Patent Law Blog (Patently-O): Supreme Court Closer to Reviewing Hatch-Waxman Safe Harbor Patent Case

Patent Law Blog (Patently-O): Supreme Court Closer to Reviewing Hatch-Waxman Safe Harbor Patent Case: "

Supreme Court Closer to Reviewing Hatch-Waxman Safe Harbor Patent Case


Merck v. Integra LifeSciences (On petition for writ of cert. at the Supreme Court).

The Drug Price Competition and Patent Term Extension Act (Hatch-Waxman) created a safe harbor that permits drug manufacturers to perform the experiments needed to obtain FDA approval of their drugs without incurring liability for patent infringement, even if their activities infringe others patent rights.

However, the statute, codified at 35 USC § 271(e)(1), was limited by a 2003 decision by the Court of Appeals for the Federal Circuit. The Federal Circuit affirmed a lower court's finding that the safe harbor against patent infringement does not apply to pre-clinical activities to identify and develop new drugs that will eventually be subject to FDA approval -- and thus, that Merck was liable to Integra for patent infringement.

The Case: Integra alleged that Merck and Scripps infringed patents owned by Integra relating to peptides involved in interactions between cell surfaces and the extracellular matrix. Under contract from Merck, Scripps identified several potential anti-tumor peptide candidates and selected the most promising peptide by conducting in vivo and in vitro experiments to evaluate the specificity, efficacy, and toxicity of the peptide candidates for various diseases. Scripps also performed tests to assess the histopathology, toxicology, circulation, diffusion, plasma half-life, and proper mode of administering of the peptides candidates.

The Appeals Court held that these activities did not fall under the safe harbor (§ 271(e)(1)) because they were not done "solely for purposes reasonably related to the development and submission of information" to the FDA.

"the focus of the entire exemption is the provision of information to the FDA . . . [a]ctivities that do not directly produce information for the FDA are already straining the relationship to the central purpose of the safe harbor." (CAFC Opinion).

"Expansion of § 271(e)(1) to include the Scripps-Merck activities would effectively vitiate the exclusive rights of patentees owning biotechnology tool patents."

Supreme Court:

Merck has now appealed the case to the Supreme Court of the United States, petitioning the High Court to hear the question:

Under 35 U.S.C. 271(e)(1), it is generally not an act of infringement to use a patented invention “solely for uses reasonably related to the development and submission of information under a Federal law” regulating the manufacture, use, or sale of drugs. The question presented is whether the court of appeals erred in limiting that exemption to clinical studies designed to provide information for Food and Drug Administration approval of a new drug.

Only a small percentage of cases appealed to the Supreme Court are accepted for hearing. However, the Merck case took a major step closer to being heard last week. On request from the Court, the Solicitor General of the U.S. submitted the Government's view that the case should be heard. The Government brief makes two major points, one legal and the other social:

Gov't Brief: The decision of the court of appeals reflects an incorrect view of the law, and is likely to restrict significantly the development of new drugs. Fairly read, the decision below holds that “pre-clinical” research regarding a potential new drug is not protected by the FDA exemption because that exemption is limited to “clinical” research necessary to obtain ultimate FDA approval of a new drug. That holding is inconsistent with the text of the FDA exemption, reflects a mistaken and unduly narrow view of the types of information relevant to the FDA’s two-step process for evaluating potential new drugs, and is in tension with this Court’s decision in Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661 (1990). Moreover, the court of appeals’ decision poses a direct and substantial threat to new drug research by dramatically narrowing the scope of protections enacted by Congress in Section 271(e)(1). Although this case is not an ideal vehicle for considering the issue, see p. 18, infra, the potential impact of the court of appeals’ legal conclusion is sufficiently important that the petition for a writ of certiorari should be granted.

The Court is expected to decide whether to hear the case within the next two months. Wyeth, the AARP, and Eli Lilly are each expected to file Amicus Briefs in support of the petition to rehear the case.

