Prescription Drugs andIntellectual Property ProtectionFinding the Right Balance Between Access and Innovation Over the last decade, U.S. spending on prescription medications has surged. Policy makers
have cited an aging population, expensive new drugs, expanded insurance coverage, an
increase in the number of prescriptions and extensive promotion by drug manufacturers as
the primary factors driving this trend. Less understood is the relationship between higher
drug costs and the federal laws which protect the pharmaceutical industry from competition
in the making and marketing of drugs.
This brief examines the major pieces of legislation that the Food and Drug Administration (FDA) approves the have increased intellectual property protection for drug for market. These statutes have either (1) extended pharmaceuticals during the past 20 years. In addition, the term of the original patent; (2) shortened the period it considers the effects of this enhanced protection on of time consumed by clinical testing and regulatory technological innovation and the marketplace for review; and/or (3) granted “market exclusivity” to drugs prescription drugs. As spending on prescription drugs under certain circumstances (See Figure 2).
continues to rise and Congress contemplates drug Considered individually, each of the laws offers a coverage for the Medicare program, the repercussions reasonable approach to stimulate pharmaceutical of current patent laws and other protections for innovation and ensure broad access to new pharmaceuticals now warrant scrutiny.
medications. Viewed collectively, the laws have conferred multiple and additive protection onprescription drugs.
No research assesses the cumulative effect of all of the laws on the patent life of new drugs. But a review Intellectual property protection (IPP) aims to provide of the evidence available suggests that the average incentives for innovation. Patents and other forms of effective patent life of many new drugs has increased protection eliminate direct competition to a product by at least 50 percent between the early 1980s and for a fixed period of time. During this period the today (See Figure 1). For companies able to take
inventor can often charge premium prices, which advantage of the full array of changes in IPP, the ensure an attractive return on what might have been a effective patent life of some drugs may have doubled.
considerable investment in research and development.
Understanding the consequences of the dramatic However, these higher prices can slow the diffusion increase in intellectual property protection is important of new technology by making the product more expensive for some who would benefit. Thus, IPPusually entails a tradeoff between consumers’ having IPP Contributes to Prescription Drug
easier access to the most advanced technology and Spending
Over the past two decades, Congress has enacted When the patent on a brand name drug is extended a series of laws that have greatly increased the or a drug is granted a period of market exclusivity, “effective patent life” enjoyed by brand name consumers pay more for the product over a longer prescription drugs. The effective patent life is the period. The result is increased overall spending number of years remaining in a drug’s patent term after on prescription drugs. Recent discussion about a P R E S C R I P T I O N D R U G S A N D I N T E L L E C T U A L P R O P E R T Y P R O T E C T I O N Medicare prescription drug benefit has focused IPP Fosters Both Breakthrough and
public interest on moderating the increase in drug Incremental Innovation
costs. The debate over how to control spiraling costs The conventional wisdom is that IPP stimulates has often been posed as a choice between price mostly breakthrough discoveries which modify controls and market competition. However, the role treatment or prevention of disease. But current of IPP and its direct effect on price competition, IPP laws just as frequently encourage companies consumer choice and timely access to generic drugs deserves examination as a key factor in ensuring In the 1990s, the FDA approved a total of 857 new drug applications.1 Of these, over a third (311)were new molecular entities (NMEs), which by definition are compounds that have never been sold 2 0 0 0 Pipeline Drug Proposals are being consid-
ered by Congress to provide up to three years important clinical improvements; they provide treatments for diseases that formerly lackedthem, or are significantly safer or more effective 1 9 9 9 The Patent Term Guarantee Authority
than existing drugs (See Figure 3).
Act requires the federal Patent and Trademark
However, nearly half (426) of the drugs approved Office (PTO) to compensate for delays of over three by the FDA in the 1990s were “new formula- tions” or “new combinations” of compounds already approved. New formulations consist of active 1 9 9 7 The Food and Drug Administration
ingredients already on the market but have been Modernization Act (FDAMA) enables firms to
modified, e.g., to improve dosing or reduce side reduce clinical study time and offers six months effects. A new combination contains two or more of additional IPP to drugs that companies test previously approved active ingredients in a new single medicine. Aventis’ Allegra-D is an example of 1 9 9 4 The Uruguay Round Agreements Act
changes term of all patents in U.S. from
IPP Encourages Industry to Bring to
17 years from the date of issue to 20 years from Market Drugs Developed in Collaboration
date of application. Allows longer of the two terms with Federal Laboratories
for some drugs already on the market.
IPP also applies to drugs developed at public expense, 1 9 9 2 The Prescription Drug User Fee Act
enabling private companies to secure patent and other (PDUFA) authorizes user fee support for FDA’s
types of IPP from discoveries funded in part by premarket review program, and sets performance taxpayers. Under law, government inventions must be transferred to the private sector for commercialization.
