Generic battles in the Patent Court

Alastair McCulloch, a partner at Jones Day, looks at the significance of recent patent battles between generic and non-generic manufacturers.

Now more than ever the ideological battle between the research-based pharmaceutical companies and the generic drug manufacturers rages, with its most recent clash the case in the UK Patents Court between Pfizer, Ranbaxy and Arrow Generics over Pfizer's anti-cholesterol drug Lipitor.Is this case significant? Yes both commercially and legally. Commercially, there is the need for Pfizer to protect its $10bn (Euro 8.4bn) annual market and its r&d costs. Legally, the issues raised have wider application throughout the industry, no matter on which side of the fence your company sits.

While continuing to exploit the lucrative market for off-patent drugs, generic drug manufacturers have stepped up their assault on the mainstream pharmaceutical market with numerous recent court actions, not only in the UK but throughout the world. Their strategy is well documented and straightforward: isolate the core patents for successful pharmaceutical products and seek to revoke them.

According to Kathleen Jaeger of the Generics Pharmaceutical Association (GPhA), which represents the interests of generic drug manufacturers in the US, successful patent challenges significantly accelerate consumer access to affordable pharmaceuticals. Nobody disputes that consumer access to affordable pharmaceuticals is important, but the GPhA leaves no doubt as to who owns the moral high ground. In the case of Lipitor (calcium atorvastatin), this sentiment is reflected by the words of Malvinder Singh, Ranbaxy's president and ceo: 'We remain committed to our objective of bringing an affordable generic formulation of atorvastatin to the National Health Service in the UK'.

Obviously, successful challenges to patent protection allow market entry and exploitation by the generics companies. Utilisation of the patent system is the bulwark of the research-based pharmaceutical industry. So, why does the system work for them and why do the generic manufacturers need to assault it?

corporate assets

Sophisticated and proactive approaches to patenting of research and development throughout the world makes the patent portfolio, along with the market exclusivity it permits, a major corporate asset. R&d is expensive; the Pharmaceutical Research & Manufacturers of America (PhRMA) estimates that, in 2004, $38.8bn (€33bn) was spent on r&d in medicines and the Association of the British Pharmaceutical Industry (ABPI) estimates it costs about £350m to develop a drug.

The worldwide patent system protects this investment and the market exclusivity it brings guarantees revenue that finances not only r&d of the product in question, but also further r&d. As not all projects reach the market, the revenue generated by those that do must support all research. Put simply, without this revenue stream there would be a significant fall-off in the development of new pharmaceutical products. This impacts the consumer and this is the moral high ground of the research-based pharmaceutical companies. As Pfizer's chairman and ceo Hank McKinnell put it in response to the decision in the Lipitor case: 'This is an important victory not only for Pfizer but for all innovators pursuing high-risk medical discoveries that benefit current and future generations of patients around the world.'

But, as the GPhA identifies, the patent system is not invulnerable and an assault on patents covering successful pharmaceutical products opens the way for generic companies to profit. Research-based pharmaceutