Patent Regime In The Pharma Industry

Governance, Risk and Compliance (GRC) in this sector has seen cyclical variations and ultimately, it aims at compliance to mitigate risks but the direction is that the 'unavoidables' have only one answer and that is 'settlement' or you may be out of business...

Most of today's major pharmaceutical companies were founded in the late 19th and early 20th centuries. Key discoveries of the 1920s and 1930s, such as insulin and penicillin, became mass-manufactured and distributed. Switzerland, Germany and Italy had particularly strong industries, with UK, US, Belgium and the Netherlands following suit. Numerous new drugs were developed during the 1950s and mass-produced and marketed through the 1960s. These included the first oral contraceptive. In 1964, the World Medical Association issued its Declaration of Helsinki, which set standards for clinical research and demanded that subjects give their informed consent before enrolling in an experiment. Pharmaceutical companies were required to prove efficacy in clinical trials before marketing drugs.

Cancer drugs were a feature of the 1970s. From 1978, India took over as the primary centre of pharmaceutical production without patent protection. Managed care and Health maintenance organisations spread during the 1980s as part of an effort to contain rising medical costs, and the development of preventive and maintenance medications became more important. A new business atmosphere became institutionalised in the 1990s, characterised by mergers and takeovers, and by a dramatic increase in the use of contract research organisations for clinical development and even for basic R&D. The pharmaceutical industry was confronted by a new business climate and new regulations, born in part, from dealing with world market forces and protests by activists in developing countries.

As we all know, drug discovery is the process by which potential drugs are discovered or designed. In the past, most drugs have been discovered either by isolating the active ingredient from traditional remedies or by serendipitous discovery. Drug development refers to activities undertaken after a compound is identified as a potential drug in order to establish its suitability as a medication. Objectives of drug development are to determine appropriate formulation and dosing, as well as to establish safety. Research in these areas generally includes a combination of in vitro studies, in vivo studies, and clinical trials. The amount of capital required for late stage development has made it a historical strength of the larger pharmaceutical companies. Industry-wide research and investment reached a record $65.3 billion in 2009. While the cost of research in the U.S. was about $34.2 billion between 1995 and 2010, revenues rose faster (revenues rose by $200.4 billion in that time).

Controversies

Researchers who have tried to reveal ethical issues with clinical trials, or publish papers showing harmful effects of drugs - and who saw themselves as whistleblowers - have faced or been threatened with lawsuits from drug companies, or have lost their jobs. Since 2008, pharmaceutical companies have been increasing the cost of name-brand prescriptions to offset declining revenues as out-of-patent drugs become available as generics. Simultaneously, pharmaceutical manufacturers are aligning their R&D activities but also keeping the tax objectives in reality. Where pharmaceutics have been shown to cause side-effects, civil action has occurred, especially in countries where tort payouts are likely to be large. The top 20 pharmaceutical cases account for over $16 billion in recoveries. Due to high-profile cases leading to large compensations, most pharmaceutical companies endorse tort reform

Due to repeated accusations and findings that some clinical trials conducted or funded by pharmaceutical companies may report only positive results for the preferred medication, the industry has been looked at much more closely by independent groups and government agencies.

In response to specific cases in which unfavourable data from pharmaceutical company-sponsored research was not published, the Pharmaceutical Research and Manufacturers of America have published new guidelines urging companies to report all findings and limit the financial involvement in drug companies of researchers.

US Congress signed into law a bill which requires phase II and phase III clinical trials to be registered by the sponsor on the clinicaltrials.gov website run by the NIH. India is not far behind and the Government has introduced Schedule Y to the Drugs and Cosmetics Act which deals with absolute and ethical standards for conduct of clinical trials and reporting of serious adverse effects before any trial is declared successful to a sponsor.

Researchers who have tried to reveal ethical issues with clinical trials, or publish papers showing harmful effects of drugs - and who saw themselves as whistleblowers - have faced or been threatened with lawsuits from drug companies, or have lost their jobs.

Since 2008, pharmaceutical companies have been increasing the cost of name-brand prescriptions to offset declining revenues as out-of-patent drugs become available as generics.

Simultaneously, pharmaceutical manufacturers are aligning their R&D activities but also keeping the tax objectives in reality. Where pharmaceutics have been shown to cause side-effects, civil action has occurred, especially in countries where tort payouts are likely to be large.

The top 20 pharmaceutical cases account for over $16 billion in recoveries. Due to high-profile cases leading to large compensations, most pharmaceutical companies endorse tort reform.

