`
`Koios Pharmaceuticals v. Medac
`
`Medac Exhibit 2053
`
`IPR2016-01370
`
`Page 00001
`
`Medac Exhibit 2053
`Koios Pharmaceuticals v. Medac
`IPR2016-01370
`Page 00001
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`

`

`THE OXFORD HANDBOOK OF
`
`THE ECONOMICS
`
`OF THE
`
`BIOPHARMACEUTICAL
`
`INDUSTRY
`
`Page 00002
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`Page 00002
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`

`

`
`
`CONS ULTING EDITORS
`
`MICHAEL SZENBERG
`
`LUBIN SCHOOL OF BUSINESS, PACE UNIVERSITY
`
`LALL RAMRATTAN
`
`UNIVERSITY OF CALIFORNIA, BERKELEY EXTENSION
`
`Page 00003
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`Page 00003
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`

`

`THE OXFORD HANDBOOK OF
`
`THE ECONOMICS
`
`OF THE
`
`BIOPHARMACEUTICAL
`
`INDUSTRY
`
`Edited by
`
`PATRICIA M. DANZON
`
`AND
`
`SEAN NICHOLSON
`
`OXFORD
`UNIVERSITY PRESS
`
`Page 00004
`
`Page 00004
`
`

`

`OXFORD
`UNIVERSITY PRESS
`
`Oxford University Press, Inc., publishes works lhat further
`Oxford University's objective of excellence
`in research, scholarship, and education.
`Oxford New York
`
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`With offices in
`
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`
`Copyright © 2012 by Oxford University Press
`
`Published by Oxford University Press, Inc.
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`
`Oxford is a registered trademark of Oxford University Press
`
`All rights reserved. No part of this publication may be reproduced,
`stored in a retrieval system, or transmitted, in any form or by anyineans,
`electronic, mechanical, photocopying, recording. or otherwise.
`without the prior permission of Oxford University Press.
`
`Library of Congre5s Cataloging—in-Publication Dala
`The Oxford handbook of the economics of the biopharmaceulica] industry 1‘
`edited by Patricia M. Danzon and Sean Nicholscm.
`p. cm.
`Includes bibliographical references and indexes.
`lSBN 978—0-19-974299-8 (cloth : alk. paper)
`1. Pharmaceutical industry.
`2. Biopharmaceutics-Economic aspects.
`I. Danzon, Patricia Munch, 1946—
`II. Nicholson, Scan.
`III. ‘I‘ille: Economies of the biopharmaceutical industry.
`HD9665.5.094 2012
`338.4’76157-dc23
`2011040815
`
`1 3 5 7 9 3 6 4 2
`Printed in the United States of A merica
`on acid—frec paper
`
`Page 00005
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`Page 00005
`
`

`

`CONTENTS
`
`Contributors
`
`1.
`
`Introduction
`
`PATRICIA M. DANZON AND SEAN NICHOLSON
`
`PART I PHARMACEUTICAL INNOVATION
`
`2. R&D Costs and Returns to New Drug Development:
`A Review of the Evidence
`
`JOSEPH A; DIMASI AND HENRY G. GRABOWSKI
`
`3. Financing Research and Development
`SEAN NICHOLSON
`
`4. Cost of Capital for Pharmaceutical, Biotechnology,
`and Medical Device Firms
`SCOTT E. HARRINGTON
`
`5. The Regulation of Medical Products
`ANUP MALANI AND TOMAS PHILIPSON
`
`6. Incentives to Innovate
`DARIUS LAKDAWALLA AND NEERA] SOOD
`
`7. Patents and Regulatory Exclusivity
`REBECCA S. EISENBERG
`
`vii
`
`1
`
`21
`
`47
`
`75
`
`'
`
`100
`
`143
`
`167
`
`PART II THE MARKET FOR PHARMACEUTICALS
`
`8. Pricing and Reimbursement in US Pharmaceutical Markets
`ERNST R. BERNDT AND JOSEPH P. NEWHOUSE
`
`9. Regulation of Price and Reimbursement for Pharmaceuticals
`PATRICIA M. DANZON
`
`201
`
`266
`
`Page 00006
`
`Page 00006
`
`

