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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
Although patents may seem to be an impregnable barrier to early generic competition, this is not necessarily the case. Certain types of patents are stronger than others. “Patents are never a sure thing. There is no perfect patent, I imagine,” said roundtable participant Kurt Karst. “Patents can be found to be invalid or unenforceable, or perhaps even not infringed by a generic drug manufacturer.”

Part of the reason relates to an imperfect system of reviewing and approving patents. Often, litigation contesting the validity of a patent involves materials or source information that the patent office didn’t possess at the time of the initial patent approval or that was not fully understood by the reviewers. 

In that context, new composition-of-matter patents seem to offer the strongest protection; they are the most difficult for generic drug manufacturers to challenge in court, according to the patent experts on the roundtable.

In contrast, method-of-use and formulation patents, which can include new routes of administration and unique drug delivery devices, may offer less protection. The reason for this vulnerability is that generic manufacturers can often utilize other mechanisms for drug delivery or develop new ways to bind molecules for oral or intravenous use.

Likewise, method-of-manufacturing patents may also offer less protection than a composition-of-matter patent. For example, drug makers may produce a bioequivalent product by manufacturing with different excipients or with other established methods.

Extending the Product Life Cycle and Protecting Product Revenue

As indicated earlier, the patent life remaining on a product at time of approval may be only 7 to 10 years. The complexities of market exclusivity and patent litigation frustrate payers, physicians, patient groups, and other stakeholders. As there is no certainty as to the timing of availability of generics, these stakeholders cannot formulate a plan for the introduction of a generic version of a specific product. For example, uncertainty around patent expiration and generic product introduction makes pharmacy benefit planning (budgeting/formulary) more difficult.

Another way manufacturers can extend revenues from their brand is to produce its own generic version of the drug; it markets its generic version as an “authorized generic.” The FDA lists 980 authorized generics (although these include multiple dosages and forms of individual drugs), from Accupril (quinapril hydrochloride) to Zyvox (linezolid).11

Sidebar: Payer Perspective on Brand Extension

Payers are frustrated by the extension of branded product life cycles through the granting of patents on isomers, metabolites, prodrugs, new delivery methods, and fixed-dose combinations; some of these modifications may improve aspects of drug effectiveness, safety, or adherence, while others may not.

Extending the life cycle of a brand is extremely profitable to the manufacturer of a product nearing the end of its patent life. “With a blockbuster drug, there’s a lot to be gained by even a bit of an extension of that brand,” said Peggy Johnson, RPh. If a branded drug’s revenue averages $1 billion per year, it has paid off the bulk of the research and development costs, and marketing and sales overhead years ago, to the point that perhaps 90% of its revenue in its final years of exclusivity is profit. This profit may be used to fund future research and development. Margins of this magnitude not only compel the efforts made to extend the life cycle as long as possible, but also greatly increases the amount a generic manufacturer who launches at risk, before patent litigation is complete, may have to compensate the branded manufacturer.


Improving and Expanding a Drug’s Utility

Manufacturers often conduct additional research in an effort to enhance their marketed agents. Product enhancements may improve the drug’s utility in clinical care, extend patent protection, and increase revenues. The result of the research may be new uses and new indications. Many times, drug companies evaluate new routes of administration for their product (injectable, sublingual, intranasal, etc), which may increase absorption or enhance adherence.4 For certain drugs, like asthma inhalers or insulin pens, this may be in the form of “improved” delivery devices customized for that drug.12

Commonly, manufacturers file patents on new drug formulations (eg, extended-release versions) or formulations that contain different excipients (to help stabilize the active ingredient, for instance). Furthermore, manufacturers may patent a new manufacturing process, which helps create greater quantities of medication more efficiently or with fewer inactive ingredients. As previously discussed, these improvements may not effectively shield the product from patent challenges.

The combination of the existing product with a new or other marketed agent is another way to extend the life cycle of a drug. This is the case with several diabetes agents (eg, combinations with metformin).

Sidebar: Price Increases on Products Nearing Patent Expiration

Price increases toward the end of patent life are also a mechanism for maintaining revenue.13 Payers object, as these increases have little to do with value of the product; rather, the increases are attempts to maximize revenue just before patent expiration. Dr Dunn said, “Historically, we have seen significant price increases in the 6 to 12 to 18 months leading up to a patent loss. There’s nothing we can do about that. We’re probably not going to take a drug off formulary and reinstate it 6 months later. But that’s why we push so hard for price protection.”

