Responding to the Patent Cliff - Pharmaceutical Technology

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Responding to the Patent Cliff
As the dreaded patent cliff continues to haunt the pharmaceutical industry, some companies are resorting to desperate measures to delay generic drug entry into the market.


Pharmaceutical Technology Europe

A major financial concern for pharmaceutical companies is the so-called "patent cliff," which represents the sharp downturn to be expected for product sales upon the expiry of its patent. In 2012, an estimated US$33 billion of sales was reported to have been lost as a result of the patent cliff (1). It has been suggested that for the period between 2012 and 2018, more than US$290 billion of sales would be at risk from patent expirations, with 2015 being the most crucial year for pharmaceutical companies (1).

Patent pressures
Patent expiry results in generic-drug competition and pharmaceutical companies must plan well in advance on how to deal with this difficult period. Most companies will emphasise the strengths of their product pipelines and highlight the next generation of innovative products that they hope to bring into the market. These products are often follow-on products for existing ones, for example the use of different formulations, rather than truly novel therapies.

With many companies being listed on the stock market, investors and analysts will be looking for companies that have potential to launch new blockbusters and bring in sufficient revenues to make up for the shortfalls of products with expired patents. However, replacing previous blockbusters with next generation products is not easy, particularly in today's harsh pricing environment. Some companies may find that their own pipelines are not strong enough to guarantee promising products. As a result, they may consider alternative strategies such as acquisitions or mergers with other companies to strengthen their product portfolio.

Sanofi is one company that recently had to contend with the patent cliff. However, because it had already planned for the patent cliff a long time ago, the company's management has confidently predicted that it will be able to deal with this scenario by the end of 2013 (2). In 2012, Sanofi's profits were set for a 15% sales drop due to patent expiries of major products, primarily its anticoagulant Plavix (clopidogrel) and the blood pressure drug Avapro/Aprovel (irbesartan) (2, 3). By the end of 2012, sales of Plavix had dropped 6% at constant exchange rates to €503 million, while sales of Avapro/Aprovel had dropped by 34% to €212 million (2). The company was able to somewhat compensate by improved sales of its diabetes franchise. In particular, sales of Lantus (insulin glargine) grew 23% to €1.34 billion, thereby becoming the company's leading product (2). Nevertheless, Sanofi's emphasis has been onits pipeline products, with the company expecting to launch 18 new drugs by the end of 2015 (3). In addition, Sanofi acquisition of Genzyme has helped expand its biotech potential and capitalise on Genzyme's existing track record in rare disease therapies (2, 3).

Patent defences
Although the focus has been on next generation products for companies dealing with the patent cliff, it does not mean that companies have given up on products nearing their patent expiration. In fact, companies are proactively defending the patents of these products from potential infringement by generic-drug competitors. While there must be a sound legal reasoning for such cases, for generic-drug companies, these complex legal defences by originator companies can be viewed as primarily designed to delay entry of their products. Given that a blockbuster drug brings in billions of dollars per year in sales, even delaying generic drug competition by weeks represents a considerable amount of money from continued sales of the product for the originator company. Companies must be extremely careful when using legitimate means to deal with potential generic drug competition but there are signs that this is not always the case.

Recently, the Office of Fair Trading (OFT) launched an investigation into GlaxoSmithKline (GSK) over its antidepressant product Seroxat (paroxetine). The OFT is investigating whether GSK paid other companies to slow down production of cheaper, generic versions of the drug, thereby costing the National Health Service (NHS) extra money because of the lack of alternatives to the branded drug (4). GSK was accused of abusing its market dominance by using "pay-for-delay" agreements between 2001 and 2004 to persuade Alpharma, Genetics UK and Norton Healthcare to slow development of their generic alternatives (4). GSK admitted that it had certain agreements with the companies highlighted, but denied motives of delaying entry of generic paroxetine into the market.

This is the first time the OFT has launched such an investigation in the UK. Pay-for-delay agreements are taken seriously because the NHS may be denied significant cost savings if companies are able to delay the potential emergence of generics (5). At present, the OFT has not revealed how much GSK might have paid the other companies for delaying their products but it has been suggested that if the OFT proves its case, GSK could be fined 30% of its UK turnover during the 2001–2004 period, which has been estimated at 1.4 billion per year (4).

