The manufacturing of generic drugs has been extremely successful at contributing to reduced drug prices and increased medication adherence. A 2019 Center for Drug Evaluation and Research report found that once two generic manufacturers enter the market, prices fall to below half of the brand prices. As more generics enter the market, prices continue to drop up to 95 percent when there are six or more competitors. Following generic entry, more patients are able to remain adherent to their treatment regimens, reducing the mortality associated with cost-related non-adherence. These successes come at a cost to brand drug manufacturers—they no longer have monopoly control over a market, eliminating their ability to set prices far above the actual value of a drug, much less its actual cost of production. To maintain profits on drugs that have already been developed, brand manufacturers invest significant effort in preventing generic competition, most notably by building a “patent thicket,” which generic manufacturers must mow down before the Food and Drug Administration (FDA) can approve a generic application. In the pharmaceutical sector, an outstanding patent that has not been defeated is a categorical bar to the introduction of a competing product—a different situation from other sectors that rely on research and innovation, where a competing product can come to market even if it infringes on existing patents and damages can rectify any infringement. Reforming the nature of patent enforcement in the pharmaceutical sector to more closely resemble other innovative sectors while limiting infringement damages would hasten the introduction of new generic drugs, reducing drug spending and increasing patient access to therapy.
Pharmaceutical Patent Enforcement Versus Other Industries
The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, established a pathway for the approval of generic drugs. Under this act, manufacturers submitting generic drug applications are required to make a Paragraph IV certification, stating that the proposed generic drug will not infringe on any patent that the brand manufacturer claims applies to the existing drug.
The Paragraph IV certification requirement has two implications: First, it encourages brand manufacturers to claim as many patents as possible apply to their products, as each one must be defeated. And second, it requires generic manufacturers to bear the burden of proving that claimed patents are not infringed by the proposed generic drug before the drug even comes to market. Notably, the involvement of the FDA in pharmaceutical patent enforcement inverts the approach to patent enforcement in all other industries, where the patent holder must prove that a competing product infringes on existing patents. Even then, the most likely outcome of an infringement finding is an award of damages, not a complete ban on the marketing of the competing product. The pharmaceutical industry is unique, then, in both its presumption that any possible patent infringement requires a complete ban of competitors and its placement of the litigation burden on the competing product, not the originator product.
Relying on generic manufacturers for the burden of proof has serious repercussions. When a brand drug is approved, presumably the patents that are essential to the drug’s innovation and manufacturing should already be in place, as the drug is now a final product. However, brand drug manufacturers routinely file numerous patents after a drug has already been approved, all of which must be defeated by generic manufacturers before they can proceed with their generic drug application. Among the most notorious of these cases is Abbvie’s Imbruvica, used to treat a variety of cancers. Imbruvica was approved in 2013 and, according to one analysis, has 165 filed patent applications, 55 percent of which were filed after FDA approval. These post-approval patents are estimated to extend Imbruvica’s monopoly for an additional nine years, generating $41 billion dollars of spending—and even more patents could still be filed. Indeed, while other provisions of the Hatch-Waxman Act give brand manufacturers defined periods of market exclusivity (ranging from five to nine years, depending on the drug), patents extend brand market exclusivity far beyond that period. Among the 12 top-selling treatments in 2018, manufacturers claimed an average of 38 years of patent protection, far beyond the 20 years of protection an individual patent offers.
Reforming The FDA’s Patent Enforcement And Patent Settlement Incentives
The cost of defeating brand-name patents has led to the proliferation of patent settlement agreements between brand and generic manufacturers. While these settlements are criticized as “pay-for-delay” agreements, as they often involve payments from the brand manufacturer to the generic manufacturer to cease litigation in exchange for entering the market at a future date. The Paragraph IV requirement encourages these settlements as an alternative to litigation, which can involve significantly more uncertainty. A number of legislative proposals have directly targeted these settlements, including Senator Amy Klobuchar’s (D-MN) Preserve Access to Affordable Generics and Biosimilars Act (S. 1428). This bill would authorize the Federal Trade Commission (FTC) to initiate proceedings against manufacturers that are found to engage in a pay-for-delay agreement that limits or prohibits lawful generic or biosimilar development. The US Supreme Court has also ruled such agreements can violate antitrust laws. In the 2013 case FTC v. Actavis, the US Supreme Court determined that government agencies or private companies can bring lawsuits against brand manufacturers that are engaged in pay-for-delay agreements. The patents at issue in this case were all filed six months after the drug, Androgel, was approved—a ploy to extend the lifecycle of the drug, as the underlying molecule (testosterone) could not be patent-protected. Under the Court’s opinion, pay-for-delay deals are not illegal per se, but the FTC is empowered to investigate whether such agreements are anticompetitive and violate antitrust laws. However, Paragraph IV still requires that all patents, regardless of when they were filed, must be defeated by the generic manufacturer before the FDA can approve the generic application.
