jumping-off-cliff-wings
16 October 2013Asia

Adapt or die: how to survive the patent cliff

At first glance, the phenomenon of losing exclusivity is a boon for the generic manufacturers which plan to market their own versions, but there are hidden pitfalls along the way.

“To some extent people are looking at the so-called ‘patent cliff’ as good news for generics and bad news for innovators but I think the situation is a little more nuanced than that,” says Warwick Smith, director general of the British Generics Manufacturing Association.

Once the world’s biggest selling drug, atorvastatin (brand name Lipitor) is prescribed to lower cholesterol, and can reduce the risk of heart attack and stroke. In its heyday, it achieved sales of more than $12 billion a year for Pfizer.

After Pfizer lost exclusivity on atorvastatin in 2011, sales dropped from $9.6 billion in 2011 to $3.9 billion in 2012, opening a brand new market for the generics manufacturers.

However, Smith says, although the patent cliff significantly increases the volume of generics in the market, the impact on income is not as impressive, as within weeks of going off patent, the price of atorvastatin had fallen by more than 95 percent. He estimates price decay on the drug to now be at about 98 percent.

“Volume doesn’t translate to income.”

Nevertheless, the patient is certainly benefiting from the influx of generic drugs, with the UK National Health Service saving £350 million ($560 million) in the first year after atorvastatin went off patent.

There’s similar data from the US as well: one study estimates annual overall cost savings from the availability of generic atorvastatin to reach $4.5 billion by 2014.

“AS INNOVATOR COMPANIES BEGIN TO FEEL THE PRESSURE TO DEVELOP THE NEXT BLOCKBUSTER DRUG, ANOTHER STRATEGY COULD BE TO DIVERSIFY THEIR PATENT PORTFOLIOS AND FOCUS ON MERGERS AND ACQUISITIONS.”

With so many generics vying for a piece of the branded pharmaceutical pie, multiple abbreviated new drug applications (ANDAs) filed with the US Food and Drug Association and a surge of brand versus generic cases entering the courtrooms, for the consumer the price of drugs is being driven down, but as Sanya Sukduang, a partner at Finnegan, Henderson, Farabow, Garrett & Dunner LLP in Washington, DC, notes, the tide is already turning.

“Prior to the patent cliff, branded companies would see multiple first filers only for drugs that were close to or above the billion dollar mark. But over the past several years, the landscape has shifted where branded companies are seeing multiple first filers on drugs that are in the $100 million range or less,” he says.

“While the number of blockbuster small molecule drugs has decreased, the number of generic companies has increased. As a result, we’re seeing many generics in the multi-first filer cases more willing to sit on the sidelines rather than expend litigation dollars only to help their competitors get on the market.”

Joseph O’Malley, co-chair of the IP practice at Paul Hastings LLP in New York, agrees. “Somewhat counterintuitively, the number of Hatch-Waxman lawsuits over the last five years has increased at the same time that the number of new blockbusters that could be challenged has gone down,” he says.

The Hatch-Waxman Act, passed in 1984, was introduced to promote competition between innovators and generic pharmaceutical companies by lowering the barriers of generic entry into the market.

Brian Cordery, partner at Bristows in London, says that in terms of litigation practice, the generics have become more sophisticated in exploiting any advantage they can get.

“Generics are just as good as originators at identifying and exploiting any weaknesses so I think the generics are developing their strategies to match those of the originators and are keenly aware of any opportunities to make the most of them,” he says.

One option for the generics could be to start innovating and diversifying into different areas.

O’Malley says that although specialty drug candidates are harder to copy and often have complicated marketing channels and patient support infrastructure that the typical generic model is ill-suited to adapt to, the generic giants such as Teva and Mylan are starting to transition from pure generic companies to innovators.

This could be welcome news. While the cost of treating common ailments, such as high cholesterol, diabetes and high blood pressure, has gone down for first time in 20 years, the price of specialty medications, which treat conditions such as rheumatoid arthritis, cancer and hepatitis C, went up by 18 percent in 2012.

Lessons from Lipitor

Pfizer adopted a range of strategies in an attempt to hold on to as much Lipitor revenue as possible, including a signing a reverse payment patent settlement deal with generic maker Ranbaxy, and establishing a coupon programme that allowed privately insured patients to buy the drug at a discount below the rate the generics were offering.

Earlier this year, just before it lost exclusivity on Viagra, Pfizer opened an online pharmacy that sold the erectile dysfunction drug exclusively to those with prescriptions.

Jennifer Driscoll-Chippendale, partner at Sheppard Mullin in Washington, DC, says that as innovator companies begin to feel the pressure to develop the next blockbuster drug, another strategy could be to diversify their patent portfolios and focus on mergers and acquisitions.

“We may see more consolidation and acquisitions in the pharmaceutical industry,” she says.