`

`
`
`vi
`
`10.
`
`IL
`
`11
`
`13.
`
`14.
`
`15.
`
`16.
`
`17.
`
`18.
`
`Drugs and Vaccines for Developing Countries
`ADRIAN Towss, ERIC KEUFFEL, HANNAH E. KETTLER,
`AND DAVID B. RIDLEY
`
`Insurance and Drug Spending
`MARK V. PAULY
`
`Consumer Demand and Health Effects of Cost-Sharing
`DANA P. GOLDMAN AND GEOFFREY F. JOYCE
`
`Measuring Value: Pharmacoeconomics Theory and Practice
`ADRIAN TOWSE, MICHAEL DRUMMOND,
`AND CORINNA SORENSON
`
`Price Indexes for Prescription Drugs: A Review of the Issues
`ANA AIZCORBE AND NICOLE NESTORIAK
`
`Empirical Evidence on the Value of Pharmaceuticals
`CRAIG GARTHWAITE AND MARK DUGGAN
`
`Promotion to Physicians and Consumers
`DON KENKEL AND ALAN MATHIOS
`
`The Economics of Vaccines
`FRANK A. SLOAN
`
`Mergers, Acquisitions, and Alliances
`HENRY G. GRABOWSKI AND MARGARET KYLE
`
`Index
`
`CONTENTS
`
`302
`
`355
`
`394
`
`438
`
`463
`
`493
`
`524
`
`552
`
`579
`
`Page 00007
`
`Page 00007
`
`

`

`CHAPTER 7
`
`PATENTS AND
`
`3. Pub. L. No. 98—417. 98 Stat. 1585 (1984)-
`
`PHARMACEUTICAL research and development (R&D) involves both the creation of
`new products and the production ofinformation about their effects through pre-
`clinical research and clinical trials. Firms might underinvest in this costly, risky,
`and time—consuming R&D in the absence of subsidies, rewards, or protection
`from competition. This chapter examines and critiques the patent and regulatory
`regimes that offer drug developers temporary shelter from competiti0n. The prin—
`cipal focus is on US law, with some attention to different rules that prevail in the
`European Union (EU).
`The patent system works in tandem with drug regulation to defer market
`entry by competitors, thereby preserving profitable exclusivity in the market for
`a new drug more effectively than patents could do without the regulatory assist
`(Eisenberg 2007). Under the Federal Food, Drug, 8: Cosmetic Act (FDCA),1 the
`US Food and Drug Administration (FDA) requires the submission of data show—
`ing safety and efficacy before it approves new drugs for sale. This entry barrier
`both adds to the costs of drug development and protects drug developers from
`competition. At least since passage ofthe Orphan Drug Act of 19832 and the Drug
`Price Competition and Patent Term Restoration Act of 1984 (commonly known
`as the Hatch-Waxman Act),3 Congress has deliberately deployed regulatory entry
`
`REGULATORY
`
`EXCLUSIVITY
`
`REBECCA S. EISENBERG
`
`1. Codified as amended at 21 US. Code § 301 et seq.
`
`2.. Pub. L. No. 97-414, 96 Stat. '2049 (1983).
`
`Page 00008
`
`

