pharmaceutical industry is facing a productivity crisis. A report by the United States Government Accountability Office (GAO) highlighted an overall decline of FDA submissions for new drugs since 1995, despite that fact that inflation-adjusted research and development (R&D) costs have increased by 147 per cent between 1993 and 2004.21 Another study by Scannell estimated that the number of new drugs developed per USD 1 billion spent on R&D is halving every 9 years.22 Various commentators have recognised this decline in productivity as a threat to the sustainability of the pharmaceutical industry as a whole.23
2 High Risks of Drug Development
As discussed above, the estimated costs of developing a new drug take into account the drugs that failed to achieve regulatory approval. It is practically impossible to predict whether a new drug will be safe and effective in advance of expensive clinical trials. Therefore, regulatory hurdles, while arguably serving to protect the public from potentially dangerous drugs, significantly increase the financial risks of undertaking drug development.
According to a 2010 study by DiMasi, success rates for drugs which entered clinical trials between 1993 and 2009 were at 13 per cent for small molecule drug versus 32 per cent for biologics, with a success rate of 19 per cent overall.24 Amongst disease types, cancer drugs have the lowest chance of approval at 11 per cent.25
21 New Drug Development: Business, Regulatory, and Intellectual Property Issues Cited as Hampering Drug Development Efforts (Government Accountability Office, November 2006) at 4.
22 See JW Scannell and others “Diagnosing the decline in pharmaceutical R&D efficiency” (2012) 11(3) Nature Reviews Drug Discovery 191 at 191, Figure 1. This steady decline in productivity of pharmaceutical R&D has been coined ‘Eroom’s Law’, which is an anadrome of the more familiar
‘Moore’s Law’, the latter being the observation that the processing speed of computer circuits is doubling approximately every two years.
23 Paul and others, above n 14, at 203; F Pammolli, L Magazzini and M Riccaboni “The productivity crisis in pharmaceutical R&D” (2011) 10(6) Nature Reviews Drug Discovery 428 at 428; Grubb and Thomsen, above n 1, at 425; but see EF Schmid and DA Smith “Keynote review: Is declining innovation in the pharmaceutical industry a myth?” (2005) 10(15) Drug Discov Today 1031 at 1031.
24 JA DiMasi and others “Trends in risks associated with new drug development: success rates for investigational drugs” (2010) 87(3) Clin Pharmacol Ther 272 at 272.
25 M Hay and others “BIO / BioMedTracker Clinical Trial Success Rates Study” (paper presented to BIO CEO & Investor Conference, New York, 15 February 2011) at 7.
Figure 1: R&D model showing costs (in millions) to successfully develop and launch a single new molecular entity at each phase in pre-clinical and clinical development26
Figure 1 is a useful illustration of the ‘attrition rate’27 and expenditure requirements at each stage of drug development, from pre-clinical (brown) to Phase I-III clinical trials (blue). According to Paul and others, of approximately 24 drug candidates28 that generate a ‘hit’ on the drug target in the pre-clinical phase,29 just over 8 are tested in humans at Phase I,30 and only one passes Phase III to achieve regulatory approval. The most difficult hurdle for drug approvals is Phase II which has only a 34 per cent chance of success, compared to 54 per cent for Phase I and 70 per cent for Phase III.31 Notably, while Phase III trials have the greatest chance of success, the financial consequences of failure at this stage are the most severe, often causing hundreds of millions of dollars in losses.32 Many clinical trials are also abandoned due to “strategic reasons”, unrelated to a drug’s safety or efficacy.33
In addition to the risk of failure, there is a significant risk that the drug will not achieve commercial success after regulatory approval. For example, according to a 2002 study by Grabowski, Vernon, and DiMasi, only a third of drugs launched
26 Paul and others, above n 14, Figure 2. Costs are in USD.
27 See Figure 1: the ‘attrition rate’ is expressed as a percentage next to the symbol p(TS), which shows the percentage chance that a particular drug candidate will pass into the next development phase.
28 Referred to as ‘Work-in-process’ or ‘WIP’ in Figure 1 above.
29 In the context of drug development, a ‘hit’ refers to a compound that increases or decreases the activity of a therapeutically relevant protein target.
30 See Paul, above n 14, Figure 2.
31 At Figure 2. Other studies have shown even lower rates of success for Phase II trials: see J Arrowsmith “Trial watch: Phase II failures: 2008-2010” (2011) 10 Nat Rev Drug Discov 328 at 328, showing that Phase II success rates dropped from 28 per cent in 2006-2007 to 18 per cent in 2008-2009.
32 For example, Pfizer’s cholesterol drug torcetrapib failed in Phase III after USD 800 million was spent on development: see M Martino, LJ Hollis and E Teichert “Torcetrapib - Pharma's Biggest Flops” (18 October 2010) Fierce Pharma <www.fiercepharma.com>.