“There are smaller pharmaceutical companies developing the next blockbuster drug or drugs with a lot of buzz—they may find themselves fielding a lot of acquisition offers.”

However, she notes that the recent Supreme Court ruling in FTC v Actavis has limited the ways innovators may market and sell brand name drugs by opening reverse payments, or pay-for-delay agreements, to antitrust scrutiny.

There’s always the option of restructuring: In October, Merck announced it would be “sharpening its commercial and R&D focus”, and plans to make 8,500 redundancies at the company, in addition to the previously announced 7,500.

O’Malley says there is a slow (“too slow, perhaps”) transition away from internal R&D focused on blockbuster drugs to treat the largest patient populations towards more of a focus on specialty drugs that treat smaller populations.

“These niche drugs can be very profitable,” he says.

“Many of these specialty drug candidates will be licensed in from some of the smaller pharmaceutical companies that were ahead of the curve, relative to the big brands, in how to deal with the current market landscape.”

Cliff or wave?

Smith thinks of the patent cliff phenomenon as a sine curve rather than a cliff. “The reality is there are always going to be products going off patent, we just happen to have been through a period where a lot of blockbusters have undergone their patent expiry at the same time,” he says.

“If you look at the number and value of products coming off patent over time, it goes up and down. If you look at the curve in a short period of time, you get one picture, if you look at it over a longer period of time it’s fluctuating,” he adds.

Cordery agrees: “It’s not a new issue for the pharmaceutical industry.

“There will be inevitably big drugs losing exclusivity,” he says. Hesitant to use the phrase ‘off patent’—after all, some drugs are protected by more than one patent—he adds that in the next few years, many more drugs will lose exclusivity, though the brands are increasingly prepared for it. “When I look at my biggest clients, they are getting better at predicting their loss of exclusivity and are preparing for it and making sure their pipelines are full,” he says.

Adapt or die

O’Malley says that the big brand pharmaceutical companies are having their ‘BlackBerry moment’. “While they were on the cutting edge of pharmaceutical research and innovation in the 1980s and 1990s, that is no longer the case … the brands that will be in trouble are those that are slowest to adjust to the new normal.”

Thomas Leonard, an associate at Kilburn & Strode in London, says the industry is through the worst of the patent cliff, and suggests that big pharmaceutical companies should focus on their branding strategies. “Marks don’t expire as long as you keep renewing them,” he says.

“Companies can concentrate on building up brand recognition while they’ve got patent exclusivity.”

He adds that in Europe, some companies have the option of applying for supplementary protection certificates (SPCs), which will extend the life of the patent by five years, or five-and-a-half years for drugs with paediatric indications, to compensate for the time taken to receive marketing authorisation or licence on a product.

“Those are very popular because every day can be worth £1 million ($1.6 million),” he says, adding that companies are seeking SPCs wherever possible.

In India, meanwhile, such a provision for an extension in patent protection is not available, which may hinder the innovators.

"There should be an attempt by the government to ensure compensation to innovator companies in some form, be it patent term extensions or adjustments, where the delays in providing a protection is either at the Indian patent office or regulatory authorities to ensure incentive for further research," says Archana Shanker, senior partner at Anand & Anand in Noida.

Ranjna Mehta-Dutt, partner at Remfry & Sagar in New Delhi, said that the best strategy for surviving the patent cliff depends on the company, although addressing pricing could be a good start when establishing a market in India. She notes that Roche recently slashed prices of one of its cancer drugs in the country. “The brand companies are getting cost-conscious as far as India is concerned”.

Biologics: a new cliff?

Sukduang says that to stay alive, brands must move their pipeline drugs through clinical trial and get approval from the US Food and Drug Administration (FDA), and adds that they’re also looking to expand their portfolios with biologics.

Smith predicts a change in the generic market as these biologics, in addition to small chemical medicines, start to go off patent in the next five years or so.

“As the use of biologics increases, we’ll see a real shift in the generic business model,” he says.

“We are seeing more generics becoming hybrid companies where they are producing the old style small chemical generics and producing some of their own branded products.

“This might be a result of incremental innovation, where they’ve produced a patient benefit and brand the product to differentiate it in the market, or it could be truly innovative and we’ll start to see them producing biosimilars.

“As we go forward in that way, the market will become far more complex, certainly for the larger generic companies,” he says, although some will stay in the traditional model.

The consensus appears to be that brands will do best to diversify their portfolios by in-licensing technologies from small companies, exploring areas they perhaps hadn’t previously invested in. However, as is the nature of pharmaceutical innovation, it’s a practice that isn’t without risk, Cordery says, as there’s no guarantee these smaller companies, which perhaps don’t yet have patents of their own, will yield results.

“It’s a question of strategy and whether you’re actually backing a winning horse, or not.”