Pharmaceutical companies have been willing to help 1 9 8 6 The Federal Technology Transfer Act
develop, manufacture and distribute these drugs under authorizes federal agencies doing research to enter exclusive licensing agreements which, in combination into formal cooperative agreements with private with IPP, enable them to sell their products at relatively industry to help develop, market, and manufacture high prices. Consequently, the public enjoys access to these drugs though often at a premium. The Boston 1 9 8 4 The Drug Competition and Patent Term
Globe conducted an investigation of 50 top-selling Restoration Act (Waxman-Hatch) authorizes
pharmaceuticals approved by the FDA from 1992– patent extensions of up to five years for new drugs 1997 and found that 48 had received funding from and up to two years for drugs in development at the government for some phase of development.2 the time. Provides three years of marketexclusivity for qualifying drugs. Streamlines FDA IPP Shields Branded Drugs from
Price Competition
IPP promotes an oligopolistic market for brand name 1 9 8 3 The Orphan Drug Act provides seven years
drugs, where as few as two or three products can of market exclusivity to drugs for rare diseases, dominate a therapeutic category3 (See Figure 4).
and tax credits for 50% of the cost of researching Patents and market exclusivity stifle competition from other drugs. With so few competitors, companies N I H C M F O U N D A T I O N I S S U E B R I E F ★ A U G U S T 2 0 0 0 have more opportunity to price their products industry and other Fortune 500 companies has grown aggressively. A 1998 Congressional Budget Office dramatically since the mid-19806 (See Figure 5).
(CBO) study showed that manufacturers tend tointroduce new branded drugs at premium prices, IPP Will Expire for Many Branded Drugs
and then raise these prices as the drugs become Over the Next Few Years
accepted.4 The study found that even after similar Over the next five years, brand name drugs with branded products enter the market, drug companies combined U.S. sales approaching $20 billion will often continue to increase the price.
go off patent7 (See Figure 6). This will provide
an enormous opportunity for the generic industry
IPP Delays the Entry of Affordable
and a commensurate threat to the brand-name Generic Drugs
pharmaceutical industry. Manufacturers seeking to Lengthening patent terms and providing other forms protect the sales of branded drugs are increasing their of IPP to branded drugs delay the entry of generic efforts to extend the period of IPP.
drugs, which are usually far less expensive. As a result,branded drugs now dominate the U.S. market, where IPP is Being Applied Amid Rapidly
they account for about 90 percent of total dollar Changing Technology
spending and about three-fifths of prescriptions despite Pharmaceutical companies are taking advantage of the fact that they typically cost far more than generic new technology to protect the franchises on their medicines5 (See Figures 7, 8).
lucrative brand name drugs. Most recently, companieshave begun seeking patents on “purified” forms of IPP Supports Pharmaceutical
some drugs. Through manipulation of a compound’s Industry Profits
molecular structure, a company can create a purified The pricing power provided by IPP has helped product eligible for a patent of its own. After clinical the pharmaceutical industry maintain its position as testing and approval by the FDA, this new patent may the nation’s most profitable for the past 20 years, lengthen the life of an existing active ingredient for a notwithstanding efforts by both the private and decade or more. During this time, the company can public sector to control health care spending. In encourage doctors to switch their patients from the fact, the profitability gap between the pharmaceutical “old” drug to the new purified form.
FIGURE 1The Potential Time Period During Which a Drug Can Enjoy IntellectualProperty Protection has Grown Dramatically 13.9–15.4
PDUFA: The Prescription Drug User Fee Act
FDAMA: The Food and Drug Administration Modernization Act
URAA: The Uruguay Round Agreements Act
SOURCES: Kaitin and Trimble, 1987; Grabowski and Vernon, 1996; PRIME Institute, University of Minnesota, 1995; Tufts Center for the Study ofDrug Development 2000; FDA 2000; NIHCM Foundation analysis P R E S C R I P T I O N D R U G S A N D I N T E L L E C T U A L P R O P E R T Y P R O T E C T I O N support the prices of pharmaceuticals which have Major Legislation Affecting
been developed partly at public expense.
IPP of Pharmaceuticals
Under the Patent Act of 1952, all inventors may obtain The Waxman-Hatch Act of 1984
U.S. patents giving them the right to exclude othersfrom making, using and selling their inventions The Drug Price Competition and Patent Term Restor- for a fixed term. Drug manufacturers usually acquire ation Act of 1984 (the “Waxman-Hatch Act”) was a patents on promising new compounds as well as legislative compromise between an expedited approval other inventions connected with their products, process for generic prescription drugs and therestoration of patent life “lost” during the clinical testingand FDA review period for innovative branded drugs, also called “originator” or “pioneer” drugs.
Because drug manufacturers usually apply for patents while promising compounds are still under development, the process of clinical testing and Granted by the U.S. Patent and Trademark Office (PTO) and gives the owner FDA review consume several years of the patent the right to exclude others from making, using or selling an invention for a term. Hence, the effective patent life may be too short for the manufacturer to earn an acceptablereturn. Increasing development time reduced the PATENT LIFE
effective patent life for new compounds from an The period of time during which a patent is in effect, currently 20 years, average of 12.4 years in the 1970s, to just 8.1 years beginning on the date of application to the PTO.
