On a panel titled “Activist FDA: Transformation Agent,” Prevision Policy founder and former Pink Sheet editorial head Cole Werble relayed the tale of Acadia Pharmaceuticals, a San Diego-based company with a stage three compound (pimavanserin) targeting Parkinson’s disease-related psychosis.

A month ago, Acadia met with FDA to discuss the proper design of a new phase III trial intended to confirm the results of a previous, 17-month study that met its primary endpoints. A confirmation trial was needed, Acadia presumed, since the first phase III trial of pimavanserin, conducted in 2009 at half the dose of the successful trial, had failed. Acadia had already begun to enroll patients in the confirmation trial – which represented an $18 million commitment – when it met with FDA in April to get the agency’s blessing.

To Acadia’s surprise, FDA responded that the additional confirmation trial wouldn’t be necessary, based on the pivotal phase III trial already on the books, combined with supportive data from other studies on pimavanserin. As a result, Acadia scrapped plans to do another trial, and began preparing its NDA posthaste. But the company wasn’t hasty enough, and investors dialing in to a call about the FDA meeting balked at the company’s projected filing date – near the end of 2014. Why not file immediately, they wanted to know? Acadia executives’ refrain in response, was, “these things take time.” FDA had reversed the waiting game, making Acadia itself responsible for the delay in review and commercialization of a new product.

This is just one example, of course; it isn’t likely that a big pharma looking to introduce another DPP4 into the market for type 2 diabetes, for example, would be told not to worry about additional trials studying cardiovascular or pancreatic side effects. But the fact remains that FDA approved 39 NDAs in 2012 – the most since 1997 – and the agency launched yet another expedited regulatory pathway – breakthrough therapies – at the beginning of 2013. The breakthrough therapies designation is likely to shorten the timeline from discovery to commercial approval – for those drugs receiving the designation – to between three and five years, according to IMS estimates.

Rachel Sherman, associate director of medical policy and director of the Office of Medical Policy, CDER, FDA

The timeline from discovery to approval could be as short as 26 months, said Rachel Sherman, FDA’s associate director of medical policy at the Center for Drug Evaluation and Research (CDER). Sherman said her office had received – to date – 39 requests for breakthrough therapy status, of which 12 have been granted and 14 denied, with 11 pending and two withdrawn. She said the breakthrough therapies program is already “an enormous success.”

Joseph Herring, CEO at Covance, noted that pharmaceutical companies are often difficult to work with, from his perspective as the head of a CRO. “[Investigators] want a perfect trial that can’t be enrolled.” He wondered about the interplay companies have with FDA regarding trial design discussions. In response, Sherman advised more communication. “If what we say doesn’t make sense, ask us. Argue with us. We’re receptive to it.”

How does a company know whether it’s sufficiently engaged with FDA? “If your lead clinical person is on a first name basis with the [respective] lead reviewer at FDA, you’re in good shape,” said Sherman. “If you’re not, you’re not.” Sherman cited the Clinical Trials Transformation Initiative as another program aimed at “identifying and promoting practices that will increase the quality and efficiency of clinical trials.”

“The point of all our programs is better evidence generation…we lack evidence,” said Sherman. “The most expensive drug is the one given to the wrong patient, or given incorrectly.”

On the subject of biosimilar approvals, Sherman said FDA hasn’t received a single application yet, adding that the phrase “follow-on biologics” is dead. The requirements for biosimilars, according to Sherman, are that a biosimilar be “highly similar” to the original product, with “no clinically meaningful differences.” Sherman said that does not mean “interchangeability,” though, suggesting that a biosimilar could not be substituted for a brand biologic at the pharmacy, without specific doctor’s orders.

Comparing the current activist FDA with the activism the agency demonstrated during the HIV epidemic, Werble said that in addition to the breakthrough therapies designation, FDA has also launched the GAIN ACT, and its anti-infective exclusivity provision; has opened up FDA meetings to rare disease outside consultants, who advise companies on efficient FDA regulatory navigation; and has implemented PDUFA 5’s “patient-focused drug development meetings,” which solicit patient opinions around specific diseases.

Speaking on the “agency-wide impact of management attention and staff commitment” mustered during the HIV crisis 20 years ago, Werble said the pendulum has once again swung back toward FDA activism. “That commitment [to HIV] was infectious 20 years ago, and it’s occurring again,” said Werble. He also noted that a solid one-third of all drug applications submitted to FDA now come from small companies, a rejection of the thesis that only big pharma is properly equipped to navigate FDA’s regulatory structure.

The Rutgers Business School Annual Healthcare Symposium, convened on April 30, was presided over by Mahmud Hassan, director of the Blanche and Irwin Lerner Center of the Study of Pharmaceutical Management Issues, at Rutgers. John Castellani, president and CEO of PhRMA, and Seyed Mortazavi, president of IMS Health US operations, also gave presentations.

The Food and Drug Administration appears likely to benefit from sequester-flexibility efforts due to its unanticipated effect on user fee revenues. In addition to FDA contending with the 7.8% reduction in funding for its appropriated funds, as with other federal agencies, the Office of Management and Budget (OMB) has determined that the budget reduction policy applies to user fees paid by manufacturers to support specific FDA approval and oversight functions. FDA thus is collecting all its authorized fees, including recently renewed fees on prescription drugs and the new levy on generic drug companies, but is unable to touch a good chunk of the money.

