Declining Exclusivity: are Patents now Redundant?

Because new medicines have such a high burden of R&D costs to recuperate, their commercialisation in a protected environment is essential to the innovator business model. That protection has historically been offered through the patent system, but for how much longer, given the increasing time taken to innovate?

Patents generally last 20 years, from filing to expiry. In the USA until recently, an anomalous arrangement prevailed whereby patents lasted for 17 years from grant to expiry, reflecting a nominal 3 year period for patent prosecution. But under either arrangement, the research and development, and subsequent regulatory review process, takes a substantial bite out of the available period of monopoly. As a consequence, legislation was put in place decades ago such that patent offices in most developed countries could offer a supplementary certificate of patent protection (SPC) for around 5 years, specifically for marketed pharmaceuticals. In the US, under the Patent Term Restoration Act of 1984 (the so-called ‘Hatch-Waxman’ act), the additional period is calculated by reference to the development and regulatory review time taken by the FDA.

SPCs only apply to marketed drugs, so most patents do not receive them. The Hatch-Waxman extension period is specific for each drug product. Moreover, drugs are often protected by more than just one patent. Famously, ranitidine’s period of exclusivity was extended by a polymorph patent, covering a specific crystalline form of the world’s first blockbuster. The situation is further complicated in today’s litigious world, by the incentive for generic companies to challenge patent validity. Again in the US, this can offer six months of market exclusivity to the first generic company to file an abbreviated new drug application (ANDA) with a claim for invalidity of the innovator patent.

A key question, given this complexity, is what exactly is the period of exclusivity for marketed pharmaceuticals? Given the sensitivity of the pharmaceutical industry to this issue, a subsidiary question is how has this period changed over the past 30 years, a time in which the blue-chip industry stocks have transformed from ones which offered investors primarily growth opportunities to ones which now offer primarily revenue returns.

The availability of SPCs, the multiplicity of patents covering a single product, the openness to invalidity challenge and the widely varying time taken for research, development and regulatory review, present a set of contributory factors that make the period of exclusivity difficult to predict. However, one short-cut way of measuring this, at least as far as the US is concerned, is to look at the FDA Orange book. This online resource reveals the dates of approval of both innovator and generic versions of all approved products since Jan 1982, and can be used to answer precisely the question posed. While other commentators, in particular DiMasi and Paquette (2004)  [PharmacoEconomics, Vol. 22, Suppl. 2, pp. 1-14], have posited that the period of exclusivity has declined in recent decades, the hard evidence to support this claim is incomplete.

So, we carried out this analysis on 231 genericised drugs originally approved by the FDA since 04 Jan 1982, and the results are shown in Figure 1 below. We excluded a few products for which the patent(s) have expired but the market is still a monopoly,  or which became generic before 1982; we also excluded discontinued drugs. For the rest, we compared the first (innovator) drug approval date with the first generic competitor approval date; between these two dates the innovator has a monopoly. The length of this period is clearly declining, and is fast approaching the magic 5-year barrier. At this point, the exclusivity available on the data effectively controls the product monopoly, rather than the exclusivity available through the patent system.

Figure 1 Monopoly period as a function of approval date for genericised drugs first approved by the FDA since 1982 [Source: FDA Orange Book]

Figure 1 Monopoly period as a function of approval date for genericised drugs first approved by the FDA since 1982 [Source: FDA Orange Book

As it stands, generic companies are only able to refer in an ANDA to innovator clinical data after the expiry of the data exclusivity period. Doing so enables them to eliminate the cost and time required to conduct their own studies. In the US, the data exclusivity period is 5 years following FDA approval for a new chemical entity, with a lesser period of 3 years for incremental innovations such as new salt forms or stereoisomers, or new uses. The concept of data exclusivity is fundamentally different from patent exclusivity insofar as the latter must be initiated early in the R&D cycle, long before commercialisation can begin (if it ever begins).

If one takes the regression line from the graph in Figure 1, and extends it to 2022, the projected market monopoly is actually less than 5 years. This means that the patent system will be redundant in the protection of pharmaceuticals for drugs approved in 2022. But, think on…a research programme commencing in 2010 can reasonably be expected not to bear fruit until at least 12 years from initiation, which brings us to the startling conclusion that the patent system as it applies to new pharmaceuticals in the world’s most important market is currently redundant.

This is an important result, if it is right. But the analysis has a problem, because the later points on the graph are a self-selecting set of genericised drugs: those drugs still with patent protection are not represented. We looked carefully at the Orange Book to find the earliest approval of a product that is still patent-protected. This is lodoxamide, from Alcon, which was approved on 23 Sep 1993, and its method of use US Patent 5,457,126 is still in force, as of 05 Mar 2010. If we cut off all later approvals, and just analyse the monopoly periods for products before this date, we end up with the graph shown in Figure 2. The correlation is now significantly poorer (the number of data points is now only 138), but the trend is still downwards, and, if extrapolated, still takes us below the 5 year point. So the earlier conclusion is unchanged, except we cannot be sure exactly what has been happening in recent years; it could be the previous downward trend has levelled out, perhaps as companies anticipate the lack of sufficient patent cover and selectively abandon commercially unattractive programmes. However, it is unlikely to have escaped falling below 10 years, the data exclusivity period for NCEs in Europe.

Figure 2 Monopoly period as a function of approval date for genericised drugs first approved by the FDA between 1982 and 23 Sep 1993 [Source: FDA Orange Book]

Figure 2 Monopoly period as a function of approval date for genericised drugs first approved by the FDA between 1982 and 23 Sep 1993 [Source: FDA Orange Book

Last, I raise a subsidiary point. Data exclusivity has been discussed recently in the US Congress in regard to biologics. Proposals for data exclusivity for biologics range from 7 to 14 years. The argument made is that the patent system only narrowly protects biological inventions, and products of this kind are open to patent-busting strategies. The analysis we have conducted and report here is necessarily focused on small molecule drugs, since generic versions of large biological products are not yet widely approved. It suggests that the patent system is ineffective in protecting the commercialisation of small molecules, and a similar debate on data exclusivity needs to start for this type of new medicine, and urgently so.

In the meantime, on the assumption that legislation will take some time, even while Rome burns, we call for the industry to do more to improve R&D cycle times by the adoption of more low-risk, rapid strategies to product innovation.


This article is written by David Cavalla. David is the founder of Numedicus, a collaborative firm specialised in drug repurposing and therapeutic switching. He has over 24 years of various senior commercial and scientific roles within the pharmaceutical industry. This includes being founder and CEO of Arachnova, a company focused on therapeutic switching which was exited via trade sale. He is an author/ inventor of over 70 published papers and patents, and is a Principal at ATPBio. The article was first published on the Numedicus blog.


2 thoughts on “Declining Exclusivity: are Patents now Redundant?

  1. This is an important point for consideration, made very clear in this excellent piece.
    The case for a declining monopoly period is certainly not conclusively made however – there are some obvious oddities in the dataset – for example, in Figure 1 there is a point on the graph with a monopoly period of 15 years and a date of license of around 2000, which at first glance is not possible. Similarly, the data in Figure 2 ought to be the same as for Figure 1 up to the cut-off date (unless some other changes were made to the dataset selection not mentioned in the article) and yet there are some additional points in the top-left area (drugs with long monopolies that were registered early). These anomalies apart, we also need to see the statistical significance of the trends and their robustness to removing the few outliers of drugs licensed in the 1980s which have enjoyed monopolies in excess of the lifetime of one patent.
    More generally, however, patents serve another important role in the biotech industry – as the tradable currency. During the decade of development for a typical product, it is handed from one owner to another (hopefully at steadily increasing valuation), and the patents provide a hook on which to secure all the collated know-how that is being accumulated. To an extent, an IND (or equivalent in another jurisdiction) can serve the same purpose, but its restriction to regulatory information makes it a more limited “box” for the accumulated value that a biotech company is building ready for sale.
    Patents may also have value beyond protecting the monopolies of single products. They can protect franchises, and block early development of the best competitors.
    These additional factors mean that patents have value over and beyond the monopoly period investigated in your current analysis. Even if the mathematical case for declining monopoly periods is correct (and on balance, it feels as if it should be true for no other reason than the emergence of an aggressive generics industry that scarcely existed two decades ago), it would not be fair to suggest that the patent system as applied to prescription pharmaceuticals is currently redundant. There is a lot of life left in patenting biotechnology.
    What few would dispute, however, is your conclusion that the global pharmaceutical industry has to respond to these trends by finding ways to shorten development cycles. Some of that burden of responsibility must also fall to governments and regulators – in the pursuit of ever greater (impossible to achieve?) safety, the current regulatory environment does everything to lengthen the development cycle. Indeed, any trend to reducing monopoly period is likely to have a regulator-induced delay in reaching market as the single biggest causative factor.
    There is a problem here. But it probably isnt the patent system, or the way companies approach patenting biotech inventions.

  2. Thank you for your interesting comments, David.
    The first point is just a glitch in updating the picture files from the Excel spreadsheet, but thanks for pointing it out. The conclusion doesn’t change, however.
    The second is more profound, and something worth responding on. It is paradoxic that patents primarily protect the commercialisation stage, rather than the R&D of new products, with widespread research exemptions and a patchwork for development activities — most notably the Bolar exemption in the USA. Yet, as you say, they are the focus of value in the Biotechnology industry, and huge monetary trades are made on the basis of patents protecting unapproved medicines. We expect them to protect commercialisation, yet if the above analysis is correct, the ability of them to do so is more limited than we might think.
    Of course, for any individual case, the period of commercialisation under a patented monopoly is unknown at the time of patent filing, and this very uncertainty leads to the innovator taking the decision to patent their invention. But it’s worth reflecting that drugs like dexmethylphenidate, eplerenone, escitalopram, fexofenadine, meloxicam, ribavirin, tizanadine and zonisamide have all had less than 6 years of market monopoly before generics were approved, and all of these were first introduced since 2000.
    There are other factors, as you say, such as protection of franchises etc etc, although the scope for this is becoming more limited. Another factor that I think needs more recognition, is that patents (as prior art) prevent a competitor getting patents, and such protection is needed to support their own R&D.

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