Judge Richard Posner (In Lessig Blog) has advocated the creation of a fair-use exception for patents on research tools:
Link: For example, a generic drug manufacturer is permitted to use the patented drug to demonstrate that its generic equivalent is indeed therapeutically equivalent (the "testing" exception created by the Hatch-Waxman Act). More broadly, an inventor can use the information in the patent to try to invent around the patent. And Landes and I advocate an expansion of the patent fair-use principle to allow scientists to use patented research tools (such as the oncomouse) without license--provided the scientists aren't allowed to use the tools to produce their own patented products!
In response, Lichtman has noted that Judge Posner's proposal "is problematic for the simple reason that, often, the key market for research tools is to sell those tools to other researchers. If a researcher's use of patented research tool is fair use, that would significantly degrade the incentive to create those research tools inthe first place. Moreover, even if your approach works, it is in sharp conflict with the Bayh-Dole instinct that society might very well be better off in a world where academic researchers patent their work. As you know, that legislation was passed in response to evidence that university breakthroughts were sitting on the shelves both because (a) they could not be owned exclusively under old NIH rules; and (b) universities had too little incentive to bring their work to the attention of industry."

Patent Law Blog (Patently-O): Crouch's December report on new academic research

Patent Law Blog (Patently-O): Crouch's December report on new academic research: "

Crouch's December report on new academic research

Here is a limited set of recent papers that I have found interesting.

Bronwyn Hall & Manuel Trajtenberg, Uncovering General Purpose Technologies with Patent Data, NBER Working Paper.

The authors discuss their technique for finding "general purpose technologies" using patent data. It is thought that there are a few technologies that are extremely pervasive in various sectors of the economy and are thus important building blocks for further technological development. In addition to giving us their formula for finding these important technologies using patent data, Hall & Trajtenberg also provide a listing of GPTs in their appendix.

Douglas Lichtman, How the Law Responds to Self Help, UChicago Working Paper.

Chapter IV deals with patents: Lichtman focuses on what measures the proverbial "bad man" who owns a patent should be allowed to do. "Courts would need to be able to distinguish instances where a patent holder is attempting to profit from the patented invention, which presumably should be allowed, from instances where a patent holder is instead attempting to protect profits that derive from some underlying illegal act, which probably should not be [allowed]."

Gary Becker and Richard Posner, Pharma Patents (Not really "academic").

I was lucky enough to take part in a weekly seminar with Richard Posner, Gary Becker, and Doug Lichtman (above) while a law school student. These three are great thinkers -- Posner and Becker have now started their own blog. Although Lichtman may not follow with his own blog, he has certainly been a contributor to several on-line formats including Patently-O, Crescat Sententia, and Lessig Blog.

Today, Becker & Posner discuss pharmaceutical patents:

POSNER: Patents are a source of great social costs, and only occasionally of commensurate benefits.

BECKER: I do not like the hype and some other salesmanship of big pharma and bio-tech companies, but this industry has made enormous contributions to raising world health. It is likely to become even more important in the future as drugs are developed to match individual genetic differences. One does not want to kill this goose that is laying golden eggs by ill-thought out and counterproductive "reforms".

Please e-mail me with new research.


The Becker-Posner Blog: Posner Responses to Comments on Pharmaceutical Patents

The Becker-Posner Blog: Posner Responses to Comments on Pharmaceutical Patents: "

Posner Responses to Comments on Pharmaceutical Patents

These are very fine comments, which I cannot respond to adequately in the time I have.

Let me begin with a qualification and an amplification. I said that a drug company can get, on top of the normal 20-year patent term, up to five more years for the time during which the FDA is deciding whether to approve the drug for sale. This is true, but it is also true that there is another limit--14 years from the date of approval. So if approval came 10 years after the drug was patented, the patentee would be entitled to a total patent term of only 24 years.

The amplification has to do with the opening paragraph of my posting, in which I noted too quickly that the basic economic objection to monopoly is that it deflects consumers to inefficient substitutes. This is an important point that is not intuitive, so let me explain a bit further. Suppose there are two products which are very close substitutes for one another, but one of them costs $3 to produce and the other costs $4. Then society can satisfy consumers' demand at least cost by supplying the first rather than the second product, and this will be the market outcome if each product is priced at cost (including a profit adequate to attract and retain necessary capital and compensate for risk--and such a profit, a competitive or normal profit, is in fact just another cost). But now suppose that while the second, the more costly, product is priced at cost ($4), the first, the cheaper to produce, is monopolized and its price is as a result $5. Now consumers (not all of course, or the monopoly price would not be profitable) will switch to the second product, and this will involve a social waste becase their demand could be satisfied at a lower cost by the seller of the first product.