FDA commissioner Margaret Hamburg explained at the annual meeting of the Food and Drug Law Institute (FDLI) last week that the agency will lose about $209 million this year due to sequestration — $126 million in budget authority and $83 million in user fees. FDA will continue to collect the fees, but the sequestered amount will remain on deposit in the U.S. Treasury and cannot be used to support “critical tasks” such as issuing regulations and guidances, conducting inspections and speeding approvals of new drugs and biologics.

At a recent hearing by the House Appropriations subcommittee that oversees FDA’s budget, Rep. Sam Farr (D-Calif) and other Democrats raised the possibility that Congress will look to provide flexibility in applying the sequestration policy to FDA, especially for fees collected from the private sector.

In response to questions about the impact of the sequester, Hamburg told the panel that without full user fee revenues, “we obviously will fall behind” in meeting performance goals. The agency will be slow putting out guidances, reviewing applications, making new hires to support new programs, improving business processes to make regulatory pathways more efficient and developing new regulatory tools that could “make our system better able to handle more sophisticated products.”

The budget cut could mean fewer meetings between FDA review staff and sponsors of new drugs. FDA’s system for regulating drugs and medical products “works better,” Hamburg explained to the legislators, when reviewers can work closely with sponsors to determine what data is needed and what kinds of studies are important to do to support a new product. And fewer resources “will certainly limit the staff’s ability to engage in those activities,” she said.

Hamburg said at the FDLI meeting that having adequate resources is a “constant concern,” and that she is “enormously troubled that FDA’s responsibilities continue to outstrip available resources.”  And she told the House panel that it was very “troubling” to negotiate commitments with industry to justify fees and then see some of the money going “into a bank” and not available to support FDA programs and activities. If these cuts continue, she stated, “it will have an impact.”

Of the many issues involved with the actual implementation of the 2010 Affordable Care Act, aka, “Obamacare”, few are more intriguing to me than those that personally impact Members of Congress (MOCs).  Here’s a good example of what I’m talking about — Today, on Capitol Hill, MOCs, along with thousands of their personal Congressional staff members, are facing a clear legal mandate that requires them to sign up for Obamacare.

However, according to a recent article in Politico these same Members and their staffs are currently scurrying about Capitol Hill, looking for ways to deftly tip toe around this mandate set to begin January 1, 2014.

How has this happened?  Well, as noted by Politico, in the heat of the 2009/2010 Obamacare debate, Sen. Charles Grassley (R-IA) stated, “It’s necessary and only fair for Congress to live under the rules we pass for everyone else.”  That is, Grassley’s position was that if Congress were to lay this new, revolutionary healthcare law on the American people, then by gosh, those serving in Congress would also have to obtain their healthcare via the same system. And that is exactly what was written into the law.  At the time, many Congressmen, for example, Sen. Sherrod Brown (D-OH), cheered this concept.

But as the reality of the new law has set in, it’s apparent that not every Member of Congress continues to cheer Grassley’s call for medical egalitarianism.  In fact, it seems this issue has caused a bit of internecine warfare on the Hill, pitting those who will be forced to obtain medical service from Obamacare, against those who will not.

In the middle of this squabble is the US Office of Personnel Management that has drawn the unenviable job of ruling on who on the Hill is in, and who’s out. A decision is expected sometime in May.  Currently, the OPM office is in “listening mode” on the issue and Politico reports that many Congressional staffs are in “discussions” with the OPM.

However, as pointed out earlier, the cold, hard truth here is that there really is no wiggle room on the basic issue of coverage.  According to Section 1312(d)(3)(D) of the ACA Act all Members of Congress and their immediate staffs shall utilize Obamacare after January 1, 2014. This care will be obtained either through their home state exchanges, or through the state exchanges of Maryland, Virginia, or DC, depending on where they live in Metro D.C. Seems straight forward enough.

So, what’s causing the uproar on the Hill?  Simple. The 535 MOCs and their thousands of personal Hill staff who, per the law, will be forced to accept Obamacare in about 8 months, will shortly be working side-by-side with thousands of other Capitol Hill staffers who will not have to use Obamacare. Think about that dynamic for a moment.

And who are these “other” Hill people who are exempted from Obamacare?  You may be surprised.

According to Politico, professional staff persons, either working for a standing Congressional committee (such as Appropriations, Ways and Means, etc.) – or working for one of the four Leadership staffs - do not have to sign up for Obamacare.

Additionally, the Capitol Hill administrative staffs (custodians, security, food services, etc.), as well as the entire Executive Branch and its Agencies, also are exempted.

Given that, here’s an intriguing question: does this mean that the federal CMS staffers currently working so hard on the 2014 implementation of Obamacare, are fully exempt from Obamacare? Looks like it. This also suggests that HHS Secretary Kathleen Sebelius, Obamacare’s primary advocate on the Hill, won’t have to sign up for Obamacare, either.

And where is the President on signing up for his signature domestic achievement?  Well, in comparison to his position three years ago when he said “I will sign up!” things have changed.  He is now quoted as saying he “may obtain his healthcare through the program.”

But realistically, as the Head of the Executive Branch, why would he do this?  He is exempt from the law he championed.

In other words, it boils down to this: if you are an elected Member of Congress, or work as part of the personal political staff of such a person, you get Obamacare.  However, if you are basically any other federal worker, you are apparently exempted from the provisions of Obamacare.