Although GSK's case came as a shock for the UK, pay-for-delay agreements have been investigated before in Europe. In January 2013, the European Commission announced the launching of an enquiry into the activities of Johnson & Johnson (J&J) and Novartis over a potential pay-for-delay agreement between their respective Dutch subsidiaries in relation to fentanyl, a painkiller (6). According to the European Commission, Janssen-Cilag, the J&J subsidiary supplying fentanyl in the Netherlands, came to an agreement with generic competitor Sandoz, a Novartis subsidiary, in July 2005 (6). As a result, Sandoz avoided entering the market with generic fentanyl patches from July 2005 until December 2006, even though there was no regulatory barrier to develop and market generic versions of the product. The European Commission alleges that this practice may have delayed entry of cheaper generic medicines for up to 17 months and kept prices for fentanyl artificially high in the Netherlands. If the case is proven, then this may represent a breach of EU antitrust rules, specifically Article 101 of the Treaty on the Functioning of the EU (TFEU), which bans practices that restrict competition (7).

The companies currently involved in European pay-for-delay cases are likely to be nervous because of a previous case involving AstraZeneca. In June 2005, the European Commission adopted a decision that cost AstraZeneca a €60-million fine for misusing the patent system and the procedures for marketing pharmaceuticals (8). In one instance, AstraZeneca had provided misleading information to its parent offices in Belgium, Denmark, Germany, the Netherlands, Norway and the UK to prevent generic-drug companies from competing against its antiulcer product Losec (omeprazole) (8). Another abuse by the company involved deregistration of market authorisations for Losec in selected countries to exclude competition from generic firms and parallel traders (8). AstraZeneca's defence that its conduct constituted normal competition was dismissed.

Outlook
Today, pharmaceutical companies are not only facing immense pressure from the patent cliff, but they are also being increasingly scrutinised in the public eye on how they respond to these challenges. In AstraZeneca's market-abuse case, it was highlighted that the patent system afforded pharmaceutical companies legal protection for the innovative drugs they bring to market. As such, the system was designed to reward innovation and help companies generate revenues to undertake further research (8). However, the authorities stated that they took a dim view on abuses of the patent system as well as other underhand approaches by companies to extend the protection of their blockbuster products and delay generic drug entry.

Therefore, it can be expected that if GSK is found guilty of abusing their market position, the company will face a considerably high fine by the OFT so that the message gets through to other potential offenders in the pharmaceutical industry (6). Similarly, J&J and Novartis will be severely punished by the European Commission if a case against them is proven (7). The cost of pharmaceuticals to the public healthcare system is under tight scrutiny and authorities are keen to ensure that they are getting value for money.

References
1. C. Harrison, Nature Reviews Drug Discovery 12, 14-15 (2013).

2. PM Live website, "Sanofi predicts end of patent cliff in 2013," www.pmlive.com, accessed 28 May 2013.

3. Pharmaceutical Field website, "Patent expiry means 2012 is 'marked in red' for Sanofi," www.pharmafield.co.uk, accessed 28 May 2013.

4. N. Neville and J. Rankin, The Guardian website, "GlaxoSmithKline accused of paying rivals to delay generic medicine," www.guardian.co.uk, accessed 28 May 2013.

5. Office of Fair Trading website, "OFT issues statement of objections to certain pharmaceutical companies," www.oft.gov.uk, accessed 28 May 2013.

6. European Commission, "Antitrust: Commission sends Statement of Objections to J&J and Novartis on delayed entry of generic pain-killer," Press Release, 31 Jan. 2013. http://europa.eu/rapid/press-release_IP-13-81_en.htm|~http://europa.eu/rapid/press-release_IP-13-81_en.htm .

7. European Commission, "Antitrust: Commission opens proceedings against Johnson & Johnson and Novartis," Press Release, 21 Oct. 2011. http://europa.eu/rapid/press-release_IP-11-1228_en.htm|~http://europa.eu/rapid/press-release_IP-11-1228_en.htm .

8. European Commission, "Antitrust: Commission welcomes court judgment in AstraZeneca case," Press Release, 1 July 2010. http://europa.eu/rapid/press-release_MEMO-10-294_en.htm|~http://europa.eu/rapid/press-release_MEMO-10-294_en.htm .

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