Ms Johnson added that price increases often go beyond the patent expiration to maximize revenue for the branded manufacturer. She stated, “Price protection rebates have been negotiated in part to address this scenario,” not only for the originator product, but for other brands in the class. A new generic entering a drug category threatens “not just the drug that’s going to lose its patent. Every brand name drug in that class feels their market share will be threatened because the class is going to be disrupted. So other drug makers in the class may raise their prices as well,” Ms Johnson explained.

This leads, according to the payers, to the perception that the branded pharmaceutical companies will charge “pretty much whatever the market will bear,” and to the skepticism of payers that many actions taken by pharmaceutical companies to improve existing products are more product-line extensions than actual product enhancements.

 


Payers and the Transition From Branded to Generic

Health plans, insurers, and PBMs monitor the anticipated patent expiration dates for high-cost agents, but as indicated earlier, their confidence level of exactly when a generic will be introduced is fairly low. Any anticipated price increases within 6 to 18 months prior to patent loss are discussed during pharmacy budget planning and P&T committee meetings.

Sidebar: Payer Perspective on Planning for the Introduction of Generics

Ms Johnson emphasized that “plans have become pretty good at what we call managing the pipeline of generic opportunity.”

The pharmacy executives noted that payers often start considering the potential effects of generics to these blockbusters 18 to 24 months ahead of time, especially if the P&T committee reviews a class once annually.

Although payers don’t actively manage their business around patents, per se, this can definitely be part of the planning process for blockbuster brands (eg, Lipitor [atorvastatin calcium], Prilosec [omeprazole], Nexium [esomeprazole], Crestor [rosuvastatin calcium], Abilify [aripiprazole]).

Dr Dunn agreed, adding that “Payers spend a good deal of time with actuaries and underwriters, trying to anticipate rebate and revenue changes, particularly for drugs in high-cost or high-utilization categories. We take a long-term approach to this. We’re probably not going to move drugs back and forth in anticipation of a patent loss.”

The near-term entry of a generic drug can also have implications for other medications in the same class. This can open negotiations for expiring contracts on branded agents. Payers seek to determine which of several products in a therapeutic class may be first to go off-patent. This consideration may influence future plans, as can the first generic launch within a therapeutic class, which could have implications in P&T committee discussions—beyond the innovator product to other similar drugs. For example, if the category comprises therapeutically equivalent products, these other products may be subject to a step through the new generic.

In some cases, an impending generic entry into a drug class will have a very different impact, according to Dr Dunn: “If we do know a major brand is going off-patent in 6 months, for example, and another branded drug is entering the category, we’re much less likely to add that new brand drug to the formulary, because we don’t want to take market share away from the brand that’s going off-patent.” This tactic would enable the payer to save more money on a larger segment of the total patient population, by promoting the conversion of a higher volume of prescriptions within a class to the new generic medication by limiting competition from a “new and improved” brand entity.

Sidebar: Formulary Placement of Recently Approved Generics

Many P&T committees do address financial and budgeting questions, particularly in discussions of cost-effectiveness or value-based benefits. In most cases, an initial generic drug introduction does not usually require a P&T committee meeting for formulary inclusion. Discussions by the P&T committee involve comparative efficacy, safety, and then cost. Since the FDA has approved the agent, presumably as bioequivalent to the original brand, the first 2 issues are moot. Few or no head-to-head studies exist between “improved” brands and new generics to inform the value discussion, so payers often resort to cost discussions in these cases. In most cases, the new generic is offered at a significant discount to the branded product.

Ms Johnson remarked that when a generic is approved, generally, the new generic is automatically placed on the formulary (tier 1), and the innovator brand is usually moved to nonpreferred status or excluded from the formulary (the latter in the case of a 2-tier or closed formulary). “It doesn’t generally impact tier positioning for the rest of the category, because we’ve already put a lot of time into crafting that strategy around cost-effectiveness and value.” However, she pointed out, other brands in the category may now be subject to step therapy with the new generic entity. Later, when more than one generic product becomes available in a class, a tipping point may be reached such that all brand products are relegated to nonpreferred or nonformulary status.

In certain situations, if the generic is not priced at a significant discount, it may be placed in a higher tier, solely based on cost (nonpreferred generic tier or a tier developed for brand name products). Tier designations may be related more to underlying drug cost rather than brand/generic classification.

 


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