The intuitive objection to monopoly is that it gouges consumers, but insofar as consumers stick with the monopolized product even when its price goes up, their higher cost is offset by the seller's higher profit; there is merely a transfer payment. (There may be an ethical objection, but that is beyond economics.) In a second round of analysis, however, and this is relevant to the discussion in my posting, the prospect of the higher profit induces additional investments (e.g., in obtaining a patent, which is a right to exclude close substitutes), which may be wasteful.

Now to the comments. One commenter pointed out correctly that my "first past the post" hypothetical example was oversimplified. The reason is that since each different molecular entity can be patented, the firm that loses the race to be first may still have a valuable product to patent. The principal SSRI antidepressant drugs, for example, such as Prozac, Paxil, and Zoloft, are all different molecules, separately patented; and because they have different therapeutic properties for different patients, each was able to command a significant segment of the market.

Another commenter asked, if the 20-year patent term is too long, as it probably is, how can the copyright term, which is now the life of the author plus 70 years, possibly be justified? It can't be justified in traditional terms, that is, as necessary to induce people to write books, make movies, and engage in other creative expression, because the discounted present value of uncertain receipts 70 years after one dies (which might easily be a century after the work in question had been written) is negligible at any realistic interest rate, especially given the likely depreciation in the market value of the work. William Landes and I, however, in our recent book "The Economic Structure of Intellectual Property Law," argue that there are two possible justifications for indefinitely long copyright terms: to prevent congestion (overuse of a copyrighted work might reduce its value to nothing), which is a traditional economic argument for property rights; and to induce investment in maintaining the value of the copyrighted work, for example by producing frequent revised editions (only the revisions could be copyrighted independently). These arguments are applicable, however, only to the tiny fraction of copyrighted works that retain a substantial market value beyond a few years. The serious problem with long copyright terms concerns not those works, but the multitude of less valuable (but not valueless) works that ought to be in the public domain so that they can be published without the publisher having to engage in costly negotiations to obtain a copyright license and also so that they can be used (again without need for cumbersome negotiations) as raw material for new creative works, almost all of which build on previous works rather than being created ex nihilo. That problem could be solved even within the framework of the very long copyright term if the courts would say that it is okay ("fair use") to republish an old work if the copyright owner has failed to provide notice of his whereabouts and as a result it is infeasible to negotiate a license from him. Such a rule would give rise to private copyright registries that publishers could consult when they wanted to publish an old work, and if there was no copyright listed in the registry the work could be published without copyright permission. This argument is developed in a forthcoming article by William Patry and me in the California Law Review.

Similar concerns about licensing costs are increasingly voiced by academic researchers who use patented "research tools" (such as Harvard's "oncomouse") in their work and understandably don't want to have to conduct patent searches and negotiate for patent licenses, especially if they are using multiple such tools.

I am intrigued but unconvinced by the suggestion that once a drug patent expires, generic manufacturers should be allowed to use the trademark of the patented brand; in other words, the trademark would lapse with the patent. I do not favor this because the consumer and physician are entitled to know who the producer is, and the trademark is the economical identifier of the producer. But I note that a trademark will lapse once it has become generic in the sense that people are using the brand name to designate the product, not just the brand. Many trademarks have become generic in this way, such as yo-yo and brassiere--and, in this country, aspirin. The same fate may befall some of the currently popular patented drugs.

