The Future of the Pharmaceutical Industry's Hold on Intellectual Property Rights

Generic pharmaceuticals are more affordable than patented drugs, as they are usually more closely priced to the marginal cost of production. Intellectual property requirements directly affect access to pharmaceuticals since patent protection on brand name drugs prevents pharmaceutical retailers from manufacturing and selling the drugs at a lower price. In fact, ownership of a patent gives the patent owner the right to exclude others from making, using, offering for sale, selling, or importing into the United States the invention claimed in the patent.

According to the U.S. Food and Drug Administration (FDA), generic drugs are 80% to 85% less expensive than their brand-name equivalents. Consumers can purchase generic drugs at an even lower cost through online pharmaceutical companies as compared to retail pharmacies. One such company is Mark Cuban’s Cost Plus Drugs; however, Cost Plus Drugs has had difficulty largely interrupting the pharmaceutical industry due to brand-name drugs protected by patents accounting for nearly 80% of prescription drug expenditures.

Patent protections on some notable brand-name drugs, such as Bristol Myers Squibb’s immunotherapy Opdivo^®, Johnson & Johnson’s immune disease medicine Stelara^®, and Regeneron’s eye treatment Eylea^® will expire by the end of the decade based on the respective filing dates or the priority dates of the underlying patent applications. This begs the question: What does the future hold for the pharmaceutical industry and intellectual property rights?

Patent Protection Before the United States Patent and Trademark Office (USPTO)

Drug manufacturers must follow a strict process to secure intellectual property rights for brand-name drugs, with the first step being the filing of a patent application for the new pharmaceutical. If the patent application is granted as a patent, the patent grant is “for a term beginning on the date on which the patent issues and ending 20 years from the date on which the application for the patent was filed in the United States or, if the application contains a specific reference to an earlier filed application or applications under section 120, 121, 365(c), or 386(c) from the date on which the earliest such application was filed.” During this time period, the patent owner has the right to exclude others from making, using, offering for sale, selling, or importing into the United States the invention claimed in the patent and other companies are disallowed from using the pharmaceutical to manufacture generic versions of the brand-name drug.

When the USPTO fails to issue a patent in a timely manner due to reasons beyond applicants’ control, the Patent Term Guarantee Act of 1999 “reimburses” the applicant for those delays in the form of a patent term adjustment (PTA). Types of USPTO delays that may be reimbursed with PTA include: (1) failure to issue the first office action within 14 months of the application being filed, (2) delays of more than four months for any other office action, (3) failure to issue a patent within three years of the filing date, and (4) delays incurred due to interferences, Patent Trial Appeal Board (PTAB) appeals, and secrecy orders.

An applicant may also be awarded patent term restoration (or PTE) due to FDA regulatory delays. Title II of the Drug Price Competition and Patent Term Restoration Act in 1984 and the Generic Animal Drug and Patent Term Restoration Act in 1988 created the Patent Term Restoration program, under which the USPTO enables “owners of patents that claim certain human drug products, medical device products, animal drug products, veterinary biological products, and food or color additive products to restore to the terms of those patents some of the time lost while awaiting premarket Government approval for the products from a regulatory agency.” This right to PTE is the result of the Drug Price Competition and Patent Term Restoration Act of 1984, Public Law 98-417, 98 Stat. 1585 (codified at 21 U.S.C. 355(b), (j), (l); 35 U.S.C. §§§ 156, 261, and 282) (Hatch-Waxman Act). To take advantage of Patent Term Restoration, an application for patent extension must be filed with the USPTO within 60 days of a product being approved by the FDA.

Once patent protection expires, other companies may be free to create generic versions of the drug. If certain statutory requirements are met, then exclusivity could attach upon approval, which means certain delays and prohibitions would be in place for the approval of competitor drugs.

An abbreviated new drug application (ANDA) contains data that is submitted to the FDA for the review and potential approval of a generic drug product. Once approved, an applicant may manufacture and market the generic drug product to provide a safe, effective, and lower cost alternative to the brand-name drug it references. By definition, a “generic drug product” is comparable to an “innovator drug product” in dosage form, strength, route of administration, quality, performance characteristics, and intended use. Applicants for generic drug products must scientifically demonstrate that their product performs in the same manner as the innovator drug. One way to demonstrate this is by bioequivalence, or the rate of absorption or bioavailability, of the generic drug, which can be compared to that of the innovator drug. To be approved by the FDA, the generic version must deliver the same amount of active ingredients into a patient's bloodstream in the same amount of time as the innovator drug. All approved innovator and generic drug products are listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (Orange Book).

The United States and the International Perspective on Pharmaceutical Patent Protection

The Drug Price Competition and Patent Term Restoration Act (Public Law 98-417) (known as the Hatch-Waxman Act) was introduced in 1984 in the United States to promote early access to generic drugs by facilitating accelerated approval by the FDA.

The Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement) was negotiated and established in 1995 as an attempt to remedy the humanitarian concerns posed by patent enforcement in the international sphere. Noted as the “most comprehensive multilateral agreement on intellectual property” to date, the TRIPS Agreement specifies a minimum set of substantive standards for procedural regulation of intellectual property between World Trade Organization (WTO) Member States, which allows for protection of inventions upon a finding that the invention meets the minimal criteria for patentability.

The TRIPS Agreement includes several provisions designed to respond to concerns that patents are barriers to medicinal access. Some of these key provisions include compulsory licensing, Bolar provisions, and LDC transition periods.

Compulsory Licensing

Compulsory licensing, codified in Article 31 of the TRIPS Agreement, enables WTO members to use a technology patented by a third party without authorization from the patent holder, which increases pharmaceutical accessibility of a state deemed a “least developed country” (LDC) by the United Nations. LDCs are nations that exhibit the lowest indicators of socio-economic development, which is measured by a low-income criterion, a human assets index (HAI), and an economic vulnerability index (EVI). Though compulsory licensing increases pharmaceutical accessibility within an LDC, Article 31(f) of the TRIPS Agreement restricts the availability of export drugs made under compulsory licenses, which causes problems for LDCs that lack domestic manufacturing capabilities but desire to import generic pharmaceuticals manufactured elsewhere.

Bolar Provisions

Bolar provisions are included within the scope of Article 30 Exemption to Rights Conferred of the TRIPS Agreement and allow generic drug manufacturers to use a patented technology to obtain marketing approval without the patent owner’s permission so that the generic product is approved to enter the market as soon as the patent expires.

Some Central and South American States have enacted Bolar exemptions. The Bolar exemption in Europe is governed by Directive 2004/27/EC, where Article 10(6) provides that “[c]onducting the necessary studies and trials with a view to the application of paragraphs 1 to 4 [i.e. bioequivalents and biosimilars] and the consequential practical requirements shall not be regarded as contrary to patent rights or to supplementary protection certificates for medicinal products.” The European States can be divided into two categories: (1) States where the exemption is limited to activities relating to marketing approval of generic medicines and bioequivalents (e.g., Belgium, Cyprus, Ireland, Netherlands, and Sweden) and (2) States that more broadly exempt any act required for marketing approval, as well as acts relating to innovative medicines (e.g., Austria, Bulgaria, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, Poland, Portugal, Romania, Slovakia, Slovenia, and Spain).

LDC Transition Periods

An LDC transition period allows LDCs to not conform with TRIPS Agreement obligations related to pharmaceutical patents until the LDC is no longer designated as such. Recently, the WTO members agreed to extend the deadline for LDCs to protect intellectual property under the TRIPS Agreement until July 1, 2034.

A Declaration on TRIPS and Public Health (Doha Declaration) clarified textual ambiguities of the TRIPS Agreement and affirmed both the inherent flexibility of the TRIPS Agreement and the right of Member States to take precautionary measures to protect public health. However, the Doha Declaration did not adequately respond to the “Article 31(f) Problem” because it failed to provide a viable solution that would increase the availability of compulsory licensing for LDCs that lack the ability to manufacture pharmaceuticals in-house.

An amendment to the TRIPS Agreement, Article 31bis, made permanent the waiver that had been in force since 2003 to empower LDCs facing public health crises or national emergencies and lacking pharmaceutical manufacturing facilities to seek generic pharmaceuticals from other countries under a compulsory licensing agreement. However, a fog surrounded these concessions with regards to the remuneration costs borne by the LDC to the State exporting the generic pharmaceutical under a compulsory license. Even though there are mechanisms to allow for use of generic pharmaceuticals, there are numerous drawbacks associated with such.

Cuban's Cost Plus Drugs is Shaking Up the Industry

Since launching in January 2022, Cost Plus Drugs offers 800+ generic drugs, and Mark Cuban is quoted as having high hopes for offering brand-name drugs in the future. The company has a specific pricing model that keeps the drugs they offer at the lowest price on the market: a 15% markup over manufacturers’ costs, plus $3 for labor per drug and $5 to ship each order. The $5 shipping cost is the most expensive aspect of this pricing model, but if consumers are able to bundle multiple drugs, then the total cost (including shipping) will be cheaper overall.

This pricing model is possible since the company has cut pharmacy benefit managers out of the equation. Health insurers, larger employers, and others contract pharmacy benefit managers negotiate with drug manufacturers on their behalf. Without pharmacy benefit managers, Cost Plus Drugs is able to negotiate directly with drug manufacturers to receive wholesale prices on generic drugs. Since insurers do not tend to work with pharmacies that avoid pharmacy benefit managers, Cost Plus Drugs does not accept insurance claims. Even without the ability to file insurance claims, purchasing generic drugs through Cost Plus Drugs is the most cost-friendly option for purchasing pharmaceuticals.

The Future for Brand-Name Drugs

The pharmaceutical industry as a whole is scrambling to protect itself against the threat of generic competitors getting their hands on drug formulas with patents expiring at the end of the decade. Through 2030, the industry’s largest drug manufacturers are facing a risk of more than $200 billion in annual revenue. The biggest profit-producing drugs set to lose patent protection are biologic drugs, rather than pills. According to the FDA, “biologics can be composed of sugars, proteins, or nucleic acids or complex combinations of these substances, or may be living entities such as cells and tissues. Biologics are isolated from a variety of natural sources—human, animal, or microorganism—and may be produced by biotechnology methods and other cutting-edge technologies.”

With generic competitors getting their hands on such highly sought-after drug formulas, two problems will arise. First and foremost, biosimilars of biologic drugs are not always interchangeable in terms of efficacy. Generic competitors may still struggle to compete due to the cost of manufacturing biosimilars, as well as the marketability. On the other hand, the largest drug manufacturers will need to increase their research efforts in order to climb back to the top. Nonetheless, Cost Plus Drugs and other generic competitors will soon ramp up their efforts to level the playing field and provide more economical options for U.S. consumers.