`

`168
`
`PHARMACEUTICAL INNOVATION
`
`PATENT PROTECTION FOR PHARMACEUTICAL
`
`PRODUCTS AND METHODS
`
`barriers to shelter research performers from competition. The Hatch—Waxman Act
`charged the FDA with administering periods of regulatory exclusivity before it
`allows generic competitors to use a less costly Abbreviated New Drug Application
`(ANDA). These periods turn in part on the terms of any relevant patents, and pat.
`ent terms turn in part on extensions to compensate for regulatory lags in product
`approval. Patents and drug regulation are pervasiver intertwined in the Hatch-
`Waxman scheme, creating considerable complexity and uncertainty.
`The regulatory regime governing most biotechnology products until quite
`recently has been different. The FDA generally regulates these products as “bio—
`logics” under the Public Health Service Act (PHSA)d rather than as drugs under
`the FDCAF‘ The biotechnology industry was in its infancy when the Hatch.
`Waxman Act was passed in 1984, and that Act did not create a corresponding
`abbreviated approval pathway for biologics under the PHSA. Generics manufac-
`turers had only limited success in using the Hatch—Waxman provisions to gain
`approval for generic versions of biologic products (Dinh 2007). Twenty-six years
`after the Hatch-Waxman Act, the US. Congress enacted an abbreviated approval
`process for products that are “biosimilar” to previously approved biologic prod—
`ucts, on somewhat different terms than those available for generic drugs under
`the Hatch—Waxman Act.6
`This chapter reexamines the sources of exclusivity for drugs, considers their
`limitations, and evaluates exclusivity under the new biologics legislation in light of
`these limitations.
`
`3 Wye“ PBIiOd following initial approval of the reference product.
`
`Although biopharmaceutical innovation is often counted as a success story for the
`patent system (BeSSen and Meurer 2008), many of the patents that drug comllml’litls
`rely on for exclusivity ultimately prove vulnerable to validity challenges brol-lgl'It
`by generic competitors. Such challenges have become increasingly common and
`
`4. Codified as amended at 42 US. Code § 262 et seq.
`5- Some hormone products have been regulated as drugs rather than biologics, allowing
`for the possible approval of follow—on products under a less used regulatory approval
`pathway codified at 21 US. Code § 505(b)(2) (Dinh 2007).
`6. The Biologics Price Competition and Innovation Act of 2.009, signed into law as Title
`VII) Smele A, §§ 7001-03 of the Patient Protection and Affordable Care Act,
`:ub- L: N0‘ 111-143 (HR 3590) {2010). permits the use of an abbreviated pathWal’ for a
`iological product that is “biosimilar” to a previously licensed biological product after
`
`Page 00009
`
`

`

`The Asynchrony of Patents and Drug Development
`
`Under U.S. law? in order to be patentable an invention must be new,“3 useful,9 and
`
`nonobvious.” The inventor must file a patent application that provides a written
`description of the invention and enables a person skilled in the field to make and
`use it.” Failure to satisfy these requirements may lead to rejection ofa patent appli-
`cationi2 or to later invalidation of an issued patent.13
`The patent claims that are most effective at securing exclusivity are those that
`cover the drug molecule as a new composition of matter. But the invention of new
`molecules occurs at an early stage in the course of drug development, before thera~
`peutic value is validated in clinical trials. Patent law promotes early filing on these
`inventions to minimize the risk that publication or public use will make them inel—
`igible for patenting, but at that stage much work remains to be done before the
`molecules may be approved for commercial sale. The FDA estimates that it takes
`on average 81/2 years to study and test a new drug before the FDA can approve it
`for sale to the public (FDA 2006); industry estimates are even higher, ranging from
`10 to 15 years (Pharmaceutical Research St Manufacturers of America [PhRMA]
`2007). This time lag can pose challenges for patent seekers. In the early stages of
`
`
`
`PATENTS AND REGULATORY EKCLUSIVITY 169
`
`arise ever earlier in the commercial life of pharmaceutical products as firms have
`responded to incentives in the Hatch-Waxman Act (Grabowski and Kyle 2007),
`triggering judicial scrutiny that many patents have been unable to withstand. The
`vulnerability of so many pharmaceutical patents to validity challenges calls into
`question how well patent doctrine works in this particular context (Roin 2009).
`
`35 US. Code §§ 321-329.
`
`7. Patents are national in scope, although international treaties have brought about some
`degree of harmonization in the patent laws of member nations. See, for example, Final
`Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations,
`Annex 1C: Agreement on Trade—Related Aspects of Intellectual Property Rights, 33
`I.L.M. 1197 (1994), available at httpa'i'www.wto.orgz'eng1ishfdocs_eflegal_ei'27—trips.pdf
`(accessed November 2011} (hereinafter TRIPS Agreement).
`. 35 U.S. Code § 102.
`. 35 US. Code §§ 101, 112.
`. 35 U.S. Code § 103.
`. 35 U.S. Code § 112.
`. 35 US. Code §§ 131, 132.
`. A patent may be invalidated by the Patent and Trademark Office foilmving
`reexamination, 35 US. Code §§ 301—318, or by a court in an infringement action,
`35 US. Code §§ 281-282. Under § 6 ofthe Leahy—Smith America Invents Act,
`Pub. L. 112-29 (H.R. 1249) (2011) {hereinafter “the America Invents Act”],
`beginning September 16, 2012, third parties will be able to petition the Patent and
`Trademark Office to cancel claims ofa patent as unpatentable in a postngrant
`review proceeding within nine months ofthe date the patent is issued or reissued.
`
`Page 00010
`
`

`

`170
`
`PHARMACEUTICAL INNOVATION
`
`Others after lmblic diSClosure by the inventor. 35 US. Code § 102(b)(1}.
`
`Parenting in the Early Stages 0chi~D
`There are many reasons for innovating firms to seek patent protection as early as
`possible. The issuance of a patent promises future protection against competitors,
`making it easier to profit from developing inventions into commercial products.
`Without this promise, firms are usually unwilling to incur the costs of clinical
`trials. Firms evaluate drug candidates for patentability early and drop candidates
`that they cannot patent. New firms may be unable to attract investment capital to
`pursue clinical trials without patent protection (Roin 2009).
`Patent law promotes early filing on new inventions because patentability
`depends on how an invention compares to the “prior art,” including publications,
`patents, and public knowledge or use.M If the prior art discloses an invention or
`makes it obvi0us, it may not be patented. The later a patent applicatiOn is filed,
`the more extensive the prior art. An inventor’s own publications, published patent
`applications, or public use constitute prior art that may prevent later patenting of
`the disclosed work or of obvious variations.15 It may become necessary to claim an
`invention narrowly in order to distinguish it from the prior art. For example, ifthe
`prior art discloses one form of the active ingredient in a drug, that disclosure will
`make it impossible to obtain a broad patent claim that would cover many varia-
`tions on that active ingredient (such as different salt forms or hydrates). A nar-
`rower claim limited to a newly identified variation, use, or formulation might still
`be allowable if it is not obvious in light of the prior art. But these narrower patents.
`even if valid, may be easier for competitors to avoid infringing. Earlier filed patent
`applications, because they face less prior art, qualify for broader claims and there-
`fore offer more effective protection against competition.
`Despite the commercial and doctrinal advantages of early filing, the time lag
`between the discovery of a new molecule and the development of information nec—
`essary to use that molecule as a drug may make early filing difficult.
`First, without some research into the properties of a molecule, it may be dif-
`ficmt t0 satiSfY the “utility” and “enabling disclOSure” requirements. The pater!I
`
`drug development, researchers may not know enough about new molecules to meet
`requirements for patent protection. Moreover, patents wrth early filing dates have
`early expiration dates. Later-filed patents, on the other hand, are more constrained
`by prior art and thus more likely to be either invalid or too narrow to provide
`meaningful exclusionary rights.
`
`14. 35 US. Code §§ 102, 103.
`15- 35 U‘S- COde § 10203). Under the rules in effect as of this writing, a patent applicant
`has a ens-year grace period within which to file a patent application after the
`invention is disclosed or made obvious by a patent, printed publication, public “59’
`01’ Sale Of the invention. For patent claims with effective filing dates after March 15,
`2013* this grace PeriOd is only available for disclosures by the inventor, disclosures
`'3'? 5011160116 Who obtained the subject matter from the inventor, and disclosures by
`
`Page 00011
`
`