Congress attempted to balance the interests of EFFECTIVE PATENT LIFE
branded drug companies and the public’s need for Portion of the patent term that remains after clinical testing and FDA review.
affordable medications by (1) providing financialincentives for companies to invest in the development MARKET EXCLUSIVITY
of new drugs, with a view to improving medicines for A special form of IPP conferred only on qualifying prescription drugs, the future; and (2) enabling generic drug companies which generally prevents the FDA from approving the same new use of a to bring products to market faster and cheaper, with drug for a competing manufacturer for a specified period of time. Sometimes a view to expanding consumers’ access to less To increase incentives for research and devel-
opment, the Act offers both patent extensions as
In general, a strategy for renewing the IPP of a popular drug’s franchise well as market exclusivity, a special form of IPP
as the drug’s patent nears expiration, by patenting additional features of extended only to prescription drugs:
a product or introducing a “purified” form of the drug (which may haveits own patent).
• For each new compound, Waxman-Hatchallows one patent term extension equal to the “PURIFIED” FORMS OF DRUGS
“regulatory review period,” that is, the sum of Drugs whose molecular structure have been manipulated either to reduce clinical study and FDA review time. The exten- side effects and dangerous interactions or to enhance effectiveness. A sion may not exceed five years, or result in an purified version may be eligible for a patent of its own.
effective patent life of more than 14 years.
• So-called “pipeline” drugs, that is, promisingcompounds already undergoing clinical trials such as methods of manufacture. In addition, Con- or under FDA premarket review, were limited gress has granted special forms of IPP which apply to a maximum patent extension of two years, only to pharmaceuticals, such as market exclusivity.
rather than five. (Congress is now considering The material below examines the series of laws proposals which would allow some of these enacted over the past two decades that have had drugs to receive additional patent extensions the most pronounced effect on pharmaceutical IPP. Rather than presenting them in chronologicalorder, the section begins with a landmark bill that • The Act created “data exclusivity,” which bars fundamentally changed the framework of IPP for competing manufacturers from relying upon a prescription drugs. In addition to describing other branded drug company’s clinical data to gain FDA laws, this section briefly considers the use of IPP to approval for a specified period of time: (1) five N I H C M F O U N D A T I O N I S S U E B R I E F ★ A U G U S T 2 0 0 0 years for new compounds; and (2) three years share in terms of dollars and a modest one in terms for new uses of an existing compound, such as of prescriptions11 (See Figure 7). Moreover, studies
new indications, formulations or combinations.
from the CBO and others have shown that increased Since most new compounds have more than five competition from generics to date has not reduced years of effective patent life, data exclusivity the profitability of the pharmaceutical industry.12 offers more significant protection to new uses Furthermore, the Act’s effect on pharmaceutical of drugs.9 Although a generic company may innovation merits examination. Both the public and perform its own clinical studies, doing so is often private sectors have increased their investment in very expensive. Thus, data exclusivity, sometimes research and development over the past decade, called “market exclusivity,” provides an effective resulting in some important new medicines. However, barrier to generic market entry against a new it is unclear whether the most advanced technology use of the drug. Branded drug manufacturers has resulted primarily from public or private investment, may sustain a popular drug’s franchise for three and whether the incremental improvements fostered more years by introducing new uses of their by the Act justify the increased costs to consumers.
products just as the patent on the original drugexpires and encouraging doctors to switchpatients to the new form.
To balance these concessions to branded
manufacturers, Waxman-Hatch created a new,
streamlined system allowing generic manu-
facturers to file an “abbreviated new drug

application” (ANDA) with the FDA. The ANDA must
document only that the generic product is“bioequivalent” to the originator drug: that is, the extent 857 TOTAL
and rate of its absorption are the same or almost thesame as the branded medication. By contrast, previouslaw required the manufacturer to conduct expensiveclinical trials to prove the product’s safety and effectiveness. In addition, the Act permits ANDA applicants to make or use a patented product, perform all necessary testing, submit an application and even receive tentative approval before the relevant patents on the originator drug expire. Thus, a manufacturer canbring its product to market on the very day that thebranded drug loses its protection.
The Waxman-Hatch Act has succeeded in its goal of restoring nearly all of the patent life consumed by clinicalresearch and FDA review. According to a Duke University study, by the early 1990s the average effective patent life of new compounds was 11.8 years, 2.3 years longerthan the 9.5 year period applicable to a drug without Waxman-Hatch extensions10 (See Figure 1). Because
no study has examined the consequences of the three- year market exclusivity provision, the total effect ofWaxman-Hatch on the additional periods of IPP enjoyed NEW FORMULATION: new dosage or new formulation of active ingredients for
Waxman-Hatch spurred immediate growth in the NEW COMBINATION: drug containing two or more compounds which have
generic drug industry, but its longer term effect on been marketed before, but have not been marketed together in a product.
access to less expensive medications is unclear. In NEW MANUFACTURER: company creating product with the same active
the first few years following its enactment, generic ingredients or formulation as marketed by another manufacturer.