And how will all these exempt federal employees and appointees get their healthcare?  They’ll get it through Federal Employee Health Benefits (FEHB), a federal health insurance program that has been in place since 1960. This offering is made up of 250 different private, managed healthcare plans. Members and staff receive 72 to 75 percent coverage of their health costs from the Federal government, with most FEHB beneficiaries paying about 30% out of pocket.  Universally, the FEHB is seen as a very robust healthcare offering, rivaling many of those offered in the private sector. On the Hill, this insurance is viewed as one of the best benefits provided to those folks who work for the federal government, not to mention those elected to Congress.

And that is exactly the cause of the fury on the Hill – Members of Congress and their Hill staffs both in DC and back home must give up their FEHB coverage after January 1, 2014.  And many don’t like that idea.

What’s interesting to contemplate is how this will actually shake out for the 535 Members of Congress and their staffs when they leave FEHB and sign up for Obamacare in the state exchanges.

Let’s take an MOC from California. That state has been way out in front on adopting Obamacare state exchanges. So, theoretically, the California MOC’s in-state staff, living in say, Los Angeles, would be able to get the new Obamacare benefit without too much difficulty.  It’s possible, however, in fact very likely, that the new CA state exchange insurance would not be as robust as the FEHB insurance.  Still, the CA congressional staffers should be able to access the new Obamacare healthcare insurance.

However, for a home state Congressional staffer from one of the 25 states that has decided to just say “no” to Obamacare – Texas, for example – that might not be the case. In fact, for those states, it’s possible the only option for Congressional staff healthcare would be a federally sponsored exchange implemented by HHS.  Controlled and administered by Washington, this offering would likely be a step down from FEHB.

Another big sticking point for the MOCs and staff who are being forced into Obamacare is that while the federal employee reimbursement levels provided under FEHB is about 70%, there is no provision in the new law that states that the new state exchange policies must provide a comparable reimbursement levels (page 2).  In fact, “no reimbursed coverage” is a possibility.  So this diminished level of reimbursement or a complete lack of coverage is something that could turn into a significant personal expense for MOCs and their staffs when they forfeit their FEHB care, no matter what state they are from.

The final point in all of this, and really, this may be the biggest issue of all, is how will Obamacare affect federal retirement benefits?  Prior to the advent of Obamacare, a person with 20 years of service to the federal government, including Members of Congress and their staffs, was entitled to full FEHB “annuitant” health insurance for the rest of their lives.  But FEHB retirement annuities are not part of the state exchanges.  So how will MOCs and staffs get healthcare after 20 years of federal service?  Through their home state exchanges?  Much is unclear on this important question.

On reflection, I think I understand the “fury” on the Hill.  People who have worked together as colleagues addressing the same Capitol Hill problems for years and years, and who have depended on the same health benefits and retirement programs, all of a sudden are being placed on two very different health benefit planes: those who are being forced into the Obamacare state exchanges (if they exist in their states); and those who will continue to cruise along with the very robust FEHB.

And how will Congress likely manage this dichotomy?  Well, I expect Congress will do what Congress does best. Legislate. I look for some very quiet, “corrective” amendments to be quickly offered on Obamacare in 2014, or at the latest 2015.

Although I suspect a lot of Congressional tip toeing to occur around this ‘troublesome’ Obamacare mandate, in the end, we are likely to see aberrations like state exchange programs that specifically provide FEHB-like service to Members and their staffs.  And, at the same time, I wouldn’t be looking for Congress to pass similar benefit upgrades for “everyone else,” as Sen. Grassley put it, for their Obamacare state exchange programs.

Those are my thoughts on the oncoming shift of healthcare services on Capitol Hill.  I would like to hear your thoughts on this situation.

Tom Norton is principal at NHD Smart Communications. He can be reached at tnorton@nhdcomm.com

On April 1, India’s Supreme Court denied an appeal challenging the rejection of a patent for Novartis’s cancer drug, Glivec. The drug is a life-saving medicine for certain forms of cancer, patented in nearly 40 other countries — including many which are not noted for the strength of their intellectual property rights, such as China, Russia, and Taiwan.

Critics of the IP system have hailed this decision as a victory for patients and as likely to improve access to the medicine. In fact, the majority of patients currently taking Glivec in India will continue to receive the drug free of charge through corporate Oncology Access programmes. Yet the consequences of the ruling are damaging for India’s economy as well as for the process of creating other life-saving treatments which future patients may need.

Even before the current ruling on Glivec, India already had a low level of intellectual property protection, and not just for pharmaceuticals. A country’s IP environment is important for trade, investment and economic development. Indeed, a growing body of academic and policy research now emphasises the link between economic growth, technology transfer and stronger IPRs. OECD research, for example, has found strong links between IPRs and FDI, R&D and economic expansion. And IPRs have particular importance to the field of biomedical research, so the Indian Supreme Court’s decision is now likely to make the country a less attractive prospect for future bio-medical investment.

According to research conducted by Pugatch Consilium and published in Scientific American, India demonstrates a limited ability to compete with other countries for biopharmaceutical investment, based on a range of measures including scientific capabilities and infrastructure, clinical environment, manufacturing and logistics, regulatory framework, healthcare financing and overall market conditions. As compared to Denmark, the most competitive country surveyed (scoring 83.2), India scores only 67.3 points on the index, putting it below Israel and Poland.