Patents and Generics

Depending on a number of considerations, a company may apply for and be granted a patent for the drug, or the process of producing the drug, granting exclusivity rights typically for about 20 years. However, only after rigorous study and testing, which takes 10 to 15 years on average, will governmental authorities grant permission for the company to market and sell the drug. Patent protection enables the owner of the patent to recover the costs of research and development through high profit margins for the branded drug. When the patent protection for the drug expires, a generic drug is usually developed and sold by a competing company. The development and approval of generics is less expensive, allowing them to be sold at a lower price.

Often the owner of the branded drug will introduce a generic version before the patent expires in order to get a headstart in the generic market. Restructuring has therefore become routine, driven by the patent expiration of products launched during the industry's 'golden era' in the 1990s and companies' failure to develop sufficient new blockbuster products to replace lost revenues. There is mixed evidence on the efficacy of patents to stimulate pharmaceutical innovation, with recent evidence suggesting that patent grants slow down innovation.

Reconciling patents and universal access to medicine would require an efficient international policy of price discrimination. Moreover, under the TRIPS (Trade Related Aspects of Intellectual Property Rights) agreement of the World Trade Organisation, countries must allow pharmaceutical products to be patented. In 2001, the WTO adopted the Doha Declaration, which indicates that the TRIPS agreement should be read with the goals of public health in mind, and allows some methods for circumventing pharmaceutical monopolies: via compulsory licensing or parallel imports, even before patent expiration.

Patent Fending (Not only Pharma)

We take a step away from the world of healthcare and glance into the warring world of electronics. A look at some famous legal battles between inventors and the corporations that stole their patented ideas.

Stac Electronics v. Microsoft Corp.

Few companies can say that they went up against Microsoft Corp. and won. But in 1994, Stac Electronics, a small software company, was awarded $120 million for infringement of its patent for data-compression technology. Microsoft was awarded $13.6 million for trade-secret misuse. Ultimately, the two companies signed a cross-licensing agreement. Stac received $43 million in cash from Microsoft, and Bill Gates' software behemoth invested $39.9 million in non-voting Stac stock (about 15% of the company's shares) - a total payout of $83 million. "Most observers saw that as Microsoft's essentially writing an $83-million cheque," says Constance Bagley, who teaches at Stanford Business School. These days, the two former litigants are the coziest of buddies. "On the software side and on the hardware side, we've been working with Microsoft, and we're quite happy with the relationship we've had," says Gary Clow, CEO of the San Diego-based company. "The settlement has been very beneficial to us."

Jerome Lemelson v. Mattel Inc. (and Everybody Else)

The late Jerome Lemelson's career as a patent-infringement plaintiff took off in 1989, when a federal jury in Chicago awarded $24.8 million to him, affirming his belief that toy maker Mattel Inc. had infringed on his patent for a flexible toy racetrack. The judge later nearly tripled the award, to $71 million. (Judges and juries can triple patent-infringement damages if they feel that a company violated the patent wilfully.) In 1992 however, an appeals court overturned that ruling. Meanwhile, Lemelson - who held hundreds of patents - sued or threatened to sue many companies worldwide, including Motorola, Apple, and Eastman Kodak. He received settlement payments from several major automobile manufacturers, as well as from Sanyo, Siemens, and Sony. Until he died, in October, Lemelson split his time between homes in Nevada and Hawaii, having reaped an estimated $200 million in settlements. Ironically, he won only one out of nine lawsuits that went to trial. But even that one was impressive: a $17-million verdict against Illinois Tool Works for infringing on his patent on robot paint sprayers.

Thus, we see that patent fending mostly land up in huge settlements.

Back in India

On April 1, 2013, the Indian Supreme Court dismissed the attempt by Novartis, a Swiss pharmaceutical company, to obtain patent protection for a new version of the leukaemia drug Glivec.

The court made its decision on the grounds that the drug is not a new medicine, but an adjusted version of a known compound. The verdict follows the Indian Patent Office's decision last month to grant an Indian drug manufacturer a compulsory licence to sell a generic version of a kidney cancer drug (Nexavar) patented by Bayer. Ultimately, the ruling is appealing because it asked a question that was both naïve and salient. The judges wanted to know whether the Novartis patent is a ruse to prolong an existing monopoly beyond reasonable limits, a question that has wider resonance. Whether India is undervaluing patents or whether the rest of the world is overvaluing them might be one of the more intriguing questions raised by the Supreme Court ruling.

Therefore, the journey of GRC in the industry has seen very cyclical variations and ultimately, GRC aims at compliance to mitigate risks but the direction is that the "unavoidables" have only one answer and that is "settlement" or you may be out of business!!

Disclaimer-The views expressed here are not that of Wockhardt Group but the author's collection from internet and book research.