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How Drug Life-Cycle Management Patent Strategies May Impact Formulary Management
Jan Berger, MD, MJ; Jeffrey D. Dunn, PharmD, MBA; Margaret M. Johnson, BS, RPh; Kurt R. Karst, JD; and W. Chad Shear, JD

How Drug Life-Cycle Management Patent Strategies May Impact Formulary Management

Jan Berger, MD, MJ; Jeffrey D. Dunn, PharmD, MBA; Margaret M. Johnson, BS, RPh; Kurt R. Karst, JD; and W. Chad Shear, JD
Drug manufacturers may employ various life-cycle management patent strategies, which may impact managed care decision making regarding formulary planning and management strategies when single-source, branded oral pharmaceutical products move to generic status. Passage of the Hatch-Waxman Act enabled more rapid access to generic medications through the abbreviated new drug application process. Patent expirations of small-molecule medications and approvals of generic versions have led to substantial cost savings for health plans, government programs, insurers, pharmacy benefits managers, and their customers. However, considering that the cost of developing a single medication is estimated at $2.6 billion (2013 dollars), pharmaceutical patent protection enables companies to recoup investments, creating an incentive for innovation. Under current law, patent protection holds for 20 years from time of patent filing, although much of this time is spent in product development and regulatory review, leaving an effective remaining patent life of 7 to 10 years at the time of approval. To extend the product life cycle, drug manufacturers may develop variations of originator products and file for patents on isomers, metabolites, prodrugs, new drug formulations (eg, extended-release versions), and fixed-dose combinations. These additional patents and the complexities surrounding the timing of generic availability create challenges for managed care stakeholders attempting to gauge when generics may enter the market. An understanding of pharmaceutical patents and how intellectual property protection may be extended would benefit managed care stakeholders and help inform decisions regarding benefit management.
This article is based on discussions from a recent roundtable meeting that focused on how drug life-cycle management patent strategies affect the decision-making process regarding formulary planning and management strategies when single-source, branded oral pharmaceutical products transition from single-source to generic status in the United States. The roundtable participants also explored several strategies manufacturers employ to extend marketing exclusivity. The panel was moderated by Jan Berger, MD, MJ.

Speeding access to generic medications is a pillar of pharmacy benefit management, as well as a key systematic way of managing pharmaceutical cost trends. The small-molecule blockbuster medications have in recent years entered a “patent cliff,” wherein a significant number of generic drugs has begun to enter the marketplace. This wave has increased competition and yielded significant cost savings for a number of stakeholders. Several important small-molecule drugs have US patent expirations slated for 2016, including Benicar (olmesartan medoxomil), Benicar HCT (olmesartan medoxomil and hydrochlorothiazide), Crestor (rosuvastatin calcium), Cubicin (daptomycin), Zetia (ezetimibe),1 and perhaps, although unlikely, Zytiga (abiraterone acetate), as will be discussed later in this article. Health plans, insurers, and pharmacy benefit managers (PBMs) add generics to their drug formularies as quickly as possible to benefit from savings versus comparator branded medications.

When developing a medicine to bring to the market, a pharmaceutical company may spend up to $2.6 billion (in 2013 US dollars)2 to identify a compound and complete the necessary preclinical and clinical trials to file a new drug application (NDA) with the FDA. This investment results in precious intellectual property that can bring in revenue for a drug maker for years to come. Without protection of this intellectual property, the pharmaceutical industry would be reluctant to invest the capital needed to develop innovative new products to improve health for individual patients and populations. 

In recent years, an increased amount of attention has been paid to pharmaceutical patents and litigation in the press and with payers.3 With the increased attention on pharmaceutical patents, there is a need for better understanding of the relationship between patents and exclusivity, along with the balance between protecting innovation and promoting access to less costly medications. These factors affect pharmaceutical life-cycle management, the transition of products from single-source to multisource status, as well as formulary decision making and pharmacy budget planning.

The Patent System

Pharmaceutical intellectual property is protected primarily through the US patent system. In the most basic case, a pharmaceutical patent is sought for the creation of a new molecular entity (a “composition-of-matter” patent). The manufacturer applies to the US Patent and Trademark Office (USPTO), which reviews the patent application and makes a decision regarding approval or rejection.4 Patents can be filed to protect, not only the molecule itself, but the process used to manufacture the drug, how the drug is used, and new formulations of the drug.

All patents on branded pharmaceutical products are registered and listed in an addendum to the FDA-published Orange Book.5 In most cases, the patent is issued by the USPTO an average of 3.4 years after filing for a conventional drug and 4.4 years after filing for a biologic.6

According to statute, the granting of a pharmaceutical patent includes protection on that patent for a period of 20 years from time of patent filing. Patent protection may be extended beyond 20 years, depending on whether the processing and review of the patent application was delayed at the patent office or delays were incurred during product review by the FDA.7

During the 20-year life of the patent, other drug manufacturers may not sell generic alternatives of the product without the risk of lawsuit and substantial court-approved penalties. In practice, much of the initial 20 years of exclusivity may be spent in product development and regulatory review. The remaining years of patent protection, and the market exclusivity that results, provide economic incentives and considerable potential revenue for a drug company, revenue that is critical to its ability to recover the capital it invests in research and development (R&D) and turn a profit. Most companies also reinvest a substantial portion of revenue back into R&D, so revenue is essential to the development of future drug therapies. The results of a survey by the Pharmaceutical Research and Manufacturers of America indicated that member companies spent 18.6% of total sales on R&D in 2014.8

Product Patents Versus Marketing Exclusivity

Patents and exclusivity work in a similar fashion, but are different from one another. Marketing exclusivity interacts to some extent with patent laws. It is granted through regulatory action by the FDA and guided by statute (the Federal Food, Drug, and Cosmetic Act and the Hatch-Waxman Act). Exclusive marketing rights are granted by the FDA upon approval of a drug, and this period of marketing exclusivity may or may not run concurrently with the period of patent protection.