One commenter works for a small biotech company and emphasizes the need for patent protection for the company's products because he expects it may take 10-12 years from patent to market. I agree that the smaller the company and therefore in all likelihood the riskier its prospects, and the less the effective length of patent protection, the stronger the case for long patent terms. I do not know whether it would be feasible or appropriate to try to differentiate patent lengths by size of firm, nature of industry, etc. The advantage of having the patent, copyright, etc. term independent (or largely so) of a particular industry is to reduce political pressure for special-deal legislation, whereby for example powerful industries would obtain longer terms for their patents and copyrights to the disadvantage of the weaker industries, which might need such terms more.

Several commenters debate the significance of the fact that the big drug companies spend more on advertising and other forms of marketing than they do on research. That in itself is untroubling. Indeed, such ratios are meaningless. It is both important and costly to get information about new drugs to physicians and patients; and there is only so much that can be spent on research before the returns from further research begin to plummet. So no inference of inadequate investment in research can be drawn from the fact that companies spend less on research than on promotion. The difficult questions are the accuracy and utility of the promotional information distributed by the drug companies.

I agree with the commenters who express profound skepticism about software patents (and copyrights). But that is a topic for another day.


The Becker-Posner Blog: Response on Drug Patents

The Becker-Posner Blog: Response on Drug Patents: "

Response on Drug Patents

Response on Drug Patents-Becker.
Again, many more comments than I can possibly respond to. I will just make a few points.

Yes, drug companies spend a lot on marketing, but much of that is valuable to patients in terms of finding out about new drugs that might be helpful. What disturbs me more are the scary and exaggerated warnings that sometimes accompany these ads, presumably to protect against lawsuits in the present highly litigious legal environment.

Some of you were surprised that a free trader like myself would not be enthusiastic about re-importing from countries like Canada that keep prices low through price controls and bloc buying of drugs. But drug companies, as well as other companies, should have the right to have legal contracts enforced. And the contracts with Canadian health organizations that buy drugs presume that Canadians, not Americans, will use the drugs sold to them. Still, as I pointed out, and some of you reinforced by your comments, if such re-importation did occur on a large scale, the result would be fewer drugs sold to Canada and higher prices there. That would then induce the Canadian health service to crack down on re-importation to the USA, as they are already doing.

Many, but certainly not all, of the comments distrusted patients to know when drugs might help, and like the FDA�s requirements of efficacy. I oppose this requirement in my commentary because that greatly slows down the approval process, and can mean the difference between life and death for seriously sick individuals. I believe that the growth in access to the internet and other sources of information has made patients much better informed than they were when the efficacy standard was introduced in 1962. No doubt, consumers will make mistakes in the health area as well as in others, but I much prefer that very sick people control their own treatment rather than it being controlled by government officials.

Some of you like Michael Kramer�s proposal for prizes, and I agree it is worth greater examination. But I do believe that it would be politically difficult to implement efficiently, and probably is not a good idea.

Drug companies clearly cater to the larger and richer markets, so they work on diseases in advanced economies rather than those found in Africa and other poor nations, and work on more common diseases, not the rare ones. The Orphan Drug Act tries to encourage research on diseases that are less common. And a forthcoming study by Tomas Phillipson, Rodrigo Soares, and myself shows that poorer nations do benefit, with a lag, from medical advances in rich countries. Yet it could be important for some private philanthropic organizations-like the Gates Foundation- and perhaps international bodies to encourage research on diseases found among poor nations, and help pay for drugs that help these populations.


The Becker-Posner Blog: Pharmaceutical Patents--Posner

The Becker-Posner Blog: Pharmaceutical Patents--Posner: "

Pharmaceutical Patents--Posner

I agree that no adequate, feasible alternative to patents exists for encouraging R&D by manufacturers of pharmaceutical drugs. But my agreement should not be understood as indicating approval of the present U.S. patent system.

Patents are a source of great social costs, and only occasionally of commensurate benefits. The social cost of patents that was traditionally emphasized by economists is the wedge that a patent drives between price and marginal cost. Generally, we expect that competition will compress price to marginal cost and that this is efficient because it means that no one willing to pay the marginal cost of a good is deflected to a substitute that might cost more to produce, yet look cheaper simply because the price of the good was above marginal cost. By preventing duplication, a patent reduces competition and so may enable the producer to charge such a price. But the objection to patents that is based on the wedge is superficial because the producer may have incurred costs that do not affect his marginal cost. Suppose the cost of R&D that the producer must incur to bring a drug to market is $100 million, but the marginal cost (the cost added to total costs by each unit of output) is a constant $1 a pill. Then no matter how many pills the producer sells at $1, he will never recover his upfront investment.

The real concern about patents is the costs imposed on inventors themselves. There is the cost of searching the records of the patent office to make sure you're not going to be infringing a patent, but more important is the transaction cost involved in obtaining a license from an existing patentee. Invention is a cumulative process; a new invention is usually an incremental improvement on an existing one. So the more patents that are �out there,� the greater are the costs involved in negotiating for a license from every patentee whom the new inventor may arguably be infringing. Because a patent can be obtained without even a prototype, because patent examiners are overworked and it takes less work to approve than to reject a patent application, and because the U.S. Court of Appeals for the Federal Circuit, which reviews patent validity, is extraordinarily pro-patent, the number of issued patents has grown steadily in recent decades. There is concern that some fields are so blanketed with patents (which may be owned by firms that do no production at all�whose business plan centers on demanding license fees under threat to sue for patent infringement) that innovation is actually being impeded. Most firms don�t actually want patents; for those firms, the costs involved in obtaining licenses from patentees are not offset by the prospect of obtaining license fees on their own patents. There are many alternatives to patents for protecting one�s investment in R&D, and they are often cheaper and more effective. They include: trade secrecy; the advertising value of, and the consumer loyalty generated by, being the first to produce a popular product; the fact that marginal cost may increase steeply with output, so that a price equal to marginal cost may cover the fixed costs of invention after all; the fact that it may be costly and time-consuming for competitors to duplicate the invention exactly; and, related to the last point, the learning curve�if costs of production fall over time as the producer learns more about how to make the product at least cost, the first firm in the market will tend to have a cost advantage over competitors, who arrive later. But if other companies are busy getting patents, you may have to patent defensively, and the patent thicket thickens.

The pharmaceutical-drug industry is the industry that can make the strongest case for needing patent protection. The investment required to bring a new drug to market is very great, in part because of the many �dry holes.� And it may take years before the new drug can be sold, which shrinks the effective term of the patent (if it takes 8 years to bring the drug to market, the effective term of a 20-year patent is only 12 years). This not only reduces the revenue from the patent; but because the costs of the upfront investment are incurred years before revenues commence, those revenues must, because of the time value of money, exceed the upfront costs in order to be fully compensatory. In addition, once the drug is in production, it is easily duplicated by competitors, and the marginal cost is very low at all feasible output levels, so that with free entry the original producer would not be able to recoup his R&D investment.

That said, I am skeptical about the length of the patent term for pharmaceuticals. Congress has tacked on to the normal 20-year patent term (which until 1995 was only 17 years) an additional term of up to 5 years for the time it takes a pharmaceutical manufacturer to get a new drug approved by the Food and Drug Administration. In addition, the expiration of a pharmaceutical patent does not extinguish the patentee�s ability to obtain a higher price than the generic substitutes that come on line when his patent expires, because there may be substantial consumer and physician goodwill attached to the trademark of the patented drug�consumers, even physicians, may distrust generics and prefer the original brand even at a higher price. Indeed, there is evidence that when a patent expires the ex-patentee will actually increase price, ceding the low-price end of the market to the generics. His overall profits will be lower but may still be substantial.

Against this it may be argued that the fact that the drug companies apparently do not have excess profits show they need every bit of patent protection they have. Not necessarily. Competition for a profit opportunity may transform expected profits into costs. Suppose the drug companies believe that the invention of some new drug will yield the successful inventor a $1 billion net profit. The prospect will induce heavy expenditures on being first (the aggregate expenditures may actually exceed $1 billion). The result is that none of the companies, or the industry as a whole, may have abnormal profits. Now suppose that as a result of a shortening of the patent term, the prospect for the successful inventor is for making only an $800 million profit. Less will be spent on the patent race. Yet consumers as a whole may be better off, because the investment saved may have greater value elsewhere in the economy. The entire patent �prize� goes to the firm that crosses the finish line first, and so a firm might spend a huge amount of money to beat its nearest rival by one day even though the value to the public of having the invention one day earlier might be negligible. This danger is greater, the bigger the prize. Shortening the patent term would reduce this potential waste by reducing the revenue from a patent; it would also reduce the transaction costs of licensing, because more inventions would be in the public domain."