`

`PATENTS AND REGULATORY EXCLUSIVITY
`
`-
`
`171
`
`to make and use the same.””' The US
`to enable any person skilled in the art
`Supreme Court has held that it is not enough to show that as of the filing date
`the invention is an object of “use—testing?” Subsequent lower court decisions have
`generally found promising in vitro test results adequate to demonstrate patentable
`utility,19 but in some cases courts have required clinical testing to support c0n~
`troversial claims of therapeutic utility.” Delays in patent filing to gather data to
`establish utility may lead to future rejection for lack of novelty if, in the interim,
`the molecule itself has been published or otherwise disclosed. For example, if an
`early patent application that diScloses a new molecule is published 18 months after
`its filing date,“ it becomes prior art even if the application is rejected for failure
`to meet the utility requirement (Roin 2009). Once the molecule is in the prior art,
`an inventor who later finds a use for it may no longer patent the molecule itself,
`although it may be possible to get a narrower patent on a method of use. But a pat-
`ent that claims only a method of use is of limited value because it will not prevent
`others from making, using, or selling the same molecule for other uses.
`Second, if a new drug is structurally similar to a prior art molecule, further
`research may be necessary to satisfy the nonobviOusness requirement. The courts
`and the Patent and Trademark Office (PTO) have developed a distinct approach
`for evaluating the nonobviousness of chemicals created by making small changes
`in prior art molecules.22 Under this approach the existence of a structurally similar
`molecule in the prior art makes the new variation prima facie obvious. The patent
`applicant may rebut primafacie obviousness with evidence of Surprising properties
`(or particularly advantageous properties) not present in the prior art.” To make
`this showing, it may be necessary to perform tests on both the new chemical and
`the prior art chemical. If the obviousness challenge does not arise until after the
`product has been thoroughly tested, the patent holder may use studies performed
`after the patent filing to show Surprising or advantageous properties.24 But if the
`
`2004).
`
`statute limits protection to inventions that are “useful,”“5 and requires patent appli-
`cants to disclose their inventions “in such full, clear, concise, and exact terms as
`
`. 35 US. Code § 101.
`. 35 13.3. Code § 112.
`. Brenner v. Manson, 383 U.S. 519, 536 (1966) [patent application claiming a method of
`making a novel steroid did not satisfy the utility standard ofshowing “specific benefit
`in currently available form” where the steroid produced by the method was useful
`only as “an object of scientific research”).
`. In Re: Brana, 51 F.3d 1560 (Fed. Cir. 1995) (reversing rejection for lack of utility of a
`patent application claiming a compound that showed antitu mor activity in vitro).
`. See Rasm usson v. Smithkline Beecham, 413 F.3d 1313, 1324-25 (Fed- Cir- 2005}
`. Most patent applications are published 18 months after their filing dates. See 35 U.S.
`Code § 122(b).
`. In Re: Papesch, 315 F.2d 381 (C.C.P.A. 1963)-
`. In Re: Dillon, 919 F.2d 688 (Fed. Cir. 1990).
`. Knoll Pharmaceutical Co. v. Teva Pharmaceuticals USA Inc, 367 F.3d 1381 (Fed. Cir.
`
`Page 00012
`
`

`

`172
`
`PHARMACEUTICAL INNOVATION
`
`PTO rejects the application at the outset for prima facie obviousness, the need to
`develop rebuttal evidenCe may cause delays. Meanwhile, firms might hesitate to
`invest in costly testing without the promise of patentability.
`The “surprising properties” narrative aligns poorly with the nature and timing
`of risk—taking in drug development. Some surprising properties of new chemicals
`are immediately apparent upon synthesis. But the most important properties of
`drugs—safety and efficacy for therapeutic purposeswrequire validation through
`testing and observation over time. Drug development involves focused searches for
`desirable properties more often than serendipitous surprises. Firms typically select
`for further testing those molecules that they most expect to succeed, although
`most molecules ultimately disappoint early expectations. In the face of high hopes,
`surprising properties are more likely to be bad news than good news; in that case
`patentability may be a dubious consolation prize rather than a valuable incentive.
`A rule that promises patent protection only after testing reveals surprising proper-
`ties may thus fail to motivate investments in clinical trials of promising candidates
`to confirm hoped—for properties.
`When patentability is delayed by the need to do studies to prove utility or to
`show surprising properties, investments in drug development become more risky.
`Intervening prior art may force patent applicants to abandon or. more likely, to
`narrow their claims, making it easier for competitors to enter the market in the
`future ifthe product is successful. Ifcommercially effective patent protection seems
`fraught with uncertainty, a firm may drop a product from further development.
`The effects of uncertain patent rights may be mitigated somewhat by the
`increasing presence in early—stage biopharmaceutical R&D of biotechnology firms
`that have a higher tolerance for risk than traditional pharmaceutical firms. These
`firms may be willing to continue pursuing early-stage research projects that risk-
`averse pharmaceutical firms would abandon (Lou and deRond 2006), making it
`less likely that valuable products will die on the vine. Later, after further research
`reduces the risk that these products will fail, pharmaceutical firms might be will-
`ing to in—license the products to shepherd them through clinical trials and market
`launch (Mayhew 2010). Weakness in the patent position supporting these Pmd'
`ucts will diminish their value to licensees or other investors, but perhaps further
`research will have yielded additional patents.
`
`are novelty and nonobviousness.
`
`Limitations on Patents Available in Later Stages ofReiwD
`Successful drugs are typically covered by multiple patents, with new applications
`filed throughout the product life cycle (Furrow 2008). Firms have tried different
`patent strategies to prolong exclusivity in a successful drug, including patenting
`drug melabOIitES, patenting a single enantiomer isolated from a racemic mixture
`(dgranat and Wainschtein 2010), and patenting new dosage forms or combina‘
`tlon products. Many of these patents have been challenged by generic Compatiwrs’
`often successfully. The most significant obstacles to patenting follow—011 inventions
`
`Page 00013
`
`

`

`
`
`PATENTS AND REGULATORY EXCLUSIVITY 173
`
`for obviousness, the patent holder must show either that a person working in the
`field would not have found the modification obvious or that the modified version
`
`has surprising properties not present in the prior art. This has proved to be a sig-
`nificant obstacle for many follow—on patents (Eisenberg 2008).
`
`Follow—on patents violate the novelty standard ifthey c0ver products and meth-
`ods that are in the prior art, either explicitly or inherently. This rule makes broad
`patent claims in follow-on patents invalid. For example, in Schering v Geneva,25
`the patent at issue claimed descarboethoxyloratadine (DCL), a metabolite of lor-
`atadine. The prior art included an expired patent on loratadine. Schering sought
`to enforce the DCL patent against the sale of generic loratadine by arguing that
`patients who ingested loratadine would necessarily produce DCL in their guts,
`thereby infringing the DCL patent. The court held the DCL patent invalid, reason—
`ing that if, as both parties agreed, administering loratadine to patients inherently
`causes the production of DCL, DCL became prior art when the earlier ioratadine
`patent disclosed administering loratadine to patients. A narrower claim to the
`metabolite in isolated form might have survived this challenge, but such a claim
`would not preclude competitors from selling loratadine.
`Patents claiming modest changes that are sufficient to avoid a novelty challenge
`have often been held invalid for obviousness, including claims to new dosages,26
`new formulations,” combination products that package the drug with another
`familiar ingredient in a single capsule,28 and single enantiomers or diastereomers
`isolated from a racemate or other mixture of stereoisomers.29 To avoid invalidation
`
`(ramipril).
`
`PatentDuration and Term Extension
`
`The term of a patent aligns poorly with the economic life cycle of a drug. Although
`firms file for patents in the early stages of drug development, patents confer little
`competitive advantage before a product is on the market. Most uses of drugs during
`the premarket stage fall within the Hatch-Waxman exemption from infringement
`for the use of a patented drug “solely for uses reasonably related to the submission
`of information under a Federal law which regulates the manufacture, use or sale
`
`25- 339 F.3d 1373 (Fed. Cir. 2003).
`26. Merck v. Teva, 395 F.3d 1364 (Fed. Cir. 2005) (weekly rather than daily administration
`of biphosphonates).
`2?- Aim v. Mylaa, 464 F.3d 1286 (Fed. Cir. 2006) (timed—release formulation of
`oxybutynin).
`23. For example, McNeil-PPC, Inc. v. L. Perrigo Ca, 337 F.3d 1362 (Fed. Cir. 2003)
`(Combination of antidiarrheal compounds and simethicone to treat accompanying
`fl‘i'flllel'fliifl; Richardson—Vick v. Upjohn, 122 F.3d 1476, 44 USPQ2d (BNA) 1181
`(Fed. Cir. 1997) (combination of ibuprofen and pseudoephedrine}. But see Knot!
`Pharmaceutical Co. v. Teva Pharmaceuticals USA Inc, 70 USPQ2d 1957 (Fed. Cir.
`1004} (upholding validity of patent on combination of hydrocodone and ibuprofen
`based on data from trials after the patent grant showing surprising properties}.
`29- For example, Aventis Pharma Deatschland v. Lapin, 499 F.3d 1293 (Fed. Cir. 2007)
`
`Page 00014
`
`

