Regulatory Focus™ > News Articles > Patents vs. Market Exclusivity: Why Does it Take so Long to Bring Generics to Market?

Patents vs. Market Exclusivity: Why Does it Take so Long to Bring Generics to Market?

Posted 17 August 2016 | By Zachary Brennan 

Patents vs. Market Exclusivity: Why Does it Take so Long to Bring Generics to Market?

It’s well known that generic drugs are just as safe and effective as their brand name counterparts. They’re the cheap knockoffs that help more people around the world gain access to innovative and sometimes life-saving treatments; the boring copycats made by companies you’ve never heard of and sold in plain bottles with little fanfare.

But what most people, particularly those outside the pharmaceutical industry, don’t realize is that what’s constraining the dissemination of these small molecule generics, particularly in the US (where the prices of brand name drugs continue to rise), isn’t the US Food and Drug Administration (FDA) and the backlog of abbreviated new drug applications (ANDAs) (as Congress has complained), but a patent and market exclusivity system that can reward pharmaceutical companies long after they’ve recouped their research and development (R&D) expenses and, at times, hefty profits (Gilead’s hepatitis C treatments have brought in more than $40 billion over the past few years, the vast majority of which is in US sales).

And though it’s easy to point a finger at the US and blame the pharmaceutical companies’ lawyers for creating such a system and at times gaming it (eg. pay-for-delay deals), the length of US market exclusivity is one of the reasons why so many companies want to introduce their treatments in the US first (and why new drugs generally reach the market in the US more quickly than elsewhere).

Jacob Sherkow, an associate professor in intellectual property law at New York Law School, explained to Focus: “The strength of the US pharma patent system is one of the reasons why a lot of companies do their main research and development here in the US. The thing driving them to sell their products in the US first is we’re one of the few (if not only) industrialized countries that doesn’t have a nationalized health system … A drug that’s a flop in the US will not make up that lost revenue elsewhere.”

Patents but no Market Exclusivity?

And what’s even less well known outside the pharmaceutical industry is that there are major differences between a pharmaceutical company having a patent for a brand name drug and having the market exclusivity to keep competing generics from gaining a share of the brand name drug’s sales.

As FDA explains: “Patents and exclusivity work in a similar fashion but are distinctly different from one another. Patents are granted by the patent and trademark office anywhere along the development lifeline of a drug and can encompass a wide range of claims. Exclusivity is exclusive marketing rights granted by the FDA upon approval of a drug and can run concurrently with a patent or not. Exclusivity is a statutory provision and is granted to an NDA [new drug application] applicant if statutory requirements are met. [See 21 C.F.R. 314.108.] Exclusivity was designed to promote a balance between new drug innovation and generic drug competition.”

Take, for example, AstraZeneca’s diabetes treatment Bydureon (exenatide) and its patents and term of exclusivity as provided by FDA’s Orange Book (the Bible of pharmaceutical patent information). AstraZeneca has 18 patents covering the product, two of which don't expire until 2026. However, the product’s market exclusivity expires in September 2018, which begs the question: Why does a drug have patents that do not expire until eight years after a generic could potentially come to market?

Sherkow explains that this example is actually a typical case, noting: “Short answer here: this is the way generic entry is structured. For ANDAs to be approved, they need to certify that they don’t infringe any patents listed in the Orange Book … which is one of the reasons they’ll add these patents to discourage generic companies from filing ANDAs in the first place,” particularly because of the expense of the litigation.

Elaine Blais, head of the litigation department at Goodwin Procter’s Boston office, also told Focus that under Hatch-Waxman, which is the Act outlining the process by which an ANDA can be filed, an ANDA is often subject to an automatic 30-month stay of approval when a brand name drug company files a patent infringement suit.

“In theory, the 30-month stay allows the brand and generic to litigate patent issues to determine whether the patent will block competition (is it valid and infringed?) after the regulatory exclusivity expires,” she says.

Other differences between patents and market exclusivity include: Patents expire 20 years from the date of filing, while exclusivity is granted on the basis of the type of drug. For instance, orphan drugs (treatments for rare diseases affecting fewer than 200,000 people in the US) get seven years of exclusivity, while new chemical entities (NCEs) get five years. Companies can also get other types of exclusivity if certain statutory criteria are met, though those generally don’t last for longer than three years.

And when pediatric exclusivity is granted to a drug, FDA says a period of 6 months of exclusivity is added to all existing patents and exclusivity on all applications held by the sponsor for that active moiety.

Another major difference: Patents can be expired before drug approval, issued after drug approval and anywhere in between, according to FDA, while exclusivity is granted upon approval.

“Some drugs have both patent and exclusivity protection while others have just one or none. Patents and exclusivity may or may not run concurrently and may or may not encompass the same claims. Exclusivity is not added to the patent life. Expired patents and exclusivity are not included in the published list,” FDA adds.

And though FDA makes clear the distinctions between patents and exclusivity, Sherkow told us that he cannot recall there ever being a case where a generic company got to tell FDA, “there are literally no patents covering this reference listed drug.”

International Markets

Outside the US, where exclusivity is generally shorter and governments can negotiate drug prices, pharmaceutical companies often reap less profits over a shorter period of time.

But in some countries, like India and Brazil, they have what are known as compulsory licenses, which basically allow local companies to produce and locally market drugs that haven’t reached a point in time when generic competition is legally allowed.

The Pharmaceutical Research and Manufacturers of America (PhRMA) argues that compulsory licenses should only be issued in “exceptional situations,” such as when there is a pressing public health need, though other groups, like Doctors Without Borders, have explicitly called for the use of compulsory licenses in places like India to bring down drug prices.

Sherkow told us he thinks compulsory licenses aren’t so much a problem of the licenses themselves but a fear of the unknown.

“You can’t underestimate the fear that a lot of IP counsel have in terms of what patent breaking means for their company’s risks at large,” he said. “It may be ‘irrational’ for companies to throw away an R&D program because there might be a compulsory license scheme, but that might actually drive the decision making … we see this in physician malpractice tort claims.”

And though the behavior might not be rational, it’s that fear that drives the decision making, he said, adding, “We shouldn’t pretend that that’s not changing the calculus for what companies look into for R&D and that’s bad.”


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