33 Arrowsmith, above n 31, at 328. As will be discussed below, this may be indirect evidence of late-stage patentability screening.
between 1990 and 1994 matched or exceeded their USD 500 million average R&D costs.34 Notably, however, the highest earning ‘blockbuster’ drugs earned over 5 times the R&D cost on average.35 This finding suggests that the pharmaceutical industry relies on ‘blockbuster’ drugs36 to compensate for failed or commercially unsuccessful drugs.
Summary
The high costs and risks of drug development combined with the relatively low marginal costs of production means that patents - or some form of exclusivity or alternative incentive mechanisms - are the sine qua non for incentivising pharmaceutical R&D.37 As a result, it is arguable that pharmaceutical companies will screen out potentially socially valuable therapies with insufficient patent protection irrespective of medical value or social need.
3 ‘Patentability screening’ of socially valuable therapies
The ability to guarantee market exclusivity using patents is less critical in industries outside the pharmaceutical industry. For example, other industries are not required to conduct expensive clinical trials before market entry.38 Other industries also tend to rely on a ‘first-mover’ advantage, because of the ease in which competitors can design around patents.39
By contrast, as discussed in Chapter Two, innovators in the pharmaceutical industry rely on monopoly rights to recover the costs of obtaining regulatory approval, with generic competitors being prevented from entering the market until the patent over the drug is invalidated or expires, subject to any applicable ‘regulatory exclusivity’. Consequently, innovators will routinely screen medicines for patentability at all stages of drug development. For example, according to industry sources, such ‘patentability screening’ occurs at least twice during pre-clinical trials,
34 H Grabowski, J Vernon and J DiMasi “Returns on Research and Development for 1990s New Drug Introductions” (2002) 20 Pharmacoeconomics 11 at 17-18.
35 At 17-18.
36 See above n 15.
37 AJ Devlin “Systemic Bias in Patent Law” (2012) 61 DePaul Law Review 57 at 57, 59.
38 For example, a new software or electronic product can be put on the market without having to spend hundreds of millions of dollars to obtain regulatory approval.
39 MB Lieberman and DB Montgomery “First-‐mover advantages” (1988) 9 Strategic Management Journal 41 at 43.
and once again as a “gate-keeping event” before significant funds are committed towards Phase I clinical trials.40
Roin summarised this previously uncharacterised phenomenon in his 2009 article, “Unpatentable Drugs and the Standards of Patentability”: 41
Despite the seemingly great magnitude of this injury, [the screening of socially valuable unpatentable drugs] has gone largely unnoticed by the public because of the early stage at which most un-patentable drugs are screened out of development. Pharmaceutical companies do not announce the drug candidates that they choose not to develop, including the ones dropped on account of a prior disclosure that undermined their patent protection. While industry insiders acknowledge that many such drugs exist, the decisions to discard them are made behind closed doors.
Unfortunately, the high level of secrecy in the industry has made it difficult or impossible to empirically verify these claims.42 Nevertheless, even if the proportion of therapies screened or abandoned due to patentability issues is relatively low, it represents a lost opportunity, given the above-mentioned decline in productivity levels for pharmaceutical R&D,43 and the fact the therapeutic value of a drug is mostly irrelevant to patentability.44
Given that up to 90 per cent of clinical trials are funded by the for-profit pharmaceutical industry,45 it is arguable that an inefficient private funding bias exists
40 Roin, above n 1, at 546-547. Patentability screening would typically involve a ‘prior art search’ in the academic literature, the Chemical Abstracts Registry, and previous patent applications by a pharmaceutical company’s in-house legal counsel or external patent attorney. A ‘freedom-to-operate’
search will also be performed to determine whether a drug candidate is subject to an in-force patent held by a competitor. In both circumstances, an unfavourable report would mean that a drug candidate would be likely to be screened irrespective of potential or actual therapeutic efficacy.
41 At 552.
42 The author attempted to obtain empirical data on this issue by sending out over 200 targeted emails to researchers, patent attorneys, and pharmaceutical industry executives requesting participation in an anonymous survey on the level of patentability screening which occurs, however, unfortunately, only one response was received. The author had also made a separate online appeal for participants, to no avail: see S Barazza “Dormant and unmonopolisable therapies: can you help: Part One/Part Two” (6 June 2013) The IPKat <www.ipkitten.blogspot.com>. Human Ethics Committee approval and related documentation has been attached to this thesis as Appendix One.
43 See BN Roin “Solving the Problem of New Uses” (1 October 2013) Social Science Research Network <www.ssrn.com> at 50.
44 For example, as discussed in Chapter Two under Criteria for Patentability of Medical Therapies, only the utility criterion requires some nominal evidence of potential clinical benefit, whereas the potential or actual clinical benefit of a drug is not relevant to the tests for novelty or inventive step.
