The decision was not a complete victory for the FTC, in that it stopped short of declaring reverse payment agreements as per se illegal. Instead, the Justices instructed the lower courts to apply a “rule of reason” to these cases, and not the “quick look” approach employed by the Circuit Court case under review.

The ruling in FTC v. Actavis supports the long-held contention of FTC officials and consumer activists that brand-generic patent settlements maintain market exclusivity for brand name drugs, reducing competition and raising costs for consumers and health care systems. Both innovator and generic firms have insisted that these settlements actually permit generic products to come to market earlier than under costly, drawn-out court battles over patent rights. That argument was supported in an April 2012 ruling from the US Court of Appeals, which found that an arrangement that allows generic competition earlier than patent expiration did not violate antitrust laws. The dissenting opinion from Chief Justice John Roberts, which was joined by Justices Antonin Scalia and Clarence Thomas, echoes the earlier Court ruling and also raises concerns about linking antitrust law and patent issues and weakening patent protections for innovators.

However, a 5-3 majority led by Justice Stephen Breyer held that the FTC and other government and private parties have the right to pursue reverse payment arrangements as violations of antitrust laws. Breyer, joined by Justices Anthony Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, express concerns that reverse payment settlements have an adverse effect on competition. At the same time, though, the majority fails to provide guidance on how to structure patent settlements so that they do comply with antitrust policy.

The ruling is expected to encourage the private plaintiffs bar to bring new lawsuits challenging brand-generic patent settlements of all kinds, setting the stage for years of uncertainty in challenging and defending patents on all sides. “It’s going to be a nightmare,” predicted Arent Fox attorney Wayne Matelski, as District Courts struggle to decide what “rule of reason” means in these complex cases.

While companies may be more reluctant to settle future lawsuits, they may face legal challenges to earlier settlements, and new arguments against cases currently before the courts. More plaintiffs may enter the fray, as seen in recent actions by chain drugstores. These cases will require decisions from judges on whether a settlement is illegal primarily due to the size of a  reverse payment, or to other services and arrangements with a generic firm. The Courts also will have to weigh the strength of a patent and the merits of a patent suit and what extraneous financial factors might lead a generic competitor to seek a settlement.

Although the FTC called the ruling a “significant victory,” many legal authorities questioned whether the decision would promote competition and lower drug costs. It remains to be seen if generic drug makers will become more aggressive in challenging patents in order to speed copycat products to market, or if brand firms become more determined to protect intellectual property rights, despite the high cost of litigation.

Congress gets off the hook, for now, as it’s likely to drop efforts to enact FTC-backed legislation to limit reverse-payment settlements. Yet, the issue could end up before the Supreme Court again if lower courts continue to produce divergent rulings on these cases, as they have done over the last decade.

Pfizer CEO Ian Read, and FT pharmaceuticals correspondent Andrew Jack

After opening remarks from Andrew Jack, FT’s prolific pharmaceuticals correspondent, Pfizer CEO Ian Read took the stage at the sumptuous Metropolitan Club in Manhattan for a chat with Jack. The biggest issue facing the pharmaceutical industry today, said Read, is whether society is willing to pay for clinically meaningful products.

That thread wove through many of the panels afterward. Old debates about cost sharing, which focused on the role of insurance providers in managing the out-of-pocket costs of drugs to patients, have shifted into conversations about shared value, which puts the onus on industry to align societal economic needs with positive health outcomes, and profits. Jeff George, global head at Sandoz, described a company program in Ethiopia that voluntarily tests local pharmaceutical products for bioequivalence, to separate the pure from the placebo (or worse). This program helps protect the public health, while also screening out Sandoz’s counterfeit competitors, said George.

The most pressing quandary for Jan Groen, CEO at MDxHealth, a molecular diagnostics company, is “who will pay for companion diagnostics?” outside of the US. David Meeker, CEO at Genzyme, said “society is willing to pay for things that work” – companion diagnostics increase those odds. Responding to a question on the sustainability of ever-increasing prices for products targeting rare and ultra-rare diseases, Meeker suggested that yes, there had to be a ceiling, but he asked attendees how much it had cost to rescue the Chilean miners in 2010. Answer: “I don’t know, and it doesn’t matter,” since the cause was supported by the global community.

Of course, there aren’t some 200 mine collapses and rescues every month, with another 7,000 collapsed mines and trapped miners waiting impatiently to be rescued (or if there are, developed nations don’t hear much about them, and don’t bankroll the rescue operations). But Meeker’s point is well taken; more than $20 million was spent to save the lives of 33 miners, of which $15 million came from Chilean government coffers. Societies will have to make tough decisions, collectively, about the extent to which an individual taxpayer is willing to be his sister’s keeper, if governments plan to continue reimbursing orphan drugs at their current prices. Those decisions will inevitably increase scrutiny on pharma’s profit margins, requiring ever-greater transparency efforts, and a greater degree of sharing, in order to substantiate the price of innovation.

Colin Hill, CEO and Co-founder, GNS Healthcare

The question then becomes, according to Pfizer’s Read, whether productivity – understood as the successful development of safe and effective new treatments, and better health outcomes – matches the spending levels devoted to such efforts. Currently in the US, it doesn’t, said Read, but sharing clinical data with the general public – all the rage in Europe – is not the solution. Read said making this data too accessible jeopardizes the delicate risk/benefit calculation that is, or should be, the sole province of regulators.  “To dump patient-level data on the pavement and allow dozens of institutions to consider, evaluate, and review it, could have huge negative consequences for healthcare,” said Read.

On the other hand, Colin Hill, CEO of GNS Healthcare, a big data analytics company, said that clinical data sets are used by his company – along with data from hospitals, claims data, demographic data, genetic data, and data from electronic health records – to improve health outcomes. “The question is not, what is the best rheumatoid arthritis drug for the price, but what drug will work best for an individual patient at a specific progression of disease,” said Hill. Reliably predicting the right treatment for each patient, the first time, is the key riddle to solve, he said.

Hopefully that treatment is covered on the formulary. Read frowned at what he perceives as a shift in public focus from insurers to drug-makers. Insurance companies dictate expectations to patients and tell them which drugs they can, and cannot, receive. If drug companies did that, “there would be hell to pay,” said Read.

With all of the emphasis on “sharing,” at pharma industry events and in seemingly every new digital technology invented, it has become imperative to take a harder look at exactly what is being shared and with whom, and to identify the shareholders. Unfortunately when it comes to sharing the costs associated with a healthy population, people use their own unique algorithms to determine what constitutes a fair share. Everyone is an interested party.

If you are an Rx regional sales director or a product marketing manager, I have a somewhat provocative question for you:  How exactly are you planning your 2014 Medicaid strategy?

I ask this because as you look over the Medicaid landscape for next year, there is more than a little uncertainty at hand.  With Medicaid about to become the basic health care delivery mechanism of the 2010 Affordable Care Act, otherwise known as Obamacare, you would think this might be a simple matter of reviewing the new federal law for guidance. But if that’s the approach you are taking for your 2014 Medicaid planning, let me be the first to tell you, you are going down the wrong path.

Obamacare is premised on the idea that federal government and state governments will cooperate in the delivery of healthcare to an estimated 40 million new Medicaid patients starting on January 1, 2014, with sign up for these new services scheduled to begin on October 1, 2013.

That is all well and good, so far as a reading of the law goes.  But when you begin to dig into how the states are actually implementing Obamacare, you soon realize the launch of this new law is not going as smoothly as the framers of the measure had hoped.

As of this writing, and according to the Kaiser Family Foundation, there are 26 states that have said absolutely “no” to state exchanges envisioned by Obamacare and are defaulting to a federal exchange; 7 that have said “no” to parts of Obamacare and have negotiated “Partnership Exchanges” with HHS; and only 18 that have declared they will establish state-based exchanges, and cooperate with new law.

If Kaiser is correct in these assessments and given the current US population of about 313 million, this means that approximately 56% (177 million) of Americans live in states that have said effectively said “no” to Obamacare; 10% (32 million) live in states that have rejected parts of Obamacare; and only 33% (104 million) live in states that will have access to Obamacare’s state exchange offerings.

If these statistics startle you, they should.  Thinking about your 2014 “numbers,” how will you manage this situation nationally?  In particular, what will happen in those states that are “defaulting to the federal exchange?”  Here are two key examples you may want to focus on for your answers.

Florida

Florida’s current population is about 19 million.  Right now, 3.3 million Floridians (approx. 17% of the state) are enrolled in FL Medicaid.  It’s estimated that another 1.3 million Medicaid recipients will be added to Florida’s Medicaid rolls once Obamacare is implemented.  This creates a potential situation in which nearly 25% of Florida’s total population is scheduled to be receiving Medicaid Rx care after January 1.  Any Rx sales manager or product marketer who is responsible for the State of Florida has to take notice of these numbers.

So how is the implementation of Obamacare going in Florida?

This past winter, Florida’s governor, Rick Scott, a Republican, publicly broke ranks with his Republican Governor Association colleagues, and announced that he was seeking a “deal” for Florida that would accept the essence of Obamacare, i.e., the federal financial support, while adopting a 100% federal provision of insurance services, all of which sunset and be reviewed after three years.

Seemed like a done deal. But when Gov. Scott took his concept to the Florida legislature, he encountered stubborn resistance from the Florida House of Representatives.  In the end, the governor gave up and the entire Obamacare package was shelved. Florida, it appears, will default to whatever the “federal exchange” may turn out to be.

So, how as a sales & marketing executive with responsibility for Florida do you plan your sales and/or marketing strategy in this huge, heavily Medicaid impacted state?  What drugs will be covered in the “federal exchange?” Will only one drug per category be covered, per the earlier recommendations of the Essential Health Benefits finding put out by HHS? How will you get your drug covered for Florida Medicaid in 2014? How will you get reimbursed? From the state or the feds? And at what rate? Right now, nobody knows the answers to any of these questions.

Let’s look at another important example that is being impacted by Obamacare: Texas.

Texas

Texas is now the number two most populous state in the nation with an estimated 2012 population of over 26 million. It’s also one of the fastest growing states in the nation.  Given all of this, I don’t think it would be an overstatement to suggest that every Rx sales and marketing director in the country wants a piece of Texas.

So let’s consider the impact of Obamacare’s implementation here. Currently, Texas Medicaid beneficiaries number approximately 5 million individuals, or about 20% of the population. An estimated 2.6 million beneficiaries could be added to the Texas Medicaid rolls under Obamacare. That would total 7.6 million people, or about 29% of the State of Texas population.

Unlike Florida, however, Texas has been a steadfast “no” in cooperating with the federal government on the implementation of Obamacare from the start. Therefore, Texas had no debate about setting up a state exchange for new Medicaid patients. Instead, like Florida, a new federal exchange is supposed to be put into operation for nearly 8 million Texans by January 1, 2014.  How this will be accomplished in Austin is unclear at this time.

Again, as regional sales directors or product managers for Texas, how do you plan on “making your numbers” in this huge market for 2014?

Planning Elements for Medicaid Sales & Marketing in 2014

I could go on from here with the specifics of each “no” state, but I think you get the picture.  Just Florida and Texas, alone, both among America’s most populous states, account for nearly 10% of the estimated 40 million total Medicaid expansion this new law is supposed drive come January 1, 2014.  These two states by themselves stand to generate massive Rx sales that will impact anyone’s national sales or product marketing plan.  However, both are essentially blank pages today in terms of how your products will be included on a formulary, what the reimbursement rates will be, who will pay you for their dispensing, and all the rest that goes into making money in a state Medicaid Rx program.

And the same is true for the other 24 “no” states. Nobody has answers. Overall, you are essentially in the dark as to how to plan for about 22 million new beneficiaries with drug coverage.

So how do you to manage your sales and marketing for Medicaid Rx patients in this 2014 environment?

First, you are going to need much better intelligence on what every state has decided to do with its Medicaid Rx program than you have ever had before.  Given 40 million new potential, paying customers, you would be foolish not to demand the best, most complete information available on each state.  If you don’t have that deep info, frankly, how can you establish sales and marketing goals for 2014?

Second, you will need to figure out how each state will actually administer Obamacare. Will it be by default to the federal exchange; the negotiated “partnership exchanges;” or through separate state exchanges? And depending on which policy the state has chosen to follow, what will that mean to you? Every state will do it differently based on their medical culture, the state’s finances, and the level of cooperation medical providers offer in each state. Understanding all of these factors will be imperative.

Third, I would suggest this situation is anything but static (some states may quickly walk away from Obamacare after it starts; others may decide to join; still more could come up with entirely unexpected solutions for their populations).  You will want onsite staff in many of the major state capitols just to keep track of all of this. That could be expensive, but how else are you going to stay on top of all of these developments?