A complementary piece of research shows that strong IPRs encourage pharmaceutical R&D and investment as measured by clinical trials. Based on a study published in the Journal of Biotechnology, India already has one of the lowest levels of clinical trials per capita, falling below South Africa, the Philippines, China, and Chile and well below the UK and USA. This is likely to worsen as a result of the Supreme Court decision, which weakens India’s IPR environment still further.

The simple equation promoted by activists that high prices on patented drugs deny the poor access to medicines provides a morally compelling soundbite but the reality is that weakening IPRs, as India is now doing, will not help alleviate that poverty and nor will it help India to create the medicines of the future. Instead, India’s latest decision and others like it, will only make April fools of us all.

Patenting is a political act. Technical details of patent law aside, the Glivec ruling highlights the most contested issue in medicine today:  what constitutes true innovation in an age where scientific advances are transforming the very definition of a drug?  This is a question that extends far beyond patent law into basic value judgments like how society should spend limited resources on medical technologies, in a way that balances patient access with the economic incentives needed to seed their development in the first place.  The external demand for value – the pressure to prove it beyond doubt – is driving every aspect of the pharma supply chain today.  Seeking to raise the bar around the basic patenting criteria of novelty, non-obviousness and an innovative step, as the Glivec decision just did, is but one expression of this broader challenge facing the industry.

India has made a choice — on Industrial Policy grounds.  What is interesting about the 112-page Court judgment is not the cursory review of whether Glivec’s chemical reactant composition delivered an “enhancement of known efficacy” – a requirement for recognition as a patentable innovation – but the emphasis it places on broader issues of policy and economics.  The ruling quotes approvingly from the academic literature that “rules and regulations of the patent system are not governed by civil or common law but by the interest of the national economy.”  More than a third of the text traces the rise of the domestic drug industry, noting that “development of the bulk drugs sector is the most important achievement of the pharmaceutical industry in India,” an outcome it said was made possible by the absence of full patent protection for pharmaceuticals prior to completion of the country’s accession to the WTO TRIPS agreement in 2005.

A finding writ backwards.  The Court’s reasoning is rooted in a complacent approach to the dynamics of market growth and social change, to wit: reproducing other people’s drugs is a business model that works for India; preservation of the generic sector’s license to operate has been in India’s economic interest since confederation, and patent law should simply mirror that commitment.  Left unsaid is whether a court of law is competent to make such assumptions on the basis of past history when the Indian industry itself is undergoing a significant shift toward greater global engagement, with innovation – in process as well as products — emerging as an equally attractive alternative to copying.  India’s burgeoning, up-from-nothing CRO sector is one domestic constituency unlikely to plot new growth from the Court’s arguments. Another likely casualty is the rich infrastructure that surrounds modern drug innovation, from clinical trials, subsidies to academic teaching hospitals, to advanced manufacturing and improvements in supply chain technology.  Much of this investment is likely to continue to transit to more predictable host countries – like China.

No alms for the poor.  Nothing in the Court ruling suggests that the plight of those without access to essential medicines will improve. The decision simply maintains the status quo for Indian generic producers, most of who manufacture primarily for export – because the money is better abroad than at home. As the world’s largest exporter of bulk drugs, Indian producers bear some responsibility for a recent World Health Organization [WHO] survey that found prices for even the lowest-priced generic products sold through the private sector were at least nine to as much as 29 times higher than the agreed international organization reference price, in most WHO regions.  Even in the public sector, provision of essential generic medicines covers only about 42 per cent of the potential target population in developing countries.  Access to medicines is complex – it is a cliché that bears truth. Generic production, particularly for profit, will not by itself deliver what the Court ruling claims is the commitment underlying India’s patent law to “provide drug access to the rest of the world.”

Regional trade is the next phase in the activist war on patents. The Glivec case has shredded much of what was left of the industry’s multilateral IP agenda, a decline that started with CEO acquiescence to the November 2001 WTO Doha Ministerial Declaration on TRIPS and Public Health.  The Declaration, whose principles are embedded in the 2005 Indian patent law, limited the scope of drug patents where public health considerations intervene and thus had the effect of inhibiting enforcement of relevant TRIPS provisions.  In response, big Pharma has moved aggressively to shore up IP protection in key regional trade negotiations, including the pending Trans Pacific Partnership [TPP].  As in any political negotiation involving countries at different stages of development, the high profile given to the Glivec case has put the industry on the defensive in its drive for more uniformity in the standard of protection.  Operating on multiple fronts, activist groups intend to promote the Indian model of “IP flexibility” to allow for compulsory licensing, patent linkage, open pre-grant opposition and a low bar on data protection.

Industry strategy needs a re-think. The Glivec case suggests there is not much heft left to big Pharma’s reliance on insider lobbying and technical expertise to defeat the anti-patent access lobby and governments who apply IP as a discriminatory trade barrier.   Recovery must start with a better message. If what the industry describes as India’s patent “theft” can be justified by activists as providing more access to the poor, then most observers will say it is a vice that is easy to live with — especially when the top five big Pharma patent holders are currently sitting on an idle cash pile of nearly $70 billion.

