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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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In the Pipeline: Don't miss Derek Lowe's excellent commentary on drug discovery and the pharma industry in general at In the Pipeline

In the Pipeline

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July 18, 2006

Getting and Spending

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Posted by Derek

Well, we're now into earnings report season in the drug industry. Not that we notice much in the labs, mind you, but the stockholders do sit up and pay attention. Profits seem to be up, which prompted a colleague of mine to wonder today when the first New York Times story will appear noting this with worry and disapproval. They have some people that I enjoy reading, but a tone does tend to creep in that suggests that any profitable industry must necessarily be extorting The Masses.

Well, I can cheer them up. The thing about drug industry profits is, they're pretty much all based on wasting assets. The drug business is an endless treadmill. Most businesses have this problem to some extent, but it's very explicit in our case. When your big patent runs out, the music stops very abruptly these days, so you'd better have something to replace it.

But you know, I'm not complaining about that. Patents should have defined lifespans, although we can argue about how to set them. Knowing that they're going to go away, though, keeps us moving. (For similar reasons, I wish that copyright hadn't been extended a few years ago). If we had big whopping patent terms, the temptation to just sit around and roll in the money would be too great. The pace of discovery would slow. I see it as the function of government to discourage that kind of inertia, although not by just yanking all the cash away, which position I realize also has some support.

Nope, it's the middle ground for me: enough time to make good money, but not so much time that everyone becomes too lazy. Here's the question, though: stipulating that that's what we want, are the current patent terms too short, too long, or on target?

Comments (24) + TrackBacks (0) | Category: Business and Markets | Patents and IP


COMMENTS

1. LNT on July 18, 2006 8:47 PM writes...

Patent terms are right on target. It's the time required for clinical trials that is way out of whack.

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2. secret milkshake on July 18, 2006 9:41 PM writes...

Too long. Two decades of patent rights (with slow approval process) make the business cycle too slow - which enables attrocious incompetency in pharma management - simply because bad decisions take many years to produce negative effect on profitability and the actual causes (and culprits) are hard to track back. I think people of dubious expertise colonised the pharma industry and new drugs would be less expensive if management excesses, megalomania, buraucracy and waste in pharma industry were limited.

If you manage R&D of a consumer-electronics company, your bulshit will live only for few months - the reality sets in when new products wouldn't sell and the unsold inventory becomes worthless.

Look what Hank has done to pharma - and tell me if his salary and retirement package was money well spent.

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3. tom on July 18, 2006 10:27 PM writes...

It depends. I mean, we don't really need more statins, right? From what I can glean, the ones we've got are arguably *too* powerful. Shorter terms for new ones would be appropriate (same for whatever incarnations of drugs are rereleased, only with an antacid strapped on). Punish companies with shorter patent terms when they waste their revenues on research into innovations that only truly benefit their shareholders.

OTOH, there are plenty of relatively rare diseases that don't offer enough potential profit under the current regime for drug development to be worthwhile. We should extend the offered patent term for drugs that would address these unmet needs.

So establish some sort of deliberative body, downgrade the patents offered for unneeded classes of drugs, offer extended patent bounties for ones that we'd like to see developed, and handle the rest under the existing regime.

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4. Chrispy on July 18, 2006 10:37 PM writes...


Above all, we need to end this endless practice of granting patents for crap (e.g. NfKB) and "letting the courts work it out..."

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5. secret milkshake on July 18, 2006 10:56 PM writes...

Tom: The idea that some wise comittee will correct all wrongs has been tried & tested in USSR. Such comittee is bound to be stupid and corrupt.

One needs to have the same set of rules for everybody. Arbitrarily setting different rules according to the (perceived) need of society will only do harm. If there is unmet medical need, grant research money or orphaned drug status is the way to deal with it.

Bad management in big pharma operates much like party Aparat in USSR - they are decoupled from results of their action, they tell the politburo (=stockholders) whatever the poliburo wants to hear and above all they will always cover their asses.

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6. Canuck Chemist on July 18, 2006 11:17 PM writes...