In short, sales and marketing execs are going to have to think way outside of the box in 2014 if they believe their Rx company will enjoy the financial benefits of Obamacare’s new Rx coverage.  And this is certainly not to say that the prospects for monetary gain don’t exist. They clearly do, but only if you can figure out how to convert on this Obamacare opportunity in each state.

All of this said, I believe this particular reimbursement opportunity will be unlike any other the US drug industry has ever faced. The reimbursement uncertainly, intrusive politics, and the shear market chaos that is likely to result will be challenging. But it’s also equally clear that if you stand around, waiting to see “how things develop” under Obamacare, you run the risk of substantial Rx sales and marketing losses for 2014, and beyond.

The choice is clear. You have to engage, come what may. So, what’s your Medicaid Sales and Marketing plan look like for 2014?

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

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.

Such reforms are underway in countries far and wide to build real-world evidence on safety and efficacy of new medicines, mainly by way of comparative effectiveness studies against current standards of care. These policy initiatives align with the quandary that cancer physicians face in providing adequate care while faced with the reality of high drug prices for patients. This predicament has recently spawned a constituency of prominent oncologists actively seeking dialogue with drug companies to lower the price on the most expensive treatments, some of which cost over $100,000 annually.

When asked what their primary considerations are in prescribing medicines, 87% said they look at real-world evidence on product safety and effectiveness ‘all the time’ or ‘most of the time’; 94% weighed data on patient quality of life; and 65% assessed figures pointing to product availability and cost. This third consideration showed striking differences across markets, with China highest at 91% and the EU countries at only 50%, highlighting that not all markets are in lockstep in their approach to balancing cost and access.

Differences also surfaced in how oncologists see the implications of health reform on their practices. US doctors cited the highest level with Brazil at the lowest end. The survey warrants further probing to determine how stakeholder dynamics between the four Ps—physicians, payers, policymakers, and patients—will come to shape access parameters in an era of increasingly tough conditions on pricing and rationing of care.

While provinces in Canada select drugs for reimbursement, the PMPRB establishes the economic benchmark value of medicines once they enter the market. The NPDUIS serves to add an extra layer of analysis to help the Board keep up with trends in where the private sector is investing its development dollars. “The purpose is partly general information, partly to inform payers of what’s coming up. In a few years, these will be the drugs facing review for reimbursement. So for public payers, it can be used as a planning tool, “explains Bernard Lachapelle, President of The JBL Group.

The NPDUIS takes clear aim at novel high cost targets. 37 of the 135 drugs screened in its report are biologics. This compares with no biologics reported in the last installment, in 2011. Biologics, as well as drugs in therapeutic categories with high utilization rates(such as cardiovascular) and areas where cost of medicines are particularly high ( i.e. cancer) were carefully scrutinized in comparison with other medicines, as these are all drugs that can significantly affect drug plans and drive costs.

Of seven drugs mentioned since the last report that have been granted marketing rights by Health Canada, five of them have retained prices within guidelines set by the PMPRB; the drug Pirfenidone is subject to investigation; and one drug had yet to be sold as of March. All the compounds considered in the NPDUIS review are at the later stage Phase III in clinical trials. Other criteria set by the reviewers include drugs that can be used to treat life-threatening conditions, rare diseases and other areas of unmet need, or if they could potentially change clinical practice in a therapeutic area, such as medicines with novel mechanisms of action or new indications. Above all, the drugs must demonstrate one of the following: improved efficacy versus existing drugs, impacts on patient health such as increased life-expectancy or quality of life; new or redefined outcomes; or an improved safety profile.

But while PMPRB and NPDUIS have managed to aggregate these promising late-phase drugs and define how they can change therapeutic landscapes within Canada, Lachapelle points out the report renders no judgment around the cost concerns of the country’s provinces, which ultimately boil down to the question: “What are the long-term budgetary impacts of the introduction of those drugs? All the report talks about is efficacy and safety, so beyond the regulatory standpoint people are left to draw their own conclusions.” The new report suggests the federal government has the expertise to help render some basic conclusions about where the provinces might efficiently spend tax dollars on medicines provided to the public through subsidized benefit programs.  Whether the provinces are interested in applying this expertise – and thus institutionalizing a bigger federal oversight role in drug spending – remains to be seen.

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.

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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