market penetration grew rapidly as many branded NEW MOLECULAR ENTITY: new compound which has never been sold before
drugs went off patent and cost containment efforts encouraged consumers to switch to this affordablealternative. Over the past few years, however, generic SOURCE: FDA/Center for Drug Evaluation and Research 2000 drugs have suffered a significant loss of market P R E S C R I P T I O N D R U G S A N D I N T E L L E C T U A L P R O P E R T Y P R O T E C T I O N companies received de facto patent extensions delaying The Uruguay Round Agreements Act
the entry of generic competitors to many of their (URAA) of 1994
products.16 According to a 1995 study, the additionalIPP that URAA inadvertently provided branded drugs The 1994 Uruguay Round Agreements Act (URAA) has cost consumers more than $6 billion that faster brought U.S. patent law into conformance with rules access to generic drugs would have spared them.17 adopted under the General Agreement on Tariffs and Yet there is no evidence that Congress intended to Trade (GATT) and by the World Trade Organization (WTO).13 exclude generic drug manufacturers from the protected To that end, the Act stipulated that any patents filed after infringer rules.18 Further, the courts have ruled that origi- TOP DRUG ONLY
A Few Top-Selling Drugs Dominate a Therapeutic Class TOP TWO DRUGS
1998 SALES (%)
SOURCE: Factors Affecting the Growth of Prescription Drug Expenditures, The Barents Group LLC/NIHCM Foundation 1999 June 8, 1995 would have a term of 20 years from the nator manufacturers may obtain both URAA and Waxman- date of application, rather than 17 years from the date Hatch patent extensions19 (See box on Claritin).
of grant.14 The URAA also contained transitional rules A recent statute ensures that pharmaceuticals will for patents either in force or filed prior to that date, have patent terms under URAA which are the same enabling the inventor to choose the longer of the 17 or length as those under previous law. In 1999, Congress the 20-year term.15 Branded drugs which had received enacted the Patent Term Guarantee Authority Act. In their patents in less than three years following application general, this new law stipulates that if the Patent and stood to gain extensions under these rules. As a result, Trademark Office takes more than three years to pharmaceutical companies elected the 20-year term for process a patent application, the patent holder will receive a day for day extension in patent term for the Congress recognized that generic manufacturers in many industries had already made “substantialinvestments” in developing copies of branded products.
To protect the interests of such manufacturers, URAA Prescription Drug User Fee Act
contained “protected infringer” provisions. These rules (PDUFA) of 1992
allowed generic companies to bring their products tomarket when the original patent term expired without In 1992, Congress passed the Prescription Drug User the threat of legal action, so long as they paid the Fee Act (PDUFA) authorizing the collection of user fees patent owner “equitable remuneration.” from the pharmaceutical industry in order to increase After URAA was implemented, however, courts the resources available for the FDA’s premarket review barred generic drug manufacturers from using these program. In exchange, PDUFA required that the FDA protected infringer rules because of a technicality meet annual performance targets, which were chosen in the ANDA process. As a result, originator drug to ensure that the agency would significantly reduce its N I H C M F O U N D A T I O N I S S U E B R I E F ★ A U G U S T 2 0 0 0 premarket review times. With a September 1997 sunsetprovision looming, the FDA faced the prospect of losing this important source of new funding unless it performed well enough to justify reauthorization.
From 1993–1997, the agency made a strenuous and successful effort to increase its efficiency. Both FDAreview time for all NDAs and total approval time declined significantly.20 According to the Tufts Center for the Studyof Drug Development, the average total time required for FDA approval declined from 2.6 years for the cohortof drugs approved in 1990–1992, to 1.4 years for those approved in 1996–1998.21 As a result, patients now have faster access to new technology. However, industry profits will increase since new drugs’ effective patent lives
have lengthened (See Figure 9).
Rx Firms (median)
Food and Drug Administration
Modernization Act (FDAMA) of 1997

Congress passed the landmark Food and Drug PROFIT (% OF REVENUE)
Administration Modernization Act (FDAMA) of 1997 in order to make the U.S. regulatory framework moreconducive to the flow of new technology. FDAMA Fortune 500 Firms (median)
renewed user fee support for the premarket reviewprogram and provided the FDA with a “fast track authority” to process applications for priority drugsquickly. It also contains several provisions designed to 1960 1965 1970 1975 1980 1985 1990 1995 ’99 reduce clinical study time for new drugs.
Implementation of FDAMA has reduced the average SOURCE: PRIME Institute 1999; Stephen Schondelmeyer, Data from Fortune number of years for clinical study from 6.8 years, for the cohort of new drugs approved in 1990–1992,to 5.9 years for thoseapproved in 1996–1998.22The combination of FDAMA (affecting clinical studytime) and PDUFA (reducing Nearly $20 Billion in Drugs Go Off Patent 2000–2005 FDA approval time) hasdecreased total develop- ment time by about 2.1years from 1993 to 1999, resulting in a correspondinggain of effective patent life (See Figures 1, 9).