Work underway in Africa to highlight how IP promotes civic engagement and job-creating entrepreneurship can break the perception that patent rights are a zero sum game, an instrument of power that hoards knowledge rather than liberates it.  More pressure on governments to sit down and negotiate structurally sound tiered pricing arrangements, with proper safeguards, can obviate the need to misapply patent law for pricing and cost containment purposes. Creative use of licensing can be a “win win,” with many examples evident in the HIV space. It’s also worth explaining how the science of drug discovery is changing, where companies – big and small – must collaborate to mitigate the risks from the evolution of knowledge as a “floating asset.”    Patents are a force multiplier – it’s the best solution to the “tragedy of the commons” that plagues many well-meaning drug development initiatives by taking too long to consummate and that often yield little actual value to patients.

Comments?  – contact us.

If the generic drugs come to market sooner than originally planned, what exactly is the FTC so worried about? The issue for the FTC is not related to that simple fact, but to the multiple agreements that a branded company may bring to the negotiating table in seeking just one outcome… to make the first generic enter as late as possible.

Both brand and generic company alike go into the settlement room having assessed the risk of losing or winning the infringement case, and this risk is weighed on either side in determining when the generic can enter the market. For example, if two parties at present think they have a 50% chance of winning the case, and the patent for the branded medicine expires in 2021, then it is most likely that they will settle on an entry date for the generic halfway between now and then, in this case four years from now, in 2017.

What the branded company often does is it will introduce one or more of the following agreements: a supply agreement where the brand company agrees to pay the generics company to supply an active pharmaceutical ingredient (API) to them, a co-promote agreement where the generic agrees to help the brand to co-promote their product in exchange for payment, an agreement where the brand promises not to market its own authorized generic in direct competition with first-filer generic during its 180 day exclusivity period (where no other generic may enter the market), or an innovation agreement where both companies agree to work together to create an entirely new product.

All of these agreements, along with the most obvious one of an outright payment from the brand to the generic company are construed as weakening the generic party’s resolve to enter the market as soon as possible, commensurate with its assessment of litigation risk. These settlement terms, also known as “transfers of value” are quid pro quo for a later entry date, according to the FTC.

“The rationale here is that the generic company, which wants to sell its version of the branded drug as soon as it can to start earning revenues, will be accommodated and maybe less interested or less severe on the argument that it needs to get in as soon as possible if it’s receiving revenue from some other source,” says Jeffrey W. Brennan, partner at McDermott Will & Emery LLP. If the original argument is to push for a generic entry date (as in the example above) of 2017, suddenly they may not push as hard for four years from the time of negotiation; they may think of waiting five years, if they are getting this alternate source of revenue.

Nevertheless, the argument on the other side is something of a no-brainer: in every case, the generics get to market quicker than the patent exclusivity for the brand expires, and that is ultimately pro-consumer. Moreover, while these settlements between branded and generic companies are a cost of doing business within a questionable regulatory framework, the prospect of settling without exorbitant litigation leaves businesses and the courts alike happy with the absence of a lengthy trial.

As debate sizzles and the court’s decision coming to pasture in June, many pundits have begun to weigh in on how the issue of pay-for-delay settlements will be decided. When asked as to the SC’s final ruling on the case, M. Miller Baker , another partner  at McDermott chimed, “I don’t expect the court to be starkly divided in this case—I expect seven or 8 votes, potentially all 9 votes against the FTC here, with Justice Sotomayor as the wild card.”

So, what’s your verdict?

On December 8, 2012, the Supreme Court agreed to hear the Federal Trade Commission (FTC) v. Actavis, Inc. case. The court’s grant of certiorari marked the latest chapter in a decade-long effort by the FTC to have the court rule on the festering issue of whether pay-for-delay provisions in patent settlements are legal. Oral hearing was heard on March 25; a decision is expected by June.

Paying generic companies not to bring a cheaper product to market is inherently problematic. We spent over 30 years of our professional lives working for Big Pharma, many as Chief IP Counsels defending patents, and we believe that pay-for-delay provisions are not in the best interests of the research-based industry. But we don’t believe they are presumptively anti-competitive and harmful to the American consumer as the FTC asserts. Rather, we believe their consequences are far more insidious.

More important, we have come to believe that the issue presented to the Supreme Court, regardless of the ultimate ruling, will not fix the underlying problem. The issue that should be addressed by policy makers is whether the current Hatch-Waxman (H-W) system needs revisiting to overcome a clear decline in new drug development.

Passed by Congress in 1984, the act was meant to be a fair compromise between the research-based pharmaceutical companies that invent new drugs and the generic companies that copy them. It looked great on paper but broke down over the years in practice.

In order to be able to sell a drug in the United States, marketing approval must first be obtained from the Food & Drug Administration (FDA). This is a time-consuming and expensive process, taking anywhere from 10-15 years and costing over a billion dollars. Prior to 1984, this was required of generic drugs as well as new ones.

In an effort to get more lower-cost generic drugs to the American consumer, while maintaining incentives for innovation, Senator Orrin Hatch and Representative Henry Waxman negotiated a deal that allowed generic companies to piggy-back on the data submitted by the research-based company. As if this was not enough incentive for the generic companies, H-W added another sweetener. It awarded six months of marketing exclusivity to the first generic company to knock out a drug’s patent, in essence awarding a mega million dollar prize (and in some cases a billion dollar one) to the generic company with the most aggressive and clever legal team. It didn’t take the generics long before they were all trying to get in on the action. While many cases did go to trial, generic companies soon understood that the mere filing of a patent challenge might very well produce a nice settlement reward.

