EVENTS | VIEW CALENDAR
Facing the patent cliff head-on
As the United States deals with the aftermath of the fiscal cliff, the pharmaceutical industry is facing a precipice of its own. As patents on existing blockbuster drugs expire, Big Pharma companies are forced to parachute off the proverbial patent cliff. This legal escarpment means the end of patent protection on various blockbuster drug products, opening the market to generic substitutes.
With the end of market exclusivity on blockbuster drugs, pharmaceutical companies are faced with billion-dollar revenue losses. It has been estimated that a combined $170 billion annually will go off patent by 2015. What makes the current timing so interesting is the large quantity of patented blockbuster drugs that have expired in the last few years, or that will expire soon. Over the past few years, the patents have expired for Enbrel, Zyprexa, Plavix, Arimidex and Lipitor. This year, Seroquel, Actos, Singulair and Lexapro have gone or will go off patent. In the coming two years, drugs including Oxycontin, Cymbalta and Nexium will expire.
With the loss of patent protection on so many blockbuster drugs, Big Pharma's financial outlook is entering a new phase of opportunity.
Identification of new blockbuster drugs has been slow within the industry, particularly with the growing costs of research and development coupled with the broader worldwide economic downturn and healthcare reform. This has raised questions as to how and whether Big Pharma can maintain a stake in the marketplace. The impact of the patent cliff may be widespread, however, as Big Pharma has been taking and continues to take positive steps to adapt to these changes.
To successfully navigate the changing times, diversification is the key. Research and development efforts have been refocused as one way to parachute safely off the patent cliff. In spreading the focus beyond blockbuster drugs, companies are creating more alternatives to account for their revenue streams. For example, the IMS Institute for Healthcare Informatics has predicted the launch of 32 to 37 new molecular entities annually over the next five years. Additionally, companies are gravitating towards orphan drugs, specialty drugs and the biologics market, all of which are areas ripe for growth in the biopharmaceutical industries.
While directed to relatively small patient pools, these alternative drug markets bring a new focus and unquestionable value to the patients that they treat. According to Thomson Reuters, the orphan drug market was worth more than $50 billion worldwide at the end of 2011. Orphan drugs also provide a unique attraction in that they may have shorter clinical trial periods and extended exclusivity. Additionally, according to Pembroke Consulting, in 2011, $46.9 billion of specialty drugs were dispensed by pharmacies. The ongoing and potential growth in these areas are clear indications of areas for expansion.
Further, while biologics were once limited to treat specific diseases such as metabolic disorders, they are now available to treat more common diseases. The growth of the biologics market is even more prominent, and has been noted to account for more than a third of blockbuster drug revenues in 2010.
Another area of diversification that pharmaceuticals companies have actively pursued is strategic mergers and acquisitions, ranging from mega-mergers to smaller partnerships. Examples of some notable and recent mergers include Pfizer's merger with Wyeth and Merck's merger with Schering Plough. Mergers and acquisitions provide numerous strategic considerations. For example, mergers allow companies to combine their revenues and consolidate costs and expenses. Acquisitions of smaller or medium-sized entities may be attractive for their research and development. For example, certain companies may have drug targets where preclinical tests or early-stage clinical trials have already been completed, allowing for immediate access to an advanced pipeline.
Additionally, depending on the target mergers or acquisitions, location of facilities may bring opportunities to extend research pipelines and extend geographic reach that companies would otherwise not have. Extending geographic reach is not necessarily limited to mergers and acquisitions. Certain companies are shifting some of their focus from the developed markets to emerging markets in India, Brazil, Russia, China or Mexico, to name a few. Emerging markets have a number of challenges, including local regulatory requirements and differentiated pricing. However, the potential for market growth cannot be ignored. It is estimated that about 70 percent of world growth over the next five years will come from emerging markets, of which China and India are expected to account for 40 percent.
Recent examples of successful placement in emerging markets include the following. Novartis targeted sales of its blood-pressure medication Diovan in emerging markets in Latin America and parts of Asia in order to maintain a third of its sales. Additionally, last year, 80 percent of GlaxoSmithKline's vaccine distribution took place in emerging markets.
Additional avenues for diversification can be found in intellectual property strategies as another means to steer through the patent cliff. With a desire for additional patent protection, pharmaceutical companies have been investigating various research options to extend patent exclusivity. Such options may include investigations into new formulations for existing products including new modes of delivery or delivery systems, or perhaps new dosages. Another target may include additional methods of treatment or indications for existing products. The feasibility of next-generation products may also warrant additional patent filings, including further research into purified isomers and enantiomers, metabolites, new salts or even polymorphs. Alternatively, new combination therapies may be targeted to extend the patent portfolio. All of these options may allow for new patent filing opportunities.
New patent opportunities may require a certain level of strategic consideration. Continuation practice through divisional, continuation or continuation-in-part applications, may allow for earlier effective filing dates, assuming a pending application with supportive disclosure exists. Reissue practice may be a worthwhile consideration if an applicable patent with appropriate support may be utilized.
However, with an eye toward obtaining patent coverage in an expedited fashion, alternative patent filings may be advantageous.
Various options are available in the United States for different accelerated patent prosecution procedures. For example, strategic filings for accelerated examination may be sought for new patentable subject matter as a means to achieve quicker or faster patent claims. Petitions to Make Special may also provide an opportunity for rapid review. The Patent Prosecution Highway also provides fast-track examination in an office of second filing. Expedited programs may require costlier prosecution costs and assumes full development of the targeted subject matter, and thus may not be an immediate option. However, upon filing, patent claims may be obtained within twelve months or shorter. Certain, but not all, foreign jurisdictions may also allow for expedited or modified examinations or participation in accelerated programs. As such, global considerations may need to be taken into account to assess the impact on foreign procurement concerns.
With the many strategic options available to a pharmaceutical industry facing the patent cliff, the outlook remains encouraging. Companies have been well informed of the projected dates as to when their drug products go off patent, and as a result have anticipated the need to diversify. With the inevitable end to existing exclusivities, the opportunities for strategic change have offered a positive outlook. The vast options that have been available to adapt with these changes have shed light on that fact that Big Pharma continues to flourish after the patent cliff.
Sandra S. Lee is a partner in the Intellectual Property and Life Sciences practices of New York law firm Baker Botts LLP. Her concentration is on worldwide intellectual property counseling, strategic planning, patent procurement, due diligence, opinion work and ANDA litigation. Prior to her legal career, Lee was in biomedical research in the Department of Anesthesia at the Brigham & Women's Hospital in Boston.