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Unintended Consequences of Hatch-Waxman



May 23, 2014 – Comments (0) | RELATED TICKERS: BIIB , BMY , MNTA

Location: TMFHelical's CAPS Blog

Author: TMFHelical

This is a paste of a reply post made in the SPOPs service (minor edits).  I replied in a thread that was broadly about generics and Momenta.  Thought I'd repost it here as I got a bit 'soapboxy'.

 So, are you saying that generic drugs and generic companies should never exist? If not, how long should a patent last? 

This wasn't in response to me, but I'll address it.

Generic drugs and companies should indeed exist, but so should a stable and reliable incentive for companies to research new therapies. Pharmaceutical development is a tough business. It competes with its past in a way that no other business quite does.

Right now, the driver of the 'how long' question is dominated by the Hatch-Waxman legislation. This is generally for small molecule drugs, but there have been instances (Momenta and Lovenox being the primary) where a 'biosimilar' has been approved via this path. Generic approval under Hatch-Waxman involves demonstrating the drug 'substance' (or API -active pharmaceutical ingredient) is 'chemically identical' and the drug 'product' (final formulation, form, package, and label) delivers it to the body (bloodstream levels) in an equivalent fashion (bioequivalence). [That is a little oversimplified, but should be a sufficient one sentence summary].

The US has been tasked (2009) with an approval pathway for 'similar' biopharmaceuticals (often termed biosimilars, though other names are used) and has some guidance, but is still defining that process. Europe has one, but it is a bit 'case by case' (and likely will be here).

Hatch-Waxman is well meaning, but has created some substantial unintended consequences.

So, [replied to post] spoke about patent protection, but that isn't the only issue. A patent lasts 20 years, and the primary patent is the 'composition of matter' that defines/describes the API. The increasing length and complexity of the drug development process/pathway to obtain approval has seen the effective 'patent lifetime' erode. Companies are often fortunate to have 10 years of protection remaining when they receive approval to market.

The often more important protection is what is called 'data exclusivity'. This is a period where the clinical efficacy and safety data obtained by the originator company is proprietary. For a small molecule drug, this is only 5 years. It has been proposed to be 12 for biopharmaceuticals, but the last word on that is still in flux. After data exclusivity expires, a generics company can seek approval based on the clinical safety and efficacy data of the originator company. 

A generic company needs to invest only ~ $2M (varies) to be ready with an ANDA (abbreviated new drug application). About $1M for manufacturing to show the small molecule drug is 'identical' and the process robust (under GMP and validated). And about $1M for 'bioequivalence', which can be a Phase 1-like pharmacokinetic study (levels of generic drug in the blood stream over time are the same as the approved drug). [For Momenta and Lovenox, the manufacturing effort and demonstration of 'identical-ness' required substantialy more investment].

Unintended(?) Consequence 1: Pay for Delay (sic).

Generic companies have a 'huge incentive' (and little to no consequence) to challenge the innovators patents and attempt to get their generics to market the second the 'data exclusivity' period expires. For a modest expense (the ~$2M) they can have an ANDA submitted. To be blunt, every single successful ($> 400M sales?) small molecule drug launch will see its patents challenged. Every single one. This has created the bizarre economic incentive where originators have 'paid' generic companies to delay an attempted generic launch in exchange for dropping a patent challenge.

The 'Pay for Delay' name is a misnomer. In every deal/case the generic has actually been released 'early' i.e. before the patents expire. The economic threat of losing the patent protection outweighed the value of those final few months of 'protected' revenues. This has been legal extortion from the generics firms in my opinion.

Read (if you can find it) Andrew Bodnar's court ordered book 'The First Quesiton' on the deal BMS made with Apotex related to Plavix.
[I have the pdf - it is worth reading]

Unintended(?) Consequence 2: Promising Therapies not Developed

There are a lot of patent protections that can be sought. Methods of use, formulations, production processes, etc. Companies will do all these to gain some extended protections. But composition of matter (the API patent) is primary -- always. Most everything else can be creatively worked around and some almost ignored (hard to prove infringement). Loss of 'composition' almost always allows a generic to be sold in some form (and as noted, composition patents will be challenged, usually with prior art or obviousness arguments). The result is that companies are loath to spend on development of therapeutics that aren't 'new chemical entities', and can't provide composition of matter patents. "Do you have or can you obtain a composition of matter patent?" is question #1 from venture investor and corporate partner meetings with development stage firms.

The reason is that 5 years data exclusivity is rarely enough to reliably justify the 8+ years of risky investment required for development. It can happen if the market is suitably large, but is a rarity. I've been involved in both investor meeting, and selection of compounds to develop further in the clinic. Patent protection considerations play a huge role in these decisions / discussions. How many promising therapies aren't developed because of this is impossible to measure, but I expect quite a few.

[Aside]Take recent approval of Tecfedera by Biogen. It is a simple, preexisting, small molecule.
I doubt that Biogen expects it can protect this therapeutic from generic competition for long (but don't doubt they will try with other patents). It is quite highly priced, in part because of the limited exclusive market opportunity.

Just ask Momenta how 'protective' patents that aren't 'composition of matter' are. Analytical methods patents? Please.[/Aside]

Unintended(?) consequence 3: Biopharmaceuticals Rule

There are some great and very promising biopharmaceutical therapies. But the biotech/pharma distinction that at one time (briefly) defined as a biopharmaceutical vs. small molecule one is now gone (redefined). Even once there is a clearer path for development of 'biosimilars', the investment of the generic developer to make one will be substantially greater than that of a small molecule drug. With a biotherapeutic an orriginator company can expect (1) longer data exclusivity (2) less price erosion on generic introductions (3) better & longer 'originator brand' utility, and (4) more diverse meaningful patent protecions. Given a resource allocation decision, the development of a biologic drug often makes more sense than a small molecule one, even if the latter is less risky and costs less to develop. The better reliability and expected longevity of the biopharmaceutical revenue stream often makes the additional expense and risk worthwhile.

A caveat to the preference for biopharmaceuticals (consequence 4?) is development of a small molecule therapy in a space where a biopharmaceutical is currently used or has been historically. Because if successful with approval, a compant can often price the small molecule therapy as competitive with the bio-therapy (competitive pricing arguments). Again, Tecfedera is one example.

So, are you saying that generic drugs and generic companies should never exist? If not, how long should a patent last? 

Oh yeah, back to the question. Patent protection is fine as it is. But we need a longer period of data exclusivity and provide market exclusivity to be conveyed with a drug approval. Ideally in a G8 (G7?) agreement. I'd say 10 years at least. More confidence in the market potential of a drug can encourage development and could even bring down pricing.

Also, legal fees can be a huge portion of a development stage companies budget (and often underplanned), and a substantial portion of the budget of firms with compounds on the market. Legal spend is only a productive spend if a drug is approved.  Fewer dollars spent on patent protection efforts (and multicountry filings of each one) and legal defense, will provide the allowance to focus more on R&D.  The reduction of the legal spend can help the industry.


Helical Investor  

Long Biogen


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