Pay-for-delay provisions in patent settlements foster, and indeed encourage, a plethora of weak, and in many cases, meritless patent challenges. Not all settlement agreements contain pay-for-delay provisions. However, because the research-based company has so much at stake, and the generic, apart from its legal expenses, so little, the risk vs. benefit ratio is significantly skewed against the research-based company. Paying something to protect what belongs to the research-based company (i.e., the patent) often makes financial sense. It would be as if your doctor said you had cancer, but all you had to do to ensure your survival was amputate your little toe. Almost all of us would find ourselves in the operating room.

We believe pay-for-delay provisions hold Big Pharma hostage to the generics’ often not-so-disguised form of blackmail. The only winners in the pay-for-delay scenario are the generic companies and the law firms that represent them.

We think it is time to stop rewarding the player with the least at stake. The generics are dependent on the successes of Big Pharma. And Big Pharma lives with the daunting statistic that only one in every 10,000 drugs ever discovered actually makes it to market, as well as the huge price tag to make that happen. Don’t look to generics to start doing that any time soon.

Ironically, although generics only copy already approved drugs, they sometimes can’t even do that properly. Generics have to be bioequivalent to the branded drug, but in some cases they just don’t work as well. This may be due to different excipients, different manufacturing conditions, or simple oversight. Sometimes they are even dangerous, as is evidenced by a recent recall of a generic product when glass was found in certain lots.

We believe one way to “fix” the current imbalance of interests is to extend the data exclusivity law from its current five-year term to ten–just as it is in Europe and Japan. A ten-year period during which generics could not ride free on the backs of the innovator companies’ health dossiers would ensure a meaningful period in which the innovator could recoup a portion of its research and developmental costs, as well as discourage frivolous and weak patent challenges. This would save millions in legal expenses and allow those wasted resources to be used for research purposes instead, thus directly benefiting all of us.

UPDATE:

Response to post: Traci Medford-Rosow and Peter C. Richardson

Paying generic companies not to bring a cheaper product to market is inherently problematic. As we stated, however, we don’t believe they are presumptively anti-competitive as the FTC asserts. If they have any effect on competition at all, they are slightly pro-competitive.

The reason for this is clear to IP attorneys who have battled generic challenges. Pay-for-delay provisions in patent settlements foster, and indeed encourage, a plethora of weak, and in many cases, meritless patent challenges. While many cases do go to trial, generic companies understand very well that the mere filing of a patent challenge might very well produce a nice settlement reward. While working for Big Pharma, we were once directly asked by the General Counsel of a well-known US generic company, “Aren’t you going to pay my company something to go away?”

So ironically rather than delaying the entry of generic drugs, which should naturally occur at the end of the patent term, the existence of pay-for-delay provisions encourages some generics to take multiple shots on goal in the hope that someone will pay them a nice sum of money to go away for a while. But most pay-for-delay payments are coupled with a reduction in patent term as well, thereby actually resulting in a generic entering the market sooner than it would otherwise, if the patent challenge had never been filed in the first place.

As Judge Richard Posner wrote a decade ago, “A ban on reverse-payment settlements would reduce the incentive to challenge patents by reducing the challenger’s settlement options.”  Judge Posner is correct. A ban on reverse-payment settlements would indeed reduce the incentive to challenge patents, especially meritless and frivolous ones. ANDAs are routinely filed for every approved drug, most often on the first day possible–immediately upon expiration of the data exclusivity period. If you believe the generics’ side of the story, every single drug patent in the United States is invalid and/or obtained by fraud. This defies credibility and was not contemplated when Hatch-Waxman was enacted.

Accordingly, despite the fact that pay-for-delay clauses may incentivize generics to challenge patents, we do not think they are in the long-term best interest of the American consumer. We believe pay-for-delay provisions hold Big Pharma hostage to the generics’ often not-so-disguised form of blackmail. But the only winners in the pay-for-delay scenario are the generic companies and the law firms that represent them. Certainly not Big Pharma nor the thousands of American workers the industry employees. More important, not the American consumer either. Precious dollars spent defending meritless patent challenges have diverted millions of dollars away from much-needed research and cures for deadly diseases.

Traci Medford-Rosow and Peter C. Richardson are intellectual property attorneys at the law firm of Richardson & Rosow LLC in New York City. The views expressed herein are their own. Traci can be reached at tmr@richardsonrosow.com, and Peter at pcr@richardsonrosow.com.

As the US pharmaceutical industry anxiously watches the rapid onset of Obamacare, certainly one of the more pressing issues is the debate over the number of drugs that will be reimbursed in each therapeutic class under the Essential Health Benefits (EHB) program.  To say that this is a critical concern for the future of the US pharmaceutical industry would be a gross understatement.

Status of EHB and the “One Drug Per Therapeutic Class” Issue

Where does the EHB Rx situation stand at this point?  To date, things have gone from the “You-have-got-to-be-kidding!” stage — where HHS initially determined that only one drug per therapeutic class would be available under Obamacare’s EHB — to the latest HHS pronouncement in November 2012 which appeared to accept that more than one drug per category may be an option for patients.

I say “may” because this recent HHS opinion on drug availability states that more than one drug per class could be provided — depending on the various “benchmark” insurance plans that each state exchange might or might not adopt.