The existing Paragraph IV incentive structure can be easily resolved with two changes. First, the patent litigation burden should be shifted from generic to brand manufacturers for patents filed after the brand drug was initially approved. This would harmonize the pharmaceutical sector’s patent enforcement regime with other innovative sectors. And second, damages for post-approval patent infringement by generic manufacturers should be limited to reduce the incentive to engage in patent litigation and to hasten generic market entry.
Shifting The Patent Litigation Burden
Shifting the patent litigation burden from generic to brand manufacturers puts the onus on brand manufacturers to ensure that their patents are valid, defensible, and non-frivolous—a departure from the current system, which encourages the filing of numerous patents to delay generic entry. This change could also encourage brand manufacturers to support mechanisms to more quickly resolve patent disputes, such as the Inter Partes Review process, a more streamlined method of patent litigation currently opposed by brand manufacturers. However, brand manufacturers may still pursue wide-ranging litigation campaigns against generic manufacturers to raise the costs of generic entry. To discourage this practice, brand manufacturers should be required to repay generic manufacturers for all litigation costs for patent infringement claims decided in favor of the generic manufacturer. Shifting the litigation burden and its costs from generic to brand manufacturers would strongly reduce the incentives for weak and frivolous patents that are designed to stifle competition rather than protect innovation.
Notably, the proposed reforms should only apply to patents that are filed after the brand manufacturer has submitted its application to the FDA. This limitation would provide brand manufacturers with a significant period of monopoly patent protection on the core innovation of their product, generating revenue for a robust pharmaceutical research sector. Patents filed after a drug has been developed and submitted to FDA for approval should not be a categorical bar to the introduction of generic competition.
Limiting Patent Infringement Damages
Limiting patent infringement damages would further encourage generic manufacturers to rapidly bring products to market, as any liability accruing from infringing a post-approval brand patent would have only a modest effect on the profitability of the generic product. While statutory damage limits on patent infringement are not a feature of US law, the US does limit damages for copyright infringement and use of counterfeit trademarks, and state law frequently caps damages for medical malpractice and product liability cases. Generally, damages for patent law infringement reflect either actual losses to the patent holder or a “reasonable royalty” that reflects the value of the patent, but these approaches have been frequently criticized as over-rewarding patent holders. Under the proposed reforms to Paragraph IV, given that the generic product is not allowed to come to market until expiration of all patents that were in place prior to the drug’s approval, the threat to pharmaceutical innovation from infringement of post-approval patents is nominal—and damages from infringement should be similarly nominal. In addition to establishing statutory limits on damages, policy reforms should also remove the application of treble damages for willful patent infringement by generic manufacturers on these post-approval patents to facilitate generic product entry.
Aligning Pharmaceutical-Sector Patent Enforcement
Many proposals to address the role of patents in delaying generic entry take on the entire patent system itself, attempting to solve a problem in the pharmaceutical sector by reforming a cross-industry system. While many of these pro-competitive solutions may be beneficial to both the pharmaceutical sector as well as others, they can engender broader opposition that inhibits actual policy implementation. Instead, reforming the FDA’s Paragraph IV requirement would align patent enforcement in the pharmaceutical sector with other sectors, eliminating the ability of one low-quality, later-filed patent to categorically bar all generic entry. Placing the enforcement burden on brand manufacturers rather than generic manufacturers would further align the pharmaceutical sector with other innovative sectors. Because the patents that are in place when a brand drug has been approved are truly the only patents that are core to the innovation at hand, limiting damages for any possible infringement on later-filed patents would further discourage over-patenting and spur more rapid generic entry—all without affecting the patent practices in other innovative sectors. Together, these reforms would hasten entry of generic drugs into the market, reducing costs for patients and lowering total drug spending for taxpayers and employers.
Author’s Note
The author thanks Michaela Kirby for her assistance in preparing this analysis.
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June 21, 2022 at 06:49PM
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Reforming The FDA's Paragraph IV Requirement To Encourage Faster Generic Drug Entry - healthaffairs.org
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