I'm with milkshake. If we don't need another statin, it makes little sense to legislate with shorter patent terms-- the market (and the insurance companies) should solve this problem without government interference. That being said, I do believe that it could be effective to provide legislative "carrots " for certain areas like 3rd World diseases and especially for something like antibiotics. It's hard to make a profit on something which a) patients take for only a brief period, and b) may rapidly become obsolete due to organism mutation. For this reason, I think it would be good for society to take advantage of all the industrial talent and know-how by providing incentives for companies that come up with successful products in "compromised" areas (anti-biotics and 3rd World diseases are the only two that come to mind). Extended patent terms would make sense here.

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7. Grubbs the cat on July 19, 2006 2:28 AM writes...

I think patent lifespan should be adjusted to the effort you have to put into filing. If the registration authorities keep raising the bar higher and higher (sometimes quite rightly so) things will get out of balance. I reckon the only consequence of continuing with current patent lifespans in a free market would be more and more blockbuster research (at the expense of other indications) and more mergers!
LNT's solution would be one of a typical big pharma manager: start trying to save where time/money spent increased the most in recent years. In my eyes clinical trials last so long because of the ever increasing pressure of the registration authorities!

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8. Kay on July 19, 2006 6:01 AM writes...

Two very fine posts from milkshake. Thank you.

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9. Anonymous on July 19, 2006 6:56 AM writes...

Tom: The idea that some wise comittee will correct all wrongs has been tried & tested in USSR. Such comittee is bound to be stupid and corrupt.

One needs to have the same set of rules for everybody. Arbitrarily setting different rules according to the (perceived) need of society will only do harm. If there is unmet medical need, grant research money or orphaned drug status is the way to deal with it.

What is orphaned drug status if not a committee giving a special extention the exclusivity rights for some drugs in response to perceived need?

What if when the first patent for a drug of a particular type was awarded, one set things up such that for a particular class of drugs (let's use statins, for example), any company that patented a new molecule had exclusivity on it, but only until the originally filed patent expired.

That would create some pressure to be first to market in particular diease areas, and reduce the value of me-toos. You'd want some bonus exclusivity for significantly reduced side-effects with in a drug class, but that doesn't seem impossible.

This would also avoid having the government set the values for different diseases, leaving it up to the market. It would just tweak the rewards a bit in favor of novel outcomes.

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10. LNT on July 19, 2006 6:59 AM writes...

Rather than changing patent terms, what about "starting the clock" on a patent when the compound gets on the market rather than when it is first discovered? Essentially, it would be a "copywrite" allowing for exclusive sale of a drug for a fixed period of time -- reguardless of when it was first "discovered". Shorten the time to, say, 10 years instead of the current 18(?) year lifetime.

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11. ebartley on July 19, 2006 8:09 AM writes...

I basically agree with LNT. You'd need to allow patents *before* the trials, or no one would go to the expense, but the clock should be reset after FDA approval. If you don't add that time back in, you're penalizing the companies who aim at the harder targets. How long that clock should run for I actually see as more of an open question. Somewhere between the average length of FDA drug trials and twice the average length of FDA drug trials.

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12. qetzal on July 19, 2006 9:59 AM writes...

secret milkshake wrote:

Too long. Two decades of patent rights (with slow approval process) make the business cycle too slow - which enables attrocious incompetency in pharma management - simply because bad decisions take many years to produce negative effect on profitability and the actual causes (and culprits) are hard to track back. I think people of dubious expertise colonised the pharma industry and new drugs would be less expensive if management excesses, megalomania, buraucracy and waste in pharma industry were limited.

If you manage R&D of a consumer-electronics company, your bulshit will live only for few months - the reality sets in when new products wouldn't sell and the unsold inventory becomes worthless.

The problems you describe with pharma aren't due to excessive patent terms. Consider that patent terms for electronics are just as long as for pharma. Yet, as you correctly point out, the life cycle for an electronic product is much shorter, indicating that patent term is not the main issue.

The slow business cycle in pharma is mainly due to long development times, as LNT notes. (The post-approval life cycle is certainly related to patent term, but that's not directly related to the cost of new drugs.)

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13. Derek on July 19, 2006 11:07 AM writes...