Cumulative Value of Sales
the performance of drugsin children, FDAMA also six months of market ex-clusivity on a drug if a manu- 1998 U.S. SALES ($ IN BILLIONS)
This period of “pediatricexclusivity” is added to the SOURCE: GPIA; FDA Orange Book; IMS Health; Physician’s Desk Reference; Warburg Dillon Reed P R E S C R I P T I O N D R U G S A N D I N T E L L E C T U A L P R O P E R T Y P R O T E C T I O N patent term, or of the term of any other market exclusivity Study of Drug Development has estimated that the in effect, whichever expires last (See Figure 1). To date,
additional period of market exclusivity would be worth pediatric exclusivity has been granted to 17 drugs.23 nearly $2 billion collectively for these drugs.25 Whether the usefulness of the data generated from such studies justifies the increased costs associatedwith pediatric exclusivity is unknown. However, the FDA The Orphan Drug Act (ODA) of 1983
has issued study requests for 12 drugs with more than$1 billion in worldwide sales, half of which are facing An estimated 20 million Americans suffer from one imminent patent expiration.24 The Tufts Center for the of about 5,000 rare diseases. Twenty years ago, few effective drugs wereavailable to treat suchconditions. In the belief Generic Drugs Market Share in Dollars is Low and Declining ulations made it impos-sible for companies torecover their research and Percent of Prescriptions
(ODA) in a humanitarianeffort to stimulate the 8.6% 8.1%
Percent of Dollar Sales
cines which treat diseasesor conditions affecting SOURCE: IMS Health from Generic Pharmaceutical Industry Association stimulus, the ODA providesseven years of market Average Price Per Prescription for Brand Name that the FDA designates asan orphan product and is Approximately Three Times Generic Drugs GENERICS
not patented, or on thosefor which the patent has high sales or profits fortheir sponsors.26 In a few facturers have been ableto use market exclusivity for medicines achievingblockbuster sales. This has SOURCE: IMS Health from Generic Pharmaceutical Industry Association N I H C M F O U N D A T I O N I S S U E B R I E F ★ A U G U S T 2 0 0 0 were found to be effective treatments for prevalent obtain orphan drug approval of Taxol as a treatment diseases or when the targeted patient population for Kaposi’s sarcoma, an AIDS related disease. As a expanded, as in the case of the AIDS epidemic. Some result, it received seven years of market exclusivity believe that lack of a mechanism to withdraw marketexclusivity after the drug reaches a certain thresholdof sales or profits has resulted in consumers’ paying higher prices for drugs than necessary.27 Further, mar- ket exclusivity may be used to support monopolisticpricing of drugs developed at public expense.
The Federal Technology Transfer Act
A series of laws ensures that inventions discovered in federal laboratories are assigned to the private sector for commercial development. In 1986, the Federal Tech- nology Transfer Act authorized federal laboratories to 2.1 YEARS
enter into formal cooperative research and development increase in
agreements (CRADAs) with private industry. As a effective
collaborator with federal partners on an invention, the patent life
pharmaceutical industry has been able to use CRADAs 1990–92
to secure exclusive rights to federal technology.
PDUFA: The Prescription Drug User Fee Act
From 1993 to 1999, the National Institutes of Health FDAMA: The Food and Drug Administration Modernization Act
(NIH) executed a total of 619 CRADAs.28 Of these, 515 NMEs: New Molecular Entities
occurred after 1995 when NIH repealed a requirement for a “reasonable pricing clause” on the view that itwas discouraging industry interest in CRADAs. Thispolicy had required that products developed in partthrough research at NIH should reflect a “reasonable relationship between the pricing of the licensed product, the public investment in the product, and the healthand safety needs of the public.”29 In recent years, some have expressed concern that without a reasonable pricing clause, CRADAs do not 1998 U.S.
protect public investment in research and may enable companies to reap high profits from advanced tech-nology developed partly at public expense. For example, a 1994 study found that half of the 30 clinically most important drugs approved by the FDA from 1987 to 1991 had federal support at some stage of their development, and 11 had federal support at everystage. Moreover, the median wholesale cost of the new drugs developed with federal funding was $4,854, almost three times the price ($1,626) for drugsdeveloped without federal support.30 Taxol, Bristol-Myers Squibb’s (BMS) treatment for breast and ovarian cancer, has become a controversial illustration of how the private sector profits from federally developed technology as well as makes useof orphan drug market exclusivity. NIH discovered and developed Taxol in the 1970s and 1980s. In 1991, NIH entered into a CRADA with BMS with a viewto bringing this important new cancer drug to market SOURCE: Generic Pharmaceutical Industry Association; NIHCM Foundation analysis and granted BMS exclusive rights to all NIH funded of data provided by the Barents Group LLC; Merck 1999 Annual Report research on Taxol. In March 1997, BMS was able to P R E S C R I P T I O N D R U G S A N D I N T E L L E C T U A L P R O P E R T Y P R O T E C T I O N for Taxol and has been able to use this protection to By contrast, new molecular entities approved in the keep generic copies off the U.S. market.31 late 1990s typically benefited not only from extensions Today, the typical course of treatment for breast under Waxman-Hatch, but also from the combined cancer runs $20,000; for ovarian cancer, the cost consequences of PDUFA and FDAMA. Assuming a is $10,000.32 In 1999, Bristol-Myers Squibb had sales “base” effective patent life before extensions of 9.5 years, as indicated by the Duke University studymentioned above, it appears that some new drugsapproved in the late 1990s could expect to add 4.4 Cumulative Effects of
to 5.9 years to their effective patent lives, for a total Changes in IPP Law
To determine how a drug company would have Although no research has assessed the cumulative extended the life of a product, one must apply the impact of the numerous increases in IPP afforded various laws granting patent term extensions and pharmaceuticals, it is possible to make a rough and market exclusivity. Accordingly, these drugs will receive qualified estimate from available sources.