How did this change in attitude come about?  It seems in 2011/12 HHS was pressed on this “one drug per therapeutic class” policy by dozens of disgruntled patient advocacy groups.   In the end, HHS decided to review the drug policies of several potential state “benchmark” insurers.  They found, apparently to their surprise, that most current insurance policies that would likely serve as “benchmarks” provided several drug offerings in each therapeutic class.

Therefore, the emerging reality for Obamacare patients is that their Rx care most likely will vary from state to state, depending on how robust each state’s “benchmark” insurance policy may be. That’s how it stands now.

US v. Canadian Rx Policy

Coincidental to these Rx developments  in the US, which at best suggest that future access to prescription drugs under Obamacare may be a “hodgepodge” of state insurance coverages, it’s interesting to note that pharmaceutical access issues are also a growing issue in Canada, where universal healthcare for all citizens has been available since 1984.

Broadly put, it appears just as the US is plunging headlong into a major expansion of its public healthcare system, Canada, according many recent articles in the Canadian press, seems to be gradually inching away from its public system.  Instead, it is gradually moving back towards an enhanced private/public healthcare alternative.  The evidence for this?  In one of those stories, it’s pointed out that last year more than 30% of healthcare provided in Canada was delivered through private resources.  An important element of this trend is the emphasis on Rx services in many of the private insurance plans. 

Why is this movement toward private insurance occurring?  It’s because Canada’s public healthcare focuses primarily on full coverage for ‘hospital’ and ‘physician’ services.  Indeed, no Canadian province allows for private insurance payments for either of those health services.  Hospital and physician care are provided exclusively through the provincial health programs.

However, prescription drug care is a different story.  In Canada, while many provinces do cover various levels of outpatient Rx drugs, private insurance for prescription drugs is also widely utilized because there is great variation in provincial outpatient drug coverage policies.  Overall, drug coverage paid for by private Canadian insurance entities account for a large part of the Canadian private healthcare delivery.

In fact, as you review recent Canadian publications on the topic of outpatient drug coverage, and who should be paying for what in Canadian Rx coverage – individuals or the province – it is very much an ongoing debate in Canada, right now.

Here’s a good example.   A recent article in the Toronto Globe and Mail detailed a series of cases that highlighted the disparity between full, government-provided coverage for hospitals and physicians services — versus the provincial outpatient drug coverage (In this case, in New Brunswick) provided for those who need drugs for cancer, debilitating arthritis, and other diseases. You have to say it’s a mixed bag, at best.

Actually, the Canadian examples noted in the story reminded me of many of the accounts we have heard in the US for years, especially during the run up to the passage of Obamacare.  The stories essentially go like this: “Life threatening diseases—only a few drugs available to deal with the illness—each very expensive to buy—and once the person leaves hospital coverage, the individual goes broke trying to pay for the uncovered prescription products.”

What’s interesting here is that from the Canadian point of view, given nearly 30 years of national universal health coverage, this situation is viewed as nothing short of a “healthcare travesty.” One of the individuals quoted in the Globe and Mail story, who is battling cancer, framed it this way: “It was a shock to me that I had to pay for cancer treatment. That’s not how it’s supposed to be in Canada.”

Right. But actually, that is the way it is in many Canadian provinces.  This is because Canada has its own “hodgepodge” of provincial public drug coverages, and outpatient prescriptions, particularly for high cost drugs, are not provided under most of the provincial health systems.

What solution have an estimated 60% of Canadians adopted?  As pointed out a moment ago, they are buying a lot of private health insurance to cover access to a wide range of Rx products (see page 9).

Canadian and US Drug Policy Convergence?

So, will the US drug reimbursement system under Obamacare converge on the Canadian approach to Rx reimbursement? Or is it the other way around, with the Canadians regressing back to the old US private pay drug reimbursement system?  Obviously, at this early point in the onset of Obamacare, it’s hard to say “who’s on first.” But by the design, what is clear now is that within both systems there are, and likely will be, Rx coverage gaps. Patients in both countries will demand and likely find ways to obtain these drugs.

So let’s consider all this for a moment.  Is there a solution for Americans who may be swept into Obamacare on January 2, 2014 and who find their Rx care lacking?  Yes, I suggest we have to look no further than the way that many Americans currently manage their public Medicare benefit.  Today, 25 percent of Medicare patients carry additional, privately generated supplemental Medicare insurance, or “Medigap” coverage.  It’s specifically designed to cover the many medical services that “traditional” Medicare does not cover.  Given the variations we are likely to see in the state “benchmark” insurances, I’d be looking for “MediGap-like” insurance appearing shortly as a supplement to Obamacare Rx coverage.

Therefore, in managing the coverage gaps in Obamacare, is it an overstatement to say that Americans will likely be adopting a version of the current Canadian model of public/private Rx care?  Actually, yes, it is a stretch, but that’s because Americans will need more comprehensive Rx coverage than their Canadian counterparts currently require.  Americans will need not only insurance for high-cost prescription drugs, but also coverage for more than one drug in each therapeutic category.

In sum, whose Rx policy is converging on whose?  It’s hard to say exactly, but the way things appear to be developing, it looks like one day soon, citizens of both countries may be presented with very similar public Rx coverage policies, as well as private insurance options.