LNT and ebartley both describe systems that already exist to some extent, though not quite as they describe. First, there are patent term extensions (SPCs, etc. depending on the country) that extend the terms of patents for delay between patent issuance and drug approval; and second, there are exclusivities of various kinds that are patent-independent and based just on bringing the drug to market, starting with marketing approval - US New Chemical Entity exclusivity being 5 years, European "data exclusivity" being 6-10 years depending on the country, perhaps to be standardized by EU directive at nearer the 10 years. Not patents, but they prevent others using the originator's data to support an approval.

Permalink to Comment

14. Canuck Chemist on July 19, 2006 11:07 AM writes...

I think that granting exclusive patent rights for high-priority/first-in-class, etc. would be a mistake, because it would open up a Pandora's box of bickering over how one defines such things, plus the resulting extended monopolies would lead to higher drug costs. Resetting the patent clock is an idea worth considering. It would encourage companies to do more thorough testing, which could lead to safer drugs. On the other hand, this wouldn't be such a problem if we had better and more efficient ways to study drugs before and during clinical trials. The comparison to the semiconductor industry is a bit skewed, because: 1. The performance of a new product there is clearly defined; and 2. No one dies from a faulty chip.

One complication with "resetting the clock": How do you deal with a company that patents a broad class of compounds, then takes forever to get to market? I guess the patents could be sold...though certainly this would encourage even more questionable patents to be filed.

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15. Still Scared of Dinosaurs on July 19, 2006 11:17 AM writes...

As far as 3rd world drug development goes, one possible solution would be to trade off development of treatments for otherwise unprofitable diseases with acceptance of 1st world approvals in the third world. I don't even know how hard it is to get drugs on the market in most poor countries, but I assume that whatever barriers are there don't have to be very high before they eat up whatever profit incentive the markets might be providing.
We could even create a market as is done for pollution credits where organizations working on such diseases as malaria, TB, etc. could sell their credits to pharmas looking to get more drugs on the markets in more countries quickly.
The costs of the approvals could be discounted according to the approvals in hand: maybe 15% each for FDA and EMEA, less for other agencies, and if you use the discount you have to accept the restrictions imposed in that label.
One benefit might be that nonprofit research could also generate such credits, providing additional timely revenue.
Just a thought.

Permalink to Comment

16. Derek Lowe on July 19, 2006 11:48 AM writes...

I should point out that comment #13 is, confusingly, by yet another Derek.

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17. Don B. on July 19, 2006 12:02 PM writes...

I would like to point out that as far as I know a patent life in the USA is 20 years from the date of issue.

It would be "nice" if it would count from the time that a "drug" is approved and marketed.

I have seen "me tos" that are a lot better! Punishing "me tos" such because the nyt does not like them would be counter productive.

Don B.

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18. Xmas on July 19, 2006 12:36 PM writes...

Patent terms are just right. Otherwise, pharmaceutical companies wouldn't be thriving in the US.

The costs of the FDA approval process are out of whack though. Since this affects not only drugs but also devices and tests, the Medicine industry is directed to produce highly profitable products in order to justify the expense of getting the drug, device or test to market in the first place. Marginally profitable drugs, devices or tests aren't pursued, leaving a gap in Medicine.

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19. weirdo on July 19, 2006 5:50 PM writes...

Two things, on the last two comments:

Patent life is 20 years from date of submission, not date of issuance. This can be a big difference (years). In fact, a huge chunk of the money is spent developing a drug before a patent is actually issued, adding to the uncertainty and risk.

Pharmaceutical companies are not, currently, "thriving in the U.S." Although I would not blame that on patent life, necessarily.

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20. kevin on July 19, 2006 10:01 PM writes...

While the patent life is 20 years, you can extend the lifetime of ONE US patent on a particular drug by 1/2 the time of clinical trials + all the time from submission to approval. There are also other extensions available, but there is a total lifetime maximum (it differs by country). Oprhan drug status gives incentive to address rare diseases. There are many public-private collaborations addressing third world diseases, and this seems to be working to develop new drugs and vaccines. What is desperately needed is infrastructure to deliver these life-saving medicines to the people who need them.