a combined increase in their effective patent lives due New drugs that were approved between 1980– 1984 had effective patent lives of only 8.1 years, withno possibility of reformulating the drug to take • Under Waxman-Hatch: these drugs could obtain advantage of market exclusivity provisions.
Claritin, an oral antihistamine, has enjoyed spectacular until 2014. The FDA will probably approve “super success in the U.S. market with sales topping $1.9 billion Claritin” this year, giving the company two years to last year. Schering-Plough Corporation, the drug’s persuade doctors to switch their patients to it from manufacturer, has achieved this success through product Claritin before the loratadine patent expires in 2002. If innovation, extensive promotion and aggressive pricing: Schering-Plough is successful, the franchise will be • In 1998, Schering-Plough spent approximately protected for an additional 12 years.
$267 million to promote the drug to American OBTAINED MULITPLE PATENT EXTENSIONS
• Americans pay almost four times as much for • Under Waxman-Hatch, Schering-Plough sought and Claritin as Canadians ($1.94 versus $.54 per pill) who received its first extension for two years on the loratadine purchase it over the counter, as do many Europeans.2 patent, thus moving its expiration date to August 2000.
To defend this lucrative franchise, Schering-Plough • The company also obtained a second extension has found numerous ways to extend intellectual for 22 months under URAA, which moved the expiration property protection on new uses of Claritin for the next date forward again to June 2002. Thus, loratadine has 14 years. The following illustrates both the range and benefited from almost four years (46 months) in patent the cumulative impact of IPP afforded branded drugs: extensions and enjoys a patent life of 21 years.3 ACQUIRED OR LICENSED PATENTS ON
• Over the past few years, Schering-Plough has con- • In 1981, Schering-Plough acquired a patent on tinued to urge Congress to pass specific legislation loratadine, the active ingredient in Claritin. The loratadine to extend loratadine’s patent even further. Even if such patent was due to expire in August 1998 but has been attempts fail, the company can still count on the des- extended twice (see sequence of events below.) loratadine patent to protect a form of Claritin until 2014.
• When humans take loratadine, the body produces descarbethoxyloratadine or DCL, the principal active 1. “U.S. Pharmaceutical Industry Spent More than $5.8 Billion on Product metabolite of loratadine. In 1987, Schering-Plough was Promotion in 1998: Direct to Consumer Advertising Expenditures granted a patent on a form of DCL which expires in 2004.
Exceed $1.3 Billion,” accessed June 27, 2000 from http.// • Schering-Plough has licensed patent rights from Massachusetts based Sepracor Inc. on desloratadine, 2. “Why Allergy Drugs Cost So Much,” USA TODAY (April 12, 2000):1.
a purified form of DCL. Desloratadine is the activeingredient in a new product, commonly referred to as 3. Generic Pharmaceutical Industry Association, “Claritin Patent “super Claritin.” The desloratadine patent will not expire Extension Chronology,” accessed from http.//www.gpia.org.
N I H C M F O U N D A T I O N I S S U E B R I E F ★ A U G U S T 2 0 0 0 • From PDUFA and FDAMA: on average, the drugs References
received an additional 2.1 years in effective 1. U.S. Food and Drug Administration, “NDAs Approved in Calendar patent life35 (See Figure 9);
Years 1990–1999 by Therapeutic Potentials and Chemical Types,” • Under URAA: drugs which qualified would have (February 15, 2000). Accessible at http://www.fda.gov.
received an extension averaging one year;36 2. Alice Dember and the Boston Globe Spotlight Team, “Public Handouts Enrich Drug Makers, Scientists,” The Boston Globe (April 5, 1998), • Under FDAMA: some pharmaceuticals may have accessed March 18, 2000 from http://www.boston.com.
been granted six months of pediatric exclusivity.37 3. NIHCM analysis of Scott-Levin data derived from audits of 1998 The second step is to estimate how a company retail prescription drug sales. This data was collected and prepared by might utilize market exclusivity to protect a new generation of its product. Thus, if a manufacturer 4. Congressional Budget Office, How Increased Competition from timed the introduction of a new use, such as a more Generic Drugs Has Affected Returns in the Pharmaceutical Industry (Washington, D.C.: Congressional Budget Office, July 1998). This report convenient dosing form, to coincide with the expira- may be accessed from http://www.cbo.gov.
tion of the “mother” drug’s patent, it could have 5. Generic Pharmaceutical Industry Association, “Prescription Drug Facts shielded the 13.9 to 15.4 year franchise of the drug and Figures” prepared by IMS Health. Accessible at http:/www.gpia.org.
for an additional three years, for as long as 17 to 18 years overall (See Figure 1). During the final few
6. Stephen W. Schondelmeyer, Pharm.D., Ph.D., “Patent Extensions of Pipeline Drugs: Impact on U.S. Health Care Expenditures,” (PRIME years, generic manufacturers could bring copies of Institute, College of Pharmacy, University of Minnesota: Minneapolis, the “mother” drug to market, but would be barred from Minnesota: July 1999). This analysis can be accessed from http:// www.house.gov/berry/prescriptiondrugs/schondelemeyer.
7. Generic Pharmaceutical Industry Association 2000. Accessible at Conclusion
8. Cf. M. Eisman and W. Wardell, “The decline in effective patent life of The laws described above have greatly strengthened new drugs,” Res Management, Vol. 21, 1981: 14–18; and K.I. Kaitin the intellectual property protection of branded and A.G. Trimble, “Implementation of the Drug Price Competition and drugs and facilitated the transfer of federal Patent Term Restoration Act of 1984: A Progress Report,” J Clin Res inventions to the private sector. Notwithstanding the Drug Devel, Vol. 1, 1987: 263–275.
efforts of Waxman-Hatch to balance innovation with 9. 21 U.S.C. § 355(j)(4)(D)(ii),(iii).
expanded access to affordable medicine, increasing 10. Henry Grabowski and John Vernon, “Longer Patents for Increased intellectual property protection has delayed the Generic Competition in the US: The Waxman-Hatch Act After One Decade,” entry of some generic drugs into the U.S. market PharmacoEconomics, Vol. 10, Supplement 2 (1996): 110–123.
and forced consumers to incur billions of dollars in 11. Generic Pharmaceutical Industry Association, “Prescription Drug drug costs that they otherwise may not have paid.
Facts and Figures,” accessed June 21, 2000 from http://www.gpia.org.
More affordable medications would be particularly The market share data was prepared by IMS Health.
welcomed by most uninsured Americans, who are 12. Cf. Stephen W. Schondelmeyer, Pharm.D., Ph.D., “Patent Extensions keenly aware of the high cost of drugs.
of Pipeline Drugs: Impact on U.S. Health Care Expenditures” and also Further, the effect of intellectual property protection Congressional Budget Office, How Increased Competition from Generic Drugs Has Affected Returns in the Pharmaceutical Industry (Washington, on the quality as well as the quantity of innovation D.C.: Congressional Budget Office, July 1998). This report may be deserves examination. Since the overwhelming majority of pharmaceutical research and development 13. Public Law No. 103–465, 108 Stat. 4809 (1994).
efforts end in dry holes, costs must be covered bythe rare “blockbuster” drug that emerges from a wide 14. 35 U.S.C. § 154(a)(2)(Supp. 1996).
portfolio of projects. Making incremental improvements to a blockbuster and obtaining additional patent life or 16. Cf. DuPont Merck Pharmaceutical Co. v. Bristol-Myers Squibb market exclusivity protection is a relatively safe way Co., 62 F.3d 1397 (Fed. Cir. 1995) and Bristol Myers Squibb Co. v.
to maximize profits. Whether the increasing costs of Royce Laboratories, Inc., 69 F.3d 1130 (Fed. Cir. 1995). Cf. also prescription drugs are being proportionally rewarded discussion in Peter O. Safir and Scott M. Lassman, “GATT Implementation and Generic Drug Approval,” Food and Drug Law by private sector efforts to bring significant new Journal, Vol. 51, No. 2 (1996): 295–302.
17. Stephen W. Schondelmeyer, Pharm.D., Ph.D., “Economic Impact Policy makers must consider the sort of innovation of GATT Patent Extension on Currently Marketed Drugs” (PRIME it is in the public interest to reward. John H. Barton of Institute, College of Pharmacy, University of Minnesota: Minneapolis, the Stanford University Law School recently argued for patent reform, noting that “There is no economic 18. Cf. Sen. John Chaffee and Sen. David Pryor, “Congress Should value in conferring a patent monopoly except for an Not Squander Chance to Right Previous Wrong in GATT Legislation,” invention that will have a significant impact.”38 (1996) accessed November 19, 1998 from http://www.rollcall.com.
N I H C M F O U N D A T I O N I S S U E B R I E F ★ A U G U S T 2 0 0 0 19. Cf. discussion in Peter O. Safir et al.
30. James Love, “Prepared Statement of James Love, Center for the Study of Responsive Law, Taxpayer Assets Project, Before the 20. Food and Drug Administration, Center for Drug Evaluation and Subcommittee on Health and the Environment of the Committee on Research, Improving Public Health Through Human Drugs, 1999 Energy and Commerce, U.S. House of Representatives, on Prescription Report to the Nation : 8–9. Accessed June 21, 2000 from http:// Drug Benefits and the Clinton Health Care Plan,” February 8, 1994.
Accessed March 1, 2000 from http://www.cptech.org/pharm/waxman.