The Becker-Posner Blog: Pharmaceutical Patents

The Becker-Posner Blog: Pharmaceutical Patents: "

Pharmaceutical Patents

Pharmaceutical Patents-Becker
The pharmaceutical industry is under attack once again for its high prices, because of a belief that it pays insufficient attention to safety, and allegedly that sometimes it hides damaging information about their drugs. The industry is no paragon of virtue, but during the past 50 years it has become a major contributor to the dramatic declines in mortality and increases in the quality of life. Reforms that undervalue these contributions are likely to do far more harm than good.

Some of the industry�s important products include aspirins, antibiotics, blood pressure lowering medications, cholesterol lowering drugs, Aids cocktails, drugs that slow the progress of breast and prostate cancer and Parkinson�s disease, effective sleeping pills, and anti-depressants that enable many mentally troubled persons to live reasonably normal lives. Although the cost of producing these and other drugs is typically quite low, enormous amounts are usually spent trying to discover and develop them.

In 2003, American drug companies spend over $30 billion on research and development, which includes the very expensive clinical trials required by the FDA and government regulatory bodies in other countries. This is not very far behind the Federal government�s spending on basic and other medical research. The average number of new molecular entities approved during the past five years averaged about 50. So American drug companies are spending some $600 million (=$30 billion/ 50) per new molecular entity. This heavy R&D burden explains why stock prices of drug companies have not performed especially well during the past 5-10 years, despite very high prices for a few blockbuster drugs. Bio-tech companies as a whole probably even lost money over this period.

The low cost of producing drugs once discovered creates the impression that drug companies are gouging seriously ill cancer, Aids, and other patients. But these companies cannot recoup their huge R&D spending without charging for a number of years much more than the cost of producing their drugs. The patent system provides protection against generic competition for about 20 years from the date of first filling for a patent. However, competition from chemically similar entities usually appears years before patents expire, and the extensive testing required by the FDA considerably shortens effective patent lengths. Still, without patents or similar protection, other companies can reverse engineer most drugs to discover how they are made, and then sell them at much lower prices since they do not have the burden of heavy R&D costs.

To be sure, a patent system creates a tension between the effect that prices well above costs of production have in reducing the use of drugs by sick persons, and the effect of high prices in helping companies recoup their large R&D spending. This tension is the cause of the increasing attacks on drug companies as more blockbuster drugs have been introduced during the past couple of decades. So an important public policy question is whether we can do better than the present patent system? I believe we can improve how the system operates in many ways, but some suggestions are likely to make matters worse rather than better.

One tempting idea is to have the government buy out patent rights, and place them in the public domain available to all producers. Competition would then insure they would be sold to consumers at the cost of production. Recently, the Harvard economist, Michael Kremer (http://papers.nber.org/papers/w6304) revived this old idea in sophisticated form. Kremer suggests that the government uses auctions to decide how much patents on new drugs are worth. The value of a winning price would be paid not to the winner, but to the discoverer and patent holder-who can refuse the government�s offer and hold on to the patent. The winner of an auction only provides a measure of the drugs� worth, and would not receive exclusive rights, even if the discoverer accepts the government�s offer, except in �a small proportion of patents�. But if this proportion is really small, the incentive to provide serious bids is greatly weakened. I also believe such a system might create a bureaucratic nightmare, but his proposal is worth more attention.

State governments and other groups are exerting great pressure to allow imports from Canada and online pharmacies, where drugs are much cheaper. But Canadian drug prices are cheap in good part because they impose price controls. In essence, Canada (and most other countries) free ride on the profits collected from the higher prices in the American market. The U.S. could also impose price controls if it wanted to do so, but these would be counterproductive because they would discourage discovery of new drugs. Moreover, if many drugs begin to be reshipped from Canada, drug companies would cut the amounts supplied to Canada, and prices there would rise. That is why Canada is beginning to crack down on online pharmacies that resell to the American market.

Perhaps patent lives should be shorter, but they were lengthened in the 1990�s because clinical trial procedures take so long due to the requirement of three clinical stages: the first to determine safety, the second to determine efficacy, and the third randomized trials to check safety and efficacy. It has been estimated that perhaps 40% of all R&D costs are spent on these trials. I have proposed elsewhere (http://home.uchicago.edu/~gbecker/Businessweek/BW/2002/09_16_2002.pdf )) that the FDA trust patients more, and allow them more freedom to use new drugs by granting approval without the efficacy and randomized stages - this was the situation prior to 1962. At the same time, the FDA can tighten up safety standards, especially by putting resources into following more closely possible side effects over long time periods. Were my suggestion implemented, R&D costs would go down considerably, patent length could be considerably reduced, and yet companies would have more incentive to invest in finding new drugs.

I do not like the hype and some other salesmanship of big pharma and bio-tech companies, but this industry has made enormous contributions to raising world health. It is likely to become even more important in the future as drugs are developed to match individual genetic differences. One does not want to kill this goose that is laying golden eggs by ill-thought out and counterproductive �reforms�. "


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Health Care and Intellectual Property: The Orphan Drug Act

United States

CPT Documents

US Government Documents

Other Documents

European Union




  • 1999, European Parliament, (STOA) Publications, Section 4.1.4, Orphan Drugs

Brief note on the abuse of Orphan Drug programs in creating monopolies

CPT has been highly critical of the exclusive marketing provisions in the US and the proposed EU orphan drug acts. Pharmaceutical companies now obtain 20 year patents for inventions, and investments in clinical trials and other research required for drug registration are protected under the WTO/TRIPS (Section 7, Article 39.3) and national statutes. In the United States protection for unfair commercial use of clinical trial tests is five years plus a 30 month extension if even a weak patent dispute is raised. In the European Union, protection is six to ten years. The amount of protection for health registration data is itself controversial, and often abused (see the page on paciltaxel for an example of an abuse that involves a life saving government invention).

The market exclusivity provisions of the Orphan Drug Act raise the question, are these provisions redundant? And if not, what exactly are governments being asked to protect?

It is important to understand that companies with claims of invention can receive patent protection, and companies that spend money on clinical trials, even without invention, receive exclusive rights to rely upon research results for several years.

The marketing exclusivity provisions of the Orphan Drug Act do not protect true Orphan Drugs, which no one wants to market because the are unprofitable. Market exclusivity is meaningless for unprofitable drugs. They do not reward invention, which is rewarded by patent. They do not reward investment, which is protected by statutues on unfair commercial use of health registration data. What do they reward?

The Orphan Drug Act is used to privatize something that is in the public domain, such an invention paid for by tax dollars, or a patent that has expired. It is particularly important to a company when they have done the least to deserve the benefit. Companies use the Orphan Drug Act to stop other companies from investing in clinical research, or from bringing new innovative products to market. Orphan Drug exclusivity is broader than patent protection, for a given indication.

Companies that obtain orphan drug designations in the United States use the exclusivity provisions to build a wall around an invention in the public domain, by obtaining patents on various manufacturing methods, treatment regimes or minor improvements in the product, in order to create barriers against entry by competitors. For example, Amgen used its Orphan Drug status to build a wall of manufacturing patents around EPO, which was in the public domain, and Bristol-Myers Squibb used Orphan Status to keep a competitor from submitting its own clinical research on the use of Paclitaxel for Kaposi's sarcoma.

The Orphan Drug Act has been written so that a very wide range of drugs quality as Orphans, including, for example, all AIDS medicines in the United States, plus countless other severe illnesses. It is not surprising that many new drugs are "orphan drugs" under current statutory definitions, particularly given deep federal subsidies, such as the 50 percent tax credit for expenditures on clinical trials. And any measure that makes the pharmaceutical industry more profitable and provides greater subsidies will attract private sector investment, at least in some research projects. However, it is a very blunt instrument that is often wasteful, costly to consumers and taxpayers, and sometimes counter productive (by discouraging investments by rivals once markets become legally exclusive).