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21. tom on July 20, 2006 12:10 AM writes...

I'll defer to others' greater familiarity with the subject at hand -- my experience with IP is primarily via the software industry. But I do want to respond to this:

Patent terms are just right. Otherwise, pharmaceutical companies wouldn't be thriving in the US.

I feel that this is the wrong way to think about the issue, although I understand that many in this thread may adhere to it. From a policy standpoint, the well-being of the pharmaceutical industry is beside the point. Sure, it's got lobbyists and is an important part of the US economy. But for purposes of IP law, the guiding principle must be to maximize the productive output of the industry, as measured by the benefits it confers to society via its discoveries. Pharma's profitability is necessarily tied to satisfying this goal -- we mustn't forget that, but the two also shouldn't be confused.

I'm sure you all like your jobs and lifestyles, and I wouldn't want to deprive you of them. But, speaking as a disinterested observer, I don't give a damn whether Pfizer's had a great year on Wall Street thanks to a new slow-release, bubblegum-flavored children's fluoxetine formulation. I care whether it's producing new medicines that are genuinely useful to my friends, loved ones and fellow citizens. And I feel that IP law should reflect that belief.

Secret Milkshake's right, of course, that the specifics of implementation is a major problem. But I don't think it's totally unreasonable to suggest that we legislate some sticks to discourage unnecessary drug development, instead of only providing yet more carrots.

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22. Derek Lowe on July 20, 2006 7:12 AM writes...

I that that you and I are more on the same page than you'd think, Tom. I'm suspicious of that high-level-commission idea, simply because I fear that they'd be either incompetent, politicized, or well-meaning but harmful.

But I agree that drug company profits aren't the measure to use to decide whether patent terms are set correctly. After all, if they were jacked up to the level of copyright, we'd all be making even more money, but that would clearly be counterproductive, as the original post says.

My macroeconomic views are that people and companies should be given plenty of opportunities to rake in big profits, but in competitive situations, not just by rent-seeking. People are naturally going to look for the safest way to get a lock on some profitable scheme, then sit back and watch the money roll in forever - I think it's the job of a government to keep this from happening, as much as possible.

And once the money's made, there should be plenty of encouragement to reinvest it in the same or other competitive environments. I like to see capital out there working for a living.

Permalink to Comment

23. Xmas on July 20, 2006 8:14 AM writes...

I'm sorry, I should post from work. I had a nice big rant about the drug approval process in my head that I couldn't get out.

Anyway, by thriving, I mean "successful enough to draw new players into the market". It's not just that the US patent laws allow the companies to make a profit, it's the surety companies will have the chance to make a profit. The US has courts that will enforce the patents, the US doesn't have too many laws in place that force companies to sell drugs at government arranged prices, the US government works to enforce patents globally, etc. etc.

Mucking around with the length of patents may have interesting (as in the Chinese curse), unintended consequences. Just as mucking around with Copyright laws is bound to have interesting unintended consequences.

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24. qetzal on July 20, 2006 8:26 AM writes...

I agree with all tom's comments except this:

But I don't think it's totally unreasonable to suggest that we legislate some sticks to discourage unnecessary drug development, instead of only providing yet more carrots.

Rather than legislative sticks, I'd like to see a more efficient market solution. If a drug is unnecessary, no one should be buying it. Inability to recoup development costs is far and away the best discouragement.

Everyone's familiar with the problems in our current system. Patients typically have little incentive to 'settle' for a perfectly good drug if there's a new and improved one available. If the new one is just as safe and effective and it tastes great too, and if the co-pay is about the same, many patients will insist on the new and improved version. Many docs will go along to keep their patients happy, and because it doesn't impact them financially either.

I think we need to address this inefficiency somehow, although I don't pretend to have the solution.

My other disagreement with the legislative stick approach is that I don't really want the government deciding that I don't need Product X, and that they're going to actively discourage anyone from developing it. Those decisions should be market driven.

Discouraging development of drugs that are 'unnecessary' (based on some committee's judgement) seems undesirable and qualitatively different than actively encouraging development of drugs for undertreated conditions. Having said that, I admit that I don't know if there's a real difference from a strict economic perspective.

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