21. Tufts Center for the Study of Drug Development, “Clinical 31. James Love, “Paclitaxel (Taxol) Time-Line, version 1.0” (December development times for new drugs drop 18%, reversing 12-yr trend,” 8, 1998) and “Health Registration Data Exclusivity, Biomedical Research, Tufts CSDD Impact Report, Volume 1 (July 1999): 1–3. Accessed June and Restrictions on the Introduction of Generic Drugs, Statement of 18, 2000 from http://www.tufts.edu/med/research/csdd.
James P. Love, Consumer Project on Technology, before the Subcommittee on Labor, Health and Human Services and Education and Related Agencies, Committee on Appropriations, U.S. Senate, 23. Tufts Center for the Study of Drug Development, “Drug firms October 21, 1997.” Accessed June 18, 2000 from http:// embrace pediatric study program during first 2 years of FDAMA,” Tufts CSDD Impact Report, Volume 2 (April 2000): 2. Accessed June 18, 2000 from http://www.tufts.edu/med/research/csdd.
32. Li Fellers, “The Medicine Market; Taxol is One of the Best Cancer Drugs Ever Discovered by the Federal Government. Why Is It Beyond 24. The trade names of these drugs are: Losec; Prozac; Vasotec; Some Patients’ Reach?” The Washington Post (May 31, 1998): W10.
Prilosec; Norvasc; Claritin; Zoloft; Paxil; Cipro; Mevacor; Imitrex; and Accessed May 3, 2000 from http://www.washingtonpost.com.
Zestril. Of this group, Losec, Prozac, Vasotec, Prilosec, Mevacor and Zestril are facing patent expiration in 2000 or 2001. Cf. Tufts Center 33. Bristol-Myers Squibb, 1999 Annual Report, accessed June 21, for the Study of Drug Development, “Drug firms embrace pediatric study program during first 2 years of FDAMA,” Tufts CSDD Impact 34. Henry Grabowski and John Vernon, “Longer Patents for Increased Generic Competition in the US: The Waxman-Hatch Act After One Decade,” 25. Tufts Center for the Study of Drug Development, “Clinical PharmacoEconomics, Vol. 10, Supplement 2 (1996): 110–123.
development times for new drugs drop 18%, reversing 12-yr trend, 35. Tufts Center for the Study of Drug Development, “Clinical Tufts CSDD Impact Report, Volume 1 (July 1999): 1–3.
development times for new drugs drop 18%, reversing 12-yr trend,” 26. Cf. S.R. Shulman, B. Bienz-Tadmor, P.S. Seo et al., “Implemen- Tufts CSDD Impact Report, Volume 1 (July 1999): 1–3. Accessed June tation of the Orphan Drug Act,” Food and Drug Law Journal, Vol. 47 18, 2000 from http://www.tufts.edu/med/research/csdd.
36. Stephen W. Schondelmeyer, Pharm.D., Ph.D., “Economic Impact 27. Cf. Peter S. Arno, Karen Bonuck and Michael Davis, “Rare Diseases, of GATT Patent Extension on Currently Marketed Drugs” (PRIME Institute, Drug Development and AIDS: The Impact of the Orphan Drug Act,” The College of Pharmacy, University of Minnesota: Minneapolis, Minnesota: Milbank Quarterly, Vol. 73, No. 2 (1995).
28. NIH, “NIH Technology Transfer Activities, FY 1993–FY 1999,” 37. Tufts Center for the Study of Drug Development, “Drug firms accessed March 9, 2000 from http://www.nih.gov/od/nih93-99.
embrace pediatric study program during first 2 years of FDAMA,” Tufts CSDD Impact Report, Volume 2 (April 2000): 2. Accessed June 18, 29. Cf. “Frequently Asked Questions about HR 626, the “Health Care 2000 from http://www.tufts.edu/med/research/csdd.
Research and Development and Taxpayer Protection Act,” accessed March 17, 2000 from http://www.cptech.org/ip/health/econ/rp-faq.
38. John H. Barton, “Reforming the Patent System,” Science, Vol. 287 Cf. also “PHS/NIH Abandons “Reasonable Pricing” Licensing /CRADA Policy,” Antiviral Agents Bulletin (April 1995): 106–107. Accessed March 9, 2000 from http://www.bioinfo.com/reasprice.
About The NIHCM Foundation
The National Institute for Health Care Management Research and Educational Foundationis a non-profit organization whose mission is to promote improvement in health care access,management and quality.
About This Issue Brief
This brief was written by Michie I. Hunt, Ph.D., a Washington D.C.-based independent consultantwho specializes in pharmaceutical industry research and policy analysis, in collaboration with Linda Kotis, J.D., and Nancy Chockley, M.B.A., of the NIHCM Foundation.
For another relevant NIHCM Foundation publication, see Factors Affecting the Growth of Prescription Drug Expenditures — a study conducted by The Barents Group, LLC and releasedin July 1999. This widely cited report explains why prescription drug spending has been rising at double digit rates in recent years.

Source: http://nihcm-dev.com/pdf/prescription.pdf


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