In November 2008 the European Commission published its Preliminary Report on it’s “Pharmaceutical Sector Inquiry”. Some of the conclusions are pretty harsh and can hardly be seen as friendly towards the pharmaceutical industry: “The preliminary findings of the inquiry also suggest that originator companies develop and practice defensive patenting strategies primarily in order to block the development of new competing products.” Although it is not the intention to seek to identify wrongdoing by individual companies or to reach any conclusion as to whether certain practices described in the report infringe EC competition law the findings in this report would give any executive in the pharmaceutical industry a good reason to rethink the need of IP governance so as to get a better picture on how their company is using any of the practices as described by the Commission and how to evaluate this in the light of serious anti competition concerns. How many CEOS are actually aware of the specifics of the company IPR policies other than in general terms? How many CEOs do know how many patents their company have on their major drugs? Or are aware of the internal rules in their company how to deal with those practices?
The preliminary report, 426 pages long, provides good reading giving a comprehensive overview of the pharmaceutical sector and it dealings with generic competitors. With the publication of the report, the complete toolbox of originator companies to be used to deal with generic companies is laid wide open to the public, as pretty much all the IP practices -also known as – “evergreening” – in keeping generic companies off the market as long as possible are being dealt with.
To mention a few being discussed in the report: patent litigation, filing of multiple patents (“clusters”, also known as patent “thickets“) around a particular (successful) drug, specific patent settlement practices, regulatory practices before national drug agencies, switching of patients from an earlier generation to follow-on products, etc.
The pharmaceutical industry prefers to talk about “life cycle management” but basically the aim is the same. Is anything wrong in that? We doubt it. After all, the average budget for developing a new drug is about 800 million to 1 billion Euros, while the average time to bring the drug to the market is over 10 years from the date of the NCE discovery, not to mention the risk of development (only 1 in 8 succeeds, with all costs associated therewith). So, the time window for originator companies to make good on their investments is generally (too) short, and the generic companies are usually not very patient to wait for the originator companies to have made these profits! If one compares this to the overly extended lifetime of copyrighted material one can hardly blame the industry, confronted with short recuperation time, to try whatever it has in its legal toolbox to prolong the IP life of their major drugs. The key here is “legal”.
The industry seems to have been rather successful, in delaying market entries by generic companies, as the Commission states:
“The sector inquiry confirms that generic entry often occurs later than expected. On average it took about seven months for generic products to enter the market on a weighted average basis and even the top-selling medicines faced an average delay of four months.”
The report very much focused on the perceived “lost savings” for the health systems, mention is made of € 3 billion between 2000-2007. In this respect a point of criticism is that the Commission could put more focus on the generics companies, which – as shown by statistics – manage to maintain relatively high prices in the first years after LoE (loss of exclusivity by the originator company), while generic companies, in general, have a relatively risk-free business (no development risk), with no investments to be earned back. And being able to lift on the reputation of the originator’s company drug, generic companies must be able to make far higher profits.
For those that love statistics, the report is full of it. What was already known in the industry, i.e. that the numbers of new molecular entities (NMEs) reaching the market is slowly decreasing over the years (see p. 38):
Another remarkable statistic from the preliminary report regards the outcome of patent litigation, particularly that of primary patents versus secondary patents. The statistics show that originator companies prevail in (only) 57% of the primary patent disputes and in a slight 26% in secondary patent disputes. See the figure below from the report (p.189):
This decrease in new products reaching the market, combined with a relatively high legal uncertainty regarding the primary patent situation, confirms that originator companies are in for quite a challenge.
However, as the report confirms (p.158), in general, originator companies are very discrete about the relative strength or weakness of their patents and are unwilling to commit any evaluation of their patents on paper.
A decrease of new products, combined with a low success rate in patent litigation, and a habitude of avoiding putting pen to paper regarding patent positions, creates a legal uncertainty for originator companies, which is at least as severe as the legal uncertainty for generic companies. And where generic companies can only win (by earlier market entry), originator companies will generally only loose (particularly in case of “bad news” like a premature LoE).
The last word obviously has not been said as public discussion is now invited and no doubt the Commission will now see whether any breach of competition rules can be established.
This seems to be a good time introducing or if existent, updating, the IP governance within pharmaceutical companies.