`

`174
`
`PHARMACEUTICAL INNOVATION
`
`of drugs. ".1330 The US Supreme Court has interpreted this exemption to cover
`not only clinical trials and bioequivalence studies but also preclinical laboratory
`researchai This leaves little room for enforcement of patents against competitors
`
`in the premarket stage.
`By the time a drug gets to market, some early—filed patents may have little
`remaining life. Today, most patents expire 20 years after their filing date.32 This
`term has long been standard throughout the world, but the United States did not
`adopt a 20-year patent term until 1994,33 when it amended its patent laws to comply
`with the multilateral Agreement on Trade—Related Aspects of Intellectual Property
`Rights, known as the TRIPS Agreement?1 Before that time, US patents expired 17
`years after the date of issuance, and patents issued on US applications filed before
`June 8, 1995 still get the benefit of this expiration date if it is later than 20 years
`after the filing date.35 The 17—year term is advantageous for patent applications that
`are pending for longer than three years; the longer the pendency, the greater the
`advantage.
`Patent applicants who filed before the 1995 transition date can potentially gain
`commercial advantage by using continuations3E and prosecution delays to keep
`their applications pending for years, relying on early filing dates to limit expo—
`sure to prior art while deferring their patent terms until they need protection from
`competition. Although the number of patents that can take advantage of this tran-
`sitional provision is diminishing, some patent applicants continue to use it.” An
`important limitation on this strategy is the judicial doctrine of “double-patenting,”
`which prevents an applicant from obtaining multiple successive patent terms on
`
`clalrmng priority from 1974 filing date).
`
`30. 35 U.S. Code § 271(e)(1).
`
`31. Merck KGeA v. Integm Lifescicnces I, 545 U.S. 193 (2005).
`32. 35 US. Code § 154.
`
`33. Uruguay Round Agreement Act, Pub. L. No. 103—465, 108 Stat. 4809, 4814 (1994)-
`34. See supra note 7.
`35. 35 US. Code § 154 (CHI)-
`
`36. A continuation is a patent application that relies on the filing date and disclosure
`of an older patent application (called a “parent”) that has not yet been issued at
`abandoned. 35 U.S. Code § 120. A continuation may add new claims but may not
`add new matter to the disclosure without losing the benefit of the earlier filing date-
`Agilent Technologies v. Affymetrix, 567 F.3d 1366, 1389 (Fed. Cir. 2009). In 2007319
`PTO sought to limit the use of multiple continuations by administrative rule. 72 Red-
`ch. 46716 (Aug. 21, 2007), available at httpzh'wwwuspto.govlwebfofficesi’comisoli
`noticeslyzfr46716pdf (accessed November 2011). A panel of the Court of Appeals for
`the Federal Circuit upheld the authority of the PTO to implement the rule, Taffls “-
`Dudns, 559 F.3d 1345 (Fed. Cir. 2009), but this decision was vacated and the appeal
`reinstated pursuant to a grant of rehearing en banc (i.e., by the full court). 328 Fed.
`APPK 653; 2009 US. App. LEXIS 14611; 91 U.S.P.Q.2D (BNA) 1153 (Fed. Cir. 2009).
`. For example, see Takeda Pharmaceutical v. Doll, 531 F.3d 1372 (Fed. Cir. 2009)
`(considering challenge to validity of manufacturing process for cephem cornPC'l-lndS
`
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`PATENTS AND REGULATORY EXCLUSIVITY 175
`
`the same invention or on obvious variations thereon?8 If the second patent is not
`“patentably distinct” from the first, it requires a “terminal disclaimer” that causes
`it to expire at the same time as the first patent.39 This complex doctrine should
`diminish in importance with the gradual disappearance of patent filings eligible
`for the 17—year term, but because of the substantial values at stake it continues to be
`the focus of considerable litigation in the pharmaceutical industry.40
`A patent on an FDA—approved drug may be entitled to a term extension of
`up to five years to compensate for some of the time lost during clinical trials and
`regulatory review.“1 The remaining patent life after extension may not exceed 14
`years beyond the date of FDA approval.‘12 The period of extension includes one-