45 O Vragovic “Developing Budgets for Research Projects with a Focus on Phase III Clinical Trials”
(seminar presented at OCR Seminar Series Presentations: Boston University Medical Campus, Boston, 17 June 2009) at 5. For example, the largest public funders of clinical research in the United States (National Institutes of Health, Department of Defense, and the Department of Veterans Affairs) have an annual spend of approximately USD 2.9 billion on clinical trials versus USD 26 billion by the
towards ‘highly excludable’ therapies where a monopoly price can be enforced using patents, and an underfunding of other categories of therapies that could be of significantly greater social value.46
Summary
Due to the high costs and risks of drug development, it is alleged that the pharmaceutical industry will regularly screen promising medical therapies due to insufficient patent protection. Evidence of this ‘patentability screening’ is difficult to observe due to the high level of secrecy in the industry and the fact that such therapies are typically screened at the pre-clinical stage of development. The consequences of this screening on public health could be severe, as will be demonstrated further below.
The next section will analyse such ‘unpatentable therapies’, and how they are created as a result of the presence of five ‘unpatentability factors,’ namely: (1) lack of novelty, (2) lack of inventive step, (3) lack of utility/sufficiency, (4) insufficient patent length, and (5) unpatentability under law.
C The impact of ‘Unpatentability Factors’ on the Problem of ‘Unpatentable Therapies’
In this section, it will be argued that due to the impact of certain ‘unpatentability factors’, otherwise viable medicines can become ‘unpatentable therapies’ that lack private incentives for development. The following analysis will focus on examples from the United States, because entry into the United States market is essential for the overall commercial viability of a medicine.47 Accordingly, the presence of unpatentability factors in the United States will significantly increase the likelihood that a medicine will be screened during development, regardless of where an innovator company is located.
private industry. See also T Bodenheimer “Uneasy alliance: Clinical investigators and the pharmaceutical industry” (2000) 342 New England Journal of Medicine 1539 at 1539 which quotes the figure at 70 per cent private funding of clinical trials; See also Roin, above n 43, at 25.
46 A Kapczynski and T Syed “The Continuum of Excludability and the Limits of Patents” (2013) 122(7) Yale Law Journal 1900 at 1942.
47 T Bartfai and GV Lees Drug Discovery from Bedside to Wall Street (Elsevier, Burlington, 2006) at 138: ‘…unless the American marketing arm of a multinational company says: ‘It will be marketed in the States,’ there is no real point even to make the drug.’
1 Lack of novelty
As discussed in Chapter Two, in most cases, the mere disclosure of a potential medicine’s chemical formula prevents a ‘composition of matter’ claim over that medicine. It may be possible to patent a narrower ‘species’, derivative version, or new uses of a known chemical48 in order to distinguish a claim from the prior art.
However, if claims are so narrow that they can be easily ‘designed around’ by generic drug companies, the patent might as well be non-existent. Further, disclosure of a
‘species’ will anticipate any subsequent attempt to patent a broader ‘genus’ class of drugs.49 Some common causes of a lack of novelty now will be discussed.
(a) Prior publications by the pharmaceutical industry
The major cause of a lack of novelty are previously filed broad patent applications by the innovators themselves. For example, in the case In re Metoprolol Succinate Patent Litigation,50 the Federal Circuit invalidated a patent claiming a hypertension drug in light of an earlier patent application filed by the innovator which claimed nine drug formulations with two ‘slow release’ layers.51 While only one of the formulations in the prior art included the subsequently claimed chemical formula, it was enough to invalidate the claim that could have prevented generic competition.52
In other cases, obscure references in patent applications can destroy patentability when discovered many years later. Roin used the example of Ultracet, a combination of tramadol and paracetamol – the latter known as acetaminophen in the United States - which was launched in 2001 by Othro-McNeil Pharmaceutical Inc.53 Othro-McNeil had initially obtained a broad patent over the drug combination.54 However, a few years after launch, it was discovered that a patent specification filed in 1972 disclosed the drug combination in a ratio of 1:10, although the 1972 specification did not state that the combination would work synergistically for pain relief.55 It is likely the prior art specification was not discovered during patentability screening or examination at the USPTO because it used an “obscure synonym” for
48 For example, as discussed in Chapter Two under Judicial Inroads into Exclusions of Methods of Medical Treatment, the United States allows a claim over the second use of a known drug. It is also possible to use ‘Swiss’ claim language in New Zealand.
49 In re Slayter 276 F 2d 408 (CCPA 1960) at 411. Broad claims may be commercially necessary to prevent the dilution of monopoly profits from ‘me-too’ drugs which act on a similar drug target. The problem of ‘me-too’ drugs will be discussed below.
50 In re Metoprolol Succinate Patent Litigation 494 F 3d 1011 (Fed Cir 2007).
51 US Patent No 4,780,318.
52 In re Metoprolol Succinate Patent Litigation at 1020-1021; see Roin 2009 at 523, n 102.
53 Roin, above n 1, at 521.
54 US Patent No 5,336,691.
55 US Patent No 3,652,589.