More like a patent hill
‘Off patent’ might not be as cut and dried as the mainstream media seem to think, say Christopher Jagoe and James McConnell of Kirkland & Ellis
Pharmaceutical patents serve to reward innovation by limiting competition to the covered product for a period of time. The phrase going ‘off patent’ is frequently used in reference to branded pharmaceuticals when a less expensive generic version of the drug is expected to become available to consumers and the branded company is expected to suffer the loss of a significant revenue stream. This does not always mean that all presumptively valid patents directed to the product have expired. Indeed, news reports have claimed various well-known branded drugs such as Crestor, Zetia, Nuvigil, and Seroquel XR are going off patent in 2016. However, protection of each of these commercially successful pharmaceutical products is secured by US patents of various scope with expiration dates extending beyond 2016, while the launch of the generic versions is often the result of years of patent litigation and/or settlements rather than the simple expiration of a patent.
In current practice, an inventor discloses his or her novel, useful, non-obvious invention to the public in the form of a published patent, and in exchange, receives a right to exclude others from practicing the claimed invention until the patent expires. During this exclusivity period, the patent holder can set price without pressure from commodity competition. This allows the company to recoup research and development (R&D) expenses and reward the inventor, and investors, for engaging in highly risky drug discovery endeavors. After expiration, the patent cannot be used to block competitors from copying the invention so the price for the off-patent product might be expected to decrease.
Many, however, mistakenly take the expiration of a patent as giving the public free reign to anything and everything that would have infringed the patent. But that view ignores the possibility of additional patents that remain in-force. For example, Patent A claiming a novel drug compound would not necessarily preclude Patent B claiming that same substance in an extended release formulation. When Patent A expires, it may be said that the drug has gone ‘off patent’, and one might expect the price of all prescriptions to decrease. That assumption might be false if Patent B is still unexpired, because making and selling the extended release version could still be blocked and not completely subject to free market pricing. Such follow-on patents have a significant impact in pharmaceutical industry because copying the entirety of the blockbuster product may be necessary for regulatory approval and/or market acceptance of a generic version.
Branded drug makers go through the effort of proving safety and efficacy of drugs to the US Food and Drug Administration (FDA) in a New Drug Application (NDA), and list patents covering their proposed product in a publication known as the FDA Orange Book. After a statutorily prescribed time, a generic drug maker may file an Abbreviated New Drug Application (ANDA), showing bioequivalence to the approved branded drug. As part of its application, the ANDA filer must certify with respect to each unexpired Orange Book-listed patent that the patent is invalid or will not be infringed. Because the ANDA filer must show bioequivalence to the approved branded product, it may not have the flexibility in avoiding infringement of all the Orange Book-listed patents and may need to make a certification that such patents are invalid.
Certification of invalidity or non-infringement of an unexpired patent typically leads to litigation and a stay preventing the FDA from approving the ANDA for 30 months. Indeed, branded drug makers routinely obtain patents with later expiration dates directed to methods of treating different diseases, the active ingredient of specific purity or crystalline form, in combination with specific other active or inactive ingredients, so that the first to expire patent rarely provides complete freedom to operate to an ANDA filer, forcing it to make a certification of non-infringement and/or invalidity against at least some listed patents.
What does it mean for a drug to go off patent?
We examined various media reports that identified four branded pharmaceuticals reported as going off patent in 2016, collectively generating billions of dollars in sales in 2015, and compared these reports to patents listed in the Orange Book. Although a number of them had at least one patent expiring in 2016, they all had at least one patent listed as expiring later than 2016. In each case, despite the later expiring patents, at least one generic was permitted to launch in 2016 following settlement of litigation initiated years earlier by the branded drug maker.
For example, Crestor, AstraZeneca’s $5 billion cholesterol lowering drug, was the subject of patent litigation beginning in 2007. It largely concluded in 2013 with a settlement agreement after infringement, and validity with respect to the lead Crestor patent was affirmed. While additional later-expiring patents covering Crestor remain in the Orange Book, the settlement in 2013 permitted certain generics to enter the market in 2016. Notably, one of the later expiring patents relates to a combination of the active ingredient with certain inactive compounds. This special combination appears on the Crestor label, but not the generic label. This illustrates further ambiguity in the term ‘off patent’, as not only may a generic version be licensed, but also not practicing patents covering the on-patent branded drug.
Similarly, Zetia, Merck’s $2.5 billion cholesterol lowering drug was the subject of patent litigation that began in 2007. The first case concluded in 2010 with a settlement agreement just prior to trial that permitted generic launch in 2016. Additional later-expiring patents are still listed in the Orange Book.
Nuvigil, Teva’s $370 million wakefulness product, was the subject of patent litigation largely beginning in 2009. Much of the litigation concluded through settlement agreements in 2014 after various generics companies stipulated to infringement and a bench trial rejected invalidity of a patent to a specific crystalline form of the active ingredient armodafinil (even though the active ingredient itself has been off patent for years). Although the Orange Book lists expirations beginning in 2023, settlement agreements permit certain generics to launch in 2016.
Seroquel XR, AstraZeneca’s billion dollar antipsychotic drug, was the subject of patent litigation beginning in 2008. A bench trial decision in 2012 found infringement and validity of AstraZeneca’s Orange Book-listed patent, but AstraZeneca entered settlement agreements allowing for a 2016 launch ahead of the Orange Book-listed expiration in 2017.
In these cases, ‘off patent’ simply means the first generic version will come on the market with an apparent license from the NDA holder. The full nature of the licence is not necessarily public and could involve restrictions that would not be present in the absence of all patents.
Reports of branded drugs going off patent are not a clear indication that immediately multiple generic versions will be competing on price. The fact that one patent may expire in 2016 does not necessarily mean a generic version of the branded product is free from later-expiring patents. The technology claimed in later-expiring patents may be necessary to have a product that is bioequivalent to the branded product or a version that truly competes in the market.
In many cases, settlements are reached prior to expiration of all patents, and it is not always clear what obligations a confidential settlement may impose.