`half of the time spent in clinical trials and all of the time between submission and
`approval of the NDA."3 Both periods are reduced by any time attributable to an
`applicant’s lack of diligence.“ Only the first approval of a new active ingredient
`qualifies for a patent term extension, and only one patent may be extended per
`new active ingredient.“15 The patent to be extended must be in force on the date of
`approval“5 and must cover either the product, a method of using the product, or a
`method of manufacturing the product.”
`These provisions present a firm with a strategic dilemma: should it extend an
`early-filed patent that expires sooner but is more likely to survive a validity chal-
`lenge, or a follow-on patent that potentially confers more years of exclusivity but is
`narrower and more vulnerable to patent-defeating prior art? Sometimes follow—on
`patents are all that remain.“ With generic firms racing to challenge vulnerable
`patents, the risks and stakes are high.
`
`the prior art included a patent on PHC in anhydrous form from the 19705.
`
`38. Geneva v. GlaxoSmitnKiine, 349 F.3d 1373 (Fed. Cir. 2003}; In Re: Metoproiol Succinate
`Patent Litigation (Fed. Cir. 2007).
`39. See PTO, Manual ofPatent Examining Procedure § 1.321, 37 CPR. § 1.321, available
`at httpdiwww.uspto.govlwebiofficesipacimpepiconsolidated_rules.pdf (accessed
`November 2011).
`40. For example, see Amgen v. Hoffmann—LaRoche, 2009 U.S. App. LEXIS 20409 (Fed.
`Cir. 2009}; Proctor civ- Gambie v. Teva Pharmaceuticals, 566 F.3d 989 (Fed. Cir. 2009);
`Pfizer v Tech Pharmaceuticals, 518 F.3d 1353 (Fed. Cir. 2008).
`41. 35 U.S. Code § 156.
`
`42- 35 US. Code §§ 156 (c). (g)(l)(B). (g)(6}-
`43- 35 U.S. Code § 156(c) (2). The relevant dates are determined by the FDA, and on the
`basis of those dates the PTO extends the term of the patent. Astra v. Lehman, 71 F. 3d
`1578 (Fed. Cir. 1995).
`44. 35 U.S. Code § 156(c)(1).
`
`45. Fisons v. Qnigg, 876 F.2d 99 (Fed. Cir. 1989).
`46. 35 U.S. Code § 156(a)(1).
`47. 35 U.S. Code § 156(a).
`48. For example, see SmithKiine Beecham v. Apotex, 403 F.3d 1331 (Fed. Cir. 2005),
`invalidating the patent on crystalline paroxetine hydrochloride hemihydrate (PHC
`hemihyclrate). PHC was first approved by the FDA in hemihydrous form in 1992, but
`
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`176
`
`PHARMACEUTICAL INNOVATION
`
`
`
`Patents and the Timing of Generic Approval
`The Hatch—Waxrnan Act fundamentally altered drug patent enforcement in the
`United States. Before Hatch-Waxman, generic versions of previously approved
`drugs faced two major entry barriers: first, the FDA apprOval process, which gen-
`erally required the same showing of safety and efficacy for a generic product as
`for a pioneering drug,“9 and second, patents, which private owners could enforce
`through infringement actions in the courts.” The FDA entry barrier was usually
`sufficient to defer generic entry long after relevant patents had expired, because
`the costs of clinical trials were prohibitive for generic products that would be sold
`at competitive prices (Mossinghoff 1999). The Hatch-Waxman Act lowered the
`regulatory entry barrier considerably by allowing approval of a generic product
`that is “bioequivalent” to a previously approved product under an ANDA, without
`requiring duplication of safety and efficacy trials.51 At the same time, it fortified
`the patent entry barrier by creating a system within the FDA for tracking drug pat-
`ents and deferring the availability of ANDAs during the patent term. The Hatch-
`Waxman Act set up a complex process, fraught with unintended consequences, to
`divert disputed patent issues to the c0urts and to motivate potential competitors
`to challenge the validity of patents. Patent challenges have become increasingly
`common and are frequently successful, exposing weaknesses in the patent system
`for drugs.
`
`52. 21 US. Code § 355(b)(1).
`
`Patents at the FDA
`
`The FDCA requires that an NBA disclose any patent that claims the drug or a
`method of using the drug “with respect to which a claim of patent infringement
`could reasonably be asserted if a person not licensed by the owner engaged in
`the manufacture, use, or sale of the drug.”52 On approval of the NDA, the FDA
`
`49.