Regulatory Malfunctions in the Drug Patent Ecosystem

• Publication year: 2020

Regulatory Malfunctions in the Drug Patent Ecosystem

Ana Santos Rutschman

REGULATORY MALFUNCTIONS IN THE DRUG PATENT ECOSYSTEM

Ana Santos Rutschman^*

Abstract

Patent protection for several of the world's best-selling and most promising drugs—biologics—has begun waning. Over the next few years, many other drugs in this category will lose critical patent protection. In principle, this should open the United States market to competition, as more manufacturers are now able to produce relatively cheaper versions of these expensive drugs, known as biosimilars. That, however, has not been the case. This Article examines this problem in the context of the articulation between anticompetitive behaviors and regulatory interventions in the biopharmaceutical arena and argues for a novel solution: a timelier response provided by the U.S. Food and Drug Administration (FDA) in the form of license revocation when follow-on innovators fail to compete.

In one significant case, the FDA approved several biosimilar versions from different manufacturers that would in principle compete with the biologic drug Humira—the largest-grossing drug in the United States and worldwide—but the manufacturer of Humira entered into multiple agreements with biosimilar manufacturers to keep the drug out of the U.S. market until 2023, while making it available elsewhere from 2018 onward.

An abundant stream of scholarship has examined the relationship between pharmaceutical markets and antitrust mechanisms to curb anticompetitive behaviors. This Article moves the debate in a new direction. Because antitrust responses generally face a time lag, this Article posits that an additional regulatory intervention is needed outside antitrust law, and it argues that the FDA is institutionally well-placed to provide a first-line checkpoint for anticompetitive agreements that result in non-commercialization of approved

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drugs. While novel, this proposal incorporates a solution that has been hiding in plain sight: the FDA regulatory framework allows the Agency to revoke licenses under certain circumstances, including some forms of inaction on the part of the licensee. This Article shows that the FDA not only has the authority, but also the statutory obligation, to revoke the licenses of biosimilar manufacturers who deliberately fail to bring their products to market within a reasonable period of time.

Many of the biologics slated to lose patent protection in the first half of the 2020s are routinely used in the treatment of some of the most challenging medical conditions, including certain cancers and auto-immune diseases. At a time when concerns over drug prices are at the forefront of political and social debates, finding ways to instill competition into post-patent markets remains a crucial task. The solution put forth in this Article furthers the interests of different parties, as it clears the pathway for motivated biosimilar manufacturers to bring their products to a profitable market while bringing down overall costs for health systems and, in particular, for patients in need of extremely expensive pharmaceuticals.

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Introduction.............................................................................................350

I. Patent Life and Drug Prices .......................................................358

A. Pharmaceutical Patents and Generic Competition .................. 358
B. First Waves of Patent Expiration: Conventional Drugs........... 363

1. The First Waves of Patent Expiration ................................ 364
2. The New Waves of Patent Expiration ................................. 368

II. Biologics and Patent Term Expiration.....................................371

A. Biologics: "The Most Promising Drugs"................................. 371
B. Follow-On Biologics ................................................................ 374

III. Delayed Competition in the Context of Biologics..................376

A. A Case Study on Humira ........................................................... 377

1. The World's Best-Selling Drug .......................................... 377
2. Anticompetitive Agreements ............................................... 380
3. Consequences of Anticompetitive Agreements ................... 383
4. Lawsuits Challenging the Validity of Pay-for-Delay Deals .................................................................................. 387

B. The Antitrust Framework to Address Pay-for-Delay Deals ..... 390

1. Pay-for-Delay in the Pre-Biologics Era............................. 390
2. The Actavis Framework for Pay-for-Delay Agreements .... 392
3. Shortcomings of the Antitrust Framework .......................... 394

IV. Beyond Antitrust: A Novel Solution for Addressing Anticompetitive Behavior...........................................................396

A. The Need for Cumulative Regulatory Interventions in the Drug Patent Ecosystem ...................................................................... 396
B. FDA as a Locus for Addressing Competition Issues ................ 399
C. Overview of the Proposed Framework ..................................... 402

1. The Proposed Intervention ................................................. 402
2. Mechanics and Implementation of the Proposal ................ 404
3. The Possibility of License Revocation by the FDA............. 406
4. Advantages of the Proposal ................................................ 410
5. Drawbacks of the Proposal ................................................ 411

Conclusion.................................................................................................414

Appendix 1...................................................................................................416

Appendix 2...................................................................................................416

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Introduction

Imagine a patient in need of a pharmaceutical drug with an annual price tag of $40,000 to $50,000. This drug is a biologic, a category of structurally complex drugs targeting a broad range of serious medical conditions, from certain cancers to inflammatory diseases such as rheumatoid arthritis and Crohn's disease.¹ As dozens of patents begin expiring—including the most relevant patent, covering the drug's composition—competitors gear up to manufacture versions of the drug, which are subsequently reviewed and approved by the competent regulatory agency and may therefore enter the market.

Now consider a possible bifurcation in this story. In one market, the follow-on versions² of the biologic become commercially available shortly after the composition patent expires. Prices go down by roughly 25%. In some places within this market, the savings to the patient are as modest as 10%, while in others they reach up to 80%, even though the latter number occurs very infrequently.³ Even if annual savings are on the lower end of the spectrum at 10%, our hypothetical patient is still spending $4,000 to $5,000 less than before patent expiration. If savings reach the average 25%, our patient saves between $10,000 and $12,500. In the rare scenario of an 80% reduction, savings can reach between $32,000 and $40,000.

In a different market with similar economic characteristics, follow-on versions of the biologic are also developed, and several receive approval from the regulatory agency in charge of reviewing pharmaceutical products, but none comes to market. Instead, and amidst patent litigation concerning the secondary patents associated with the reference biologic drug, all the manufacturers of the follow-on products enter into agreements with the manufacturer of the biologic. All patent litigation comes to an end, in exchange for access to a foreign market. The manufacturers of the follow-on biologic start selling their product abroad under a multi-competitor regime. In the domestic market, with only the reference

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biologic available to patients, prices do not go down. In fact, the single manufacturer on the market promptly raises the price of the biologic after the expiration of the composition patent by around 10%, as it had been doing before patent expiration. Because each agreement lasts between four to five years, our patient will likely have no access to a cheaper drug for a protracted period of time, even though it is available to patients in a similar market.

As the reader might have guessed, our patient is not so hypothetical. The market in which no competition occurs is the United States. The foreign market is Europe. The biopharmaceutical drug is Humira, the world's best-selling drug since 2012.⁴ While follow-on versions of Humira—called biosimilars—have been entering the European market since 2018,⁵ no such thing has happened west of the Atlantic. The same manufacturers that commercialize biosimilars to Humira in Europe have agreed not to sell them in the United States,⁶ even though Humira's composition patent expired December 31, 2016, in the United States, and the Food and Drug Administration (FDA or "Agency") approved the first of these biosimilars in September 2016.⁷ Per the terms of the agreements, biosimilars to Humira will not be commercially available in the United States until 2023.⁸ In exchange, the manufacturer of Humira has ended all litigation—and threat thereof—involving Humira's vast secondary patent estate, in which several patents have already been successfully challenged and invalidated by biosimilar companies.⁹

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Biologics like Humira consist of large, structurally complex molecules, as opposed to small-molecule drugs, which still form the bulk of pharmaceutical drugs available to patients.¹⁰ They are made of living organisms¹¹ and "produced by biotechnology methods and other cutting-edge technologies."¹² Their complexity renders them difficult and expensive to develop, as well as hard to replicate.¹³ Importantly, many biologics are among the most promising...