In its essence, regulatory exclusivity is a congressionally mandated monopoly under the law. It allows a brand name manufacturer a certain guaranteed period of protection, regardless of what patents they may or may not have. The protection provided by patents, however, is not guaranteed, as discussed later.

Before passage of the Hatch-Waxman Act in 1984 (also known as the Drug Price Competition and Patent Term Restoration Act of 1984 [Public Law 98-417]), the US patent system was the sole protector of intellectual property. Marketing exclusivity was granted to the patent holder, but a finite period after which marketing exclusivity would expire was not defined. Manufacturers who were

interested in developing generic drugs had to face the same battery of clinical testing required by the FDA of manufacturers of new chemical entities.7

For manufacturers of branded drugs, one problem with the system before 1984 was that the patents could be found to be invalid or unenforceable. Marketing or regulatory exclusivity may be a stronger shield to protect intellectual property. However, legislative and regulatory efforts have not been used solely to protect intellectual property; generally, the intention of these statutes has been to balance patent protection with beneficial access to high-quality, affordable medicines (ie, generics), with the additional result being a period of market exclusivity.

Hatch-Waxman Act Basics

The Hatch-Waxman Act of 1984 sought to speed access to generic medications by providing generic manufacturers with incentives and a pathway for approval. Hatch-Waxman also provided innovators with meaningful patent protection and an opportunity to recoup their investment, and also provided incentives to generic manufacturers to promote the rapid availability of generic alternatives.9

The Act established regulatory exclusivity periods for branded and first generic agents. Exclusivity periods were included in the Act as a lever to promote a balance between new drug innovation and generic drug competition. For example, the first generic manufacturer to challenge a patent for a branded product listed in the Orange Book is awarded a 180-day exclusivity period, beginning at FDA approval.7

One of the main objectives of the Hatch-Waxman legislation was to promulgate a formal pathway for the introduction of generic drugs, in an effort to bring generics to the market sooner. To achieve this, the Act introduced the abbreviated new drug application (ANDA) process, and detailed the studies and data required by the FDA to evaluate a generic drug for approval.7

Under Hatch-Waxman, upon approval of a new chemical entity, the FDA grants a regulatory exclusivity period of 5 years (regardless of patent life remaining). Importantly, as some agents take a longer time to obtain FDA approval, the Hatch-Waxman Act provides patent-term extensions for those products where a longer time is required by the FDA to review the drug application.7

Patents can be filed and granted by the USPTO anywhere along the development life cycle of a drug. Some patent approvals may indirectly extend market exclusivity of a product.

The Orange Book (Approved Drug Products with Therapeutic Equivalence Evaluations)5 is published by the FDA. It lists prescription drug products and over-the-counter agents that are approved by the FDA as safe and effective. Manufacturers of branded products must identify USPTO-approved relevant patents and provide information on them, including patent expiration dates, to the FDA, which then publishes this information in the Orange Book.

Generic Drug Approval, Patents, and Exclusivity

A generic manufacturer can bring their drug to market in 2 ways: (1) it can file for approval, and if approved, launch after the branded product’s patents and exclusivity period expire, or (2) it can challenge the validity of the branded manufacturer’s patent. The latter usually occurs through the litigation process.

The process for challenging a patent listed in the Orange Book generally occurs in the following steps:

The generic manufacturer submits an ANDA application to the FDA (including their certifying non-infringement of originator’s patents).

A notice letter is sent to the patent holder. When a generic manufacturer files an ANDA, the patent holder may consider this as an act of infringement, and can file suit for patent infringement.

If the patent holder sues the generic manufacturer within 45 days of the receipt of the notice letter, the FDA may not grant final approval of the generic application for 30 months from the time of loss of regulatory exclusivity, unless a district court rules for the generic drug manufacturer before then, allowing time for the patent challenge to be decided in court.

If the patent ruling is in favor of the generic-drug manufacturer, the patent holder may appeal the loss of the generic manufacturer’s challenge. In this case, the appeals process takes an average of roughly 14 months.10 During the appeals process, the generic drug maker may consider launching the generic drug “at risk,” meaning before litigation has been resolved. However, if the patent holder wins the appeal, the patent holder can seek monetary damages for the revenues lost. Therefore, launching at risk can carry significant financial implications, especially in the case of a generic for a blockbuster medication. In practical terms, between the initial hearing process and potential appeal process, the patent holder may achieve up to an additional 30 to 45 months of effective exclusivity, beyond the point of loss of regulatory exclusivity. 

The generic manufacturer’s objective in challenging an existing patent is to initiate the patent-infringement evaluation process to coincide with the FDA’s review of the drug application. In the best-case scenario, the FDA’s review will be completed around the same time as the patent infringement case is decided, allowing the drug to be marketed as soon as possible thereafter.

Sidebar: The Relative Strengths of Patents

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