account for an even larger percentage of Teva's revenues. Presently Teva pays French drug company Sanofi-Aventis royalties even though Teva is solely responsible for marketing in North America. Teva must pay Sanofi-Aventis royalties into 2010 as a result of a deal between the companies dating back to April 2008. Thus, at a time when COPAXONE® was to become far more important to Teva it would be potentially devastating to the company to face generic competition. For now at least Teva will enjoy the market to itself, at least for the next 30 months.

So-called Paragraph IV challenges, which refers to a section of the 1984 Hatch-Waxman Act that established the generics industry, allow generic drugmakers to dispute the validity of brand-name patents or claim that their Abbreviated New Drug Applications (ANDAs) do not infringe on existing patents.

Paragraph IV challenges are allowed only after a brand-name drug's five-year period of data exclusivity runs out. If successful, such challenges allow a generic manufacturer to produce a competitor before the market exclusivity offered by the patent expires.

The successful generic maker is then rewarded with a 180-day period during which no other generic manufacturers can market that drug.

"This incentive to challenge patents allows the successful challenger, without fear of cheaper generics competition, to reap large dividends by pricing just below the brand-name drug, earning on average $60 million per drug" in the first six months, wrote Matthew Higgins, PhD, and Stuart Graham, PhD, JD, MBA, of the Georgia Institute of Technology in Atlanta.

Although this strategy brings cheaper medications to the market faster, it also diverts revenues from brand-name drug manufacturers, which will then spend less on the research and development of new medications, they wrote in a policy forum piece in the journal.

Higgins and Graham said they do not advocate eliminating Paragraph IV challenges because "they keep pharmaceutical companies honest."

But they said lawmakers should consider lengthening the period of data exclusivity to allow brand-name drugmakers to recoup the costs of research and development of new drugs and encourage further innovation.

From 1992 through 2000, 42% of Paragraph IV challenges that resulted in lawsuits were won by the generic manufacturers.

According to Higgins and Graham, the number of such challenges has mushroomed -- in 2001, there were 35 lawsuits regarding 16 branded drugs; in 2008, 165 suits were brought against 43 branded drugs.

"Because the costs of challenging a patent are a relatively small $5 million compared with the large average potential payoff of $60 million in the first 180 days alone, generic-producing firms have begun to engage in 'prospecting' by filing numerous ANDAs with Paragraph IV challenges," Higgins and Graham said.

"Simple arithmetic suggests that generic-manufacturing companies only need to win a fraction of these to make a prospecting strategy successful."

On the other hand, it took at least $800 million to develop and bring to market a new drug in 2000, they said.

Brand-name manufacturers depend on the five-year period of data exclusivity, and typically longer patent protection, to defray this cost.

Successful Paragraph IV challenges limit the revenues these companies can recoup.

To compensate, brand-name manufacturers introduce new products, but these are "more than 90% more likely to be a reformulation or a 'next-generation' product, at best marginal improvements over present-day pharmaceuticals as compared with all other product introductions," the authors said.

So consumers who are getting cheaper medications in the short term are losing out in the long term because less money is going into making new drugs, they said.

From 1996 through 2001, there were an average of 35 new drugs approved by the FDA each year, but from 2002 through 2007, there were only 20 new approvals each year, they said.

"Although the Hatch-Waxman Act was enacted 25 years ago with laudable intentions, lawmakers should now consider altering the length of data exclusivity awards, as research shows that the five-year allowance is generally insufficient to recoup research and development costs," Higgins and Graham said.

They suggest extending the period of exclusivity for first-in-class and high-risk, high-necessity drugs, including preventive medications for Alzheimer's disease or osteoarthritis.

Policy incentives to encourage private investment in research or offers of increased exclusivity to curative and preventive -- as opposed to palliative -- drugs might also be solutions to the decrease in innovation, they said.

In addition, they said, "auctions could allow companies to bid on specific research projects in return for extended data or market exclusivity."

Graham, a licensed attorney, reported that he has never represented any firm or entity involved in either side of Paragraph IV challenges or received funding from, or done consulting for, any firm or entity involved in the pharmaceutical innovation process. He said that he does not own stock in any pharmaceutical companies.

Higgins said he did not have any conflicts of interest.

Primary source: Science
Source reference:
Higgins M, Graham S "Balancing innovation and access: patent challenges tip the scales" Science 2009; 326: 370-71.