Marcelo Barros is a J.D. Candidate, 2021 at NYU School of Law.
The Patent System has a Persistent Drug Problem
The U.S.’s current regime of patent laws fails to adequately address a problem affecting the pharmaceutical and healthcare industries. It has been a persistent issue, reaching the point that some now consider it a full-blown crisis in pharmaceutical research and development (R&D).[1] The height of the problem was in 2014, when it was reported that the average cost of developing new medicine was roughly $2.5 billion for development and another $1.3 billion to bring it to market.[2]
The failed attempts, the roughly ninety percent of drugs that do not make it through all the phases of clinical trial that the FDA requires as a prerequisite for approval to sell to consumers, is a substantial contributor to the average cost of the minority that do end up on the market.[3] Another contributor to high costs is the time it takes to bring a drug to market, which is often as lengthy as twelve years.[4] The prolonged period before new drugs can be expected to attain approval for sale on the market leaves pharmaceutical companies that invested in, patented, and produced the drugs with a reported average of ten to twelve years to recoup all of their investments.[5] It is no wonder then that drug prices are so high.
Affecting cost-benefit analyses and related investment decisions, the factors described above have seemingly resulted in pharmaceutical companies’ inclination to focus on extending patents on already-existing drugs rather than creating new ones. In fact, a statistical study that ran from 2005 to 2015 reported that a staggering seventy-four percent of patents filed in that period pertained to already-existing drugs.[6] The focus on extending the period of exclusionary rights through patent filings has had the effect of delaying the production of generic substitute products by competitors and thus the price-reduction benefit that competition provides to consumers. Another detrimental consequence has been a diversion of resources from R&D into new therapies that truly pose the prospect of groundbreaking results.
Another structural problem has to do with how patents are written and approved. Innovators, for obvious reasons, want to encapsulate as much as possible under their patents. In the context of pharmaceuticals, however, innovators can only realistically test or conduct experiments for a few compounds, despite the fact that a patent will ordinarily claim entire classes of molecules, e.g., aliphatics. The end result is that entire classes of molecules will enter the public domain without ever having any concrete research conducted on them. And that is small potatoes compared to the other detriment: Once a compound or molecule becomes part of the public domain, investing in uncovering its pharmaceutical utility is no longer desirable due to the freeriders that would be able to immediately establish competitor products given the public domain’s absence of exclusionary rights.
Due to the foregoing medley of factors, the U.S. patent system has structural problems that undermine the ostensible mandate of the Intellectual Property Clause of the Constitution: to promote progress and foster innovation.[7]
Congress’s First Stab at the Problem: The Orphan Drug Act (ODA)
In 1983, attempting to ameliorate the broken incentive structure that U.S. patent laws have created, Congress passed the ODA. Reducing the burdensome costs of ventures that are committed to the fruition of pharmaceutical innovation, the ODA tipped to some extent entrepreneurs’ risk-to-reward calculus in favor of investing in the sort of R&D that could lead to groundbreaking medicinal therapies. The reforms it established included tax incentives, subsidies, reduced clinical-approval requirements, and a novel grant of seven-year terms for “marketing exclusivity.”[8] The marketing exclusivity right provided by the ODA was a novel concept that broke away from the traditional patent terms in two major ways. Marketing exclusivity under the ODA only starts subsequent to FDA approval, and runs completely independent of a patent status. The National Institute of Health reports that, whereas fewer than ten treatments were approved in the decade preceding the ODA, four hundred have since come to the market.[9] Nevertheless, the ODA is no panacea: the statute has not dealt with the ongoing problem of “dormant therapies.”
A Second Attempt: The Dormant Therapies Act (DTA)
Dormant therapies are drugs or biologics that have been abandoned due to clinical failure or otherwise, and for which patents have expired. As an illustration of the prevalence of dormant therapies, ten million compounds have been patented from 1976 to 2011, yet only seven hundred new drugs came to market.[10] In other words, there are literally millions of compounds sitting in the public domain limbo.
A possible legislative solution was proposed several years ago: the Dormant Therapies Act (DTA), a measure that was introduced to the Senate on December 11, 2014. The bill would grant a fifteen-year marketing exclusivity period for dormant therapies.[11] Critically, the bill would exclusively apply to medicines (drugs or biologic products) that both address an “unmet medical need” and are distinct from other medicines that have been submitted for approval.[12] If the bill were to become enacted as is, the phrase “unmet medical need” would inevitably be the subject of a slew of litigation. The most interesting and novel component of the bill relates to how it would interact with existing patent law. For the designation to be approved, the applicant would have to waive the right to apply for any extended exclusionary rights beyond the original fifteen-year period. What this means is that a pharmaceutical granted DTA approval for a particular drug would waive all patent rights beyond the 15-year mark, but as an incentive, any patents expiring within the 15-year will be extended up to the exclusionary term period. Thus, the DTA would likely ameliorate some of the misaligned incentives discussed. The fifteen-year market exclusivity period that would start post-FDA approval would be an unprecedented term. Additionally, it would likely mitigate the perverse effect of patent laws that start the clock before FDA approval and thereby undermine the profit incentive that an exclusivity period is designed to establish.
At first blush, it seems self-evident that the DTA conforms with the goal of promoting innovation that is central to the Intellectual Property Clause of the Constitution. After all, were the DTA in effect, a new therapy for a previously unserved constituency would eventually come to market as a result of the act, having been resurrected from its dormant state that coincided with its earlier assignment to the barren public domain, and such occurrence would qualify as an innovation with immense social value where none would have occurred otherwise. Yet corrollary to the goal of promoting innovation is the principle that patent laws should not have the effect of encouraging pharameceutical companies to put groundbreaking projects on hold in order to focus their resources and efforts toward initiatives that are less socially beneficial. This resource-diversion concern raises a question as to whether pharmaceutical companies would game the system by making use of the DTA’s entrepreneurial benefits at the expense of productive R&D that they would have committed to were it not for the DTA’s provisions. The answer is anything but clear.
On the one hand, by granting the right to perform clinical research on a certain medicine to a single sponsor for a number years and prompting publication of that fact, the DTA would greatly reduce the risk of wastefulness through R&D duplication.[13] On the other hand, its provisions ought to express more specifically the requirements to qualify for sponsorship status, beyond the point that it shall be granted to those who submit “a suitable clinical plan.”[14] Additionally, beyond preventing diversion through its express prohibition on future sponsorships of equal or “highly similar” medicines,[15] the DTA’s patent-waiver provisions ought to be enhanced with real teeth by expressing the intended bounds of that term. Still, terminating all patents associated with any DTA-approved sponsorship at the end of the fifteen-year period and precluding the filing of related patents should disincentivize gamesmanship by pushing pharmaceutical companies to utilize the DTA avenue as a last resort. If indeed the DTA becomes the avenue of last resort, the DTA’s goal would be largely accomplished: to bring to market compounds and molecules currently sitting in the public domain limbo. At the end of the day, it seems more likely than not that the net effect of the Dormant Therapies Act would serve to increase scientific and technological discovery. Its consideration by Congress ought to be reignited.
[1] See, e,g., John Graham, Crisis in Pharma R&D: It Costs $2.6 Billion to Develop a New Medicine; 2.5 Times More than in 2003, Forbes (Nov. 26, 2014), https://www.forbes.com/sites/theapothecary/2014/11/26/crisis-in-pharma-rd-it-costs-2-6-billion-to-develop-a-new-medicine-2-5-times-more-than-in-2003/#aa77e60321cb.
[2] See id.; see also Joseph A. DiMasi et. al, Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs, 47 J. Health Econ. 20-33 (Feb. 12, 2016).
[3] See Mathew Herper, The Cost Of Developing Drugs Is Insane. That Paper That Says Otherwise Is Insanely Bad,Forbes (Oct. 16, 2017), https://www.forbes.com/sites/matthewherper/2017/10/16/the-cost-of-developing-drugs-is-insane-a-paper-that-argued-otherwise-was-insanely-bad/#69494b942d45.
[4] John Graham, 21st Century Cures: Waking Up Dormant Drug Therapies, Forbes (Feb. 19, 2015), https://www.forbes.com/sites/theapothecary/2015/02/19/21st-century-cures-waking-up-dormant-drug-therapies/#192699d760df.
[5] See Henry G. Grabowski & John M. Vernon, Effective Patent Life in Pharmaceuticals, 19 Int’l J. Tech. Mgmt., 98, 109–17 (2000).
[6] Tahir Amin, The Problem with High Drug Prices Isn’t ‘Foreign Freeloading,’ It’s the Patent System, CNBC (June 27, 2018), https://www.cnbc.com/2018/06/25/high-drug-prices-caused-by-us-patent-system.html.
[7] See Const. Art. I, § 8, Cl 8. (“To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”).
[8] FAQs About Rare Diseases, Nat’l inst. of Health, https://rarediseases.info.nih.gov/diseases/pages/31/faqs-about-rare-diseases (last visited Oct. 30, 2019).
[9] Id.
[10] D Wayne Taylor, Dormant Therapies: Hope for the Rare Disease Community, 3 Expert Op. Orphan Drugs 1 (2015).
[11] Dormant Therapies Act of 2014, 113 S. 3004, 113th Cong. (2d Sess. 2014) (as referred to S. Comm. Health, Educ., Labor & Pensions, December 11, 2014).
[12] Id. §§ 4(a)(2)(A), (D).
[13] Id.
[14] Id. § 4(a)(2)(B).
[15] Id. § 4(a)(2)(D).