Taken to its logical public policy conclusion, in the future, Americans may possess an “Obamacare drug card,” as well as supplemental drug insurance that will be good for prescription drug coverage not only in New York City, but also in Toronto, as well.

Those are my thoughts on the converging Rx policies of Canada and the US.  I would be interested in hearing your views on this topic.

Tom Norton is principal at NHD Smart Communications. He can be reached at tnorton@nhdcomm.com

Dr. Gregory Geba, who was appointed OGD director last July (2012), says “I entirely support” plans to shift all the chemists out of OGD to a new Office of Pharmaceutical Quality (OPQ), as proposed by CDER director Janet Woodcock.  Yet his memo of March 13 announcing his resignation indicates considerable frustration with the situation. Geba came to FDA from Sanofi, he says, to help “pave the way” for extending generics from conventional pills to more complex dosage forms, and to address a broad range of complex quality and regulatory issues. But he notes that the shift of his chemistry group to OPQ will limit OGD resources and “inevitably resets the scope of responsibilities and remit of our office.”

Ever since the OPQ proposal emerged last fall, OGD staffers have voiced concerns that combining generic and new drug review chemists in the same operation would decimate OGD and complicate the generic drug review process. Moreover, the change appears to counter Woodcock’s move last September of elevating OGD to “super office” status, with Geba reporting directly to her.

Similarly, staffers in CDER’s Office of Compliance are leery about OPQ swallowing up much of its Office of Manufacturing and Product Quality. The idea is to combine operations responsible for evaluating chemistry and manufacturing controls data in applications for new drugs and generics with those overseeing compliance with good manufacturing practices, but so far, the change appears disruptive to many CDER officials.

Whatever the merits of Woodcock’s organizational changes, Geba’s sudden departure comes at a difficult time. OGD and manufacturers are immersed in the details of implementing a major new user fee program as well as issuing new guidance and refining programs to smooth the development and approval of safe and high quality generic products. Geba noted in his memo that OGD has approved nearly 200 Abbreviated New Drug Applications (ANDAs) since it began collecting user fees last October, and that it’s beginning to whittle down the massive application backlog.

He also notes that to continue these improvements, OGD plans to hire 100 new staffers and to implement a number of new initiatives – prospects that likely will be undermined by depleted resources under the current budget sequester and a continued impasse in Congress over spending limits. No surprise that someone with a strong resume might not want to stay around to deal with all of this.

In the usual political gamesmanship that accompanies government budget stalemates, the administration cancelled visitor tours of the White House and delayed access to national parks, blaming Congress for failing to deal with the budget impasse. Reductions in airport services threatened flight cancellations. The Centers for Disease Control and Prevention (CDC) predicted difficulties tracking and identifying outbreaks in infectious disease, and the Obama administration warned of reduced funds for childhood vaccines. The National Institutes of Health said its loss of $1.6 billion in funding (on its $31 billion budget) would translate into 2000 fewer research grants, diminishing prospects for new treatments for cancer and other serious diseases.

These and other reductions in government services really go into effect March 27, when employee furloughs without pay begin at many agencies. FDA officials say the agency can avoid reductions in staff, but that the impact will be felt on fewer field inspections and problems meeting application review time frames, scheduling meetings, developing new guidances and rules, and a host of agency functions.

A key issue is whether FDA can gain authorization to spend the new and increased user fees it has been collecting for the last six months. Congress needs to authorize the agency to collect the newly established and increased fees and to rule that sequestration should not apply to all the fees, but has been reluctant to do so. There is some $82 million in fees in question, which FDA desperately wants to tap.

Even more disastrous for the nation than sequestration is the prospect that Congress will let the current continuing budget resolution (CR) expire; if that occurs on March 27 it would end current funding for most government programs. Because Democrats and Republicans really don’t want to shut down the entire federal government, Senate and House leaders are working hard to at least extend the CR through September of this year.  Under the latest Senate budget proposal, the CR legislation also would provide additional funding in many areas for the rest of the 2013 fiscal year. Here, FDA benefits from Sen. Barbara Mikulski (D-MD) now chairing the Senate Appropriations Committee. She has engineered a 2013 budget plan with Republican support that provides $2.5 billion in funds for FDA for this year, including added resources for foreign inspections, food and drug safety and agency operations. With all its $1.8 billion in user fees, the agency would have $4.3 billion in funding, slightly more than for 2012.

The Senate plan also provides an extra $71 million for NIH, but that’s just a token in light of the $1.6 billion hit under sequestration. And no one expects sequestration cuts will be restored.

Key policymakers also are rolling out proposals for a compromise budget plan for 2014, due in April for the next fiscal year beginning Oct. 1, 2013. The latest Republican budget plan calls for transforming Medicare into a voucher program, cutting Medicaid and eliminating the Obama health reform program; at a minimum it cuts millions authorized for implementing insurance exchanges and other reform components. Those health proposals failed to gain public support last November and don’t carry much weight in the Senate. Yet Democrats will have to agree on serious reductions in outlays for entitlements and social programs to enact a workable spending program, and that will require strong presidential and congressional leadership. Every interest group – including research scientists and pharma companies – have been trooping up to Capitol Hill to beg for special treatment for their particularly vital programs, but there’s not much extra money lying around.

For guest blogger Tom Norton’s previous take on pharma and The Sequestration Transparency Act of 2011, click here.