Lobbying on Orphan Drug Legislation is funded by the pharmaceutical and biotech industry, with significant and often enthusiastic assistance from patients groups, many of which receive a wide variety of financial benefits from industry groups, and which typically represent consumers whose expenses are paid for by third parties, such as taxpayers or employers who pay insurance premiums. The result are legislative programs that make sense only if money is isn't scarce.

What is needed are more targeted incentives to conduct essential medical research, with greater public accountability.

James Love
January 5, 1999

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Cancer-busters tap into grid computing

By Robert Jaques
8 November 2007 07:35AM
Tags: cancerbusters | tap | grid | computing

Canadian researchers have promised to squeeze "decades" of cancer research into just two years by harnessing the power of a global PC grid..

The research team is led by Dr Igor Jurisica at the Ontario Cancer Institute, and scientists at Princess Margaret Hospital and University Health Network.

The scientists are the first from Canada to use IBM's World Community Grid network of PCs and laptops with the power equivalent to one of the globe's top five fastest supercomputers.

The team will use the grid to analyse the results of experiments on proteins using data collected by scientists at the Hauptman-Woodward Medical Research Institute in Buffalo, New York.

The researchers estimate that this analysis would take conventional computer systems 162 years to complete.

Dr Jurisica anticipates that the analysis could be finished in one to two years, and will provide researchers with a better way to study how proteins function, which could lead to the development of more effective cancer-fighting drugs.

"We know that most cancers are caused by defective proteins in our bodies, but we need to better understand the specific function of those proteins and how they interact in the body," he said.

"We also have to find proteins that will enable us to diagnose cancer earlier, before the symptoms appear, to have the best chance of treating the disease or potentially stopping it completely."

The research team now has more than 86 million images of 9,400 unique proteins that could be linked to cancer captured in the course of more than 14.5 million experiments by colleagues at Hauptman-Woodward.

Dr Jurisica said that this resource comprises the most comprehensive database on the chemistry of a large number of proteins, a resource that will help researchers around the world unlock the mystery of how many cancers grow.


A New Sweet Spot for Growth Investing-- Part II - Barron's Online

A New Sweet Spot for Growth Investing-- Part II - Barron's Online

You also own Merck, which has come a long way since its legal troubles involving the recall of the painkiller Vioxx. But does it have a lot of growth ahead of it?

They had ongoing problems with Vioxx [recalled because of heart-related risks]. They had definite patent issues with names like Zocor and Fosamat, so there was a pipeline issue. From 2003 to 2006, operating margins declined from 38% to 22%. Having said all that, from a legal standpoint they've demonstrated they can defend themselves on Vioxx. Margins have started to come back. They put up a solid quarter recently, posting 75 cents a share in earnings, versus an estimated 69 cents. The quarter before that they earned 82 cents versus expectations of 72 cents, and the quarter before that was flat with expectations.

That doesn't sound like huge growth.

These aren't going to be the robust type of revisions to the upside that we talked about with RIMM or Amazon, but they are solid. Operating margins bottomed around 22%-23%, and they could, by the end of the decade, trend back up into the 31% area. That's down from 38%, but still, if they generate 30% operating margins on a $25 billion revenue base, the multiple is going to expand. They could probably command a 20 multiple if not higher. They've got a new vaccine against sexually transmitted disease in Gardasil and a drug to help control Type 2 diabetes in Januvia. It's a fairly strong pipeline at the same time operating margins are expanding. This is one of those nice quiet names with great international exposure at a time when the dollar is weak.

Do you own any biotechs?

There is Gilead Sciences [GILD], a big biotech company that has the best HIV franchise out there and great operating leverage. This is a name that generates 50% operating margins, and we've seen estimates go from $1.60 to $1.85 for '08. The Street is really underestimating 2008, we think, and we expect them to earn $2.26 a share. It's a company growing at 20%-25% that generates 50% operating margins, and so it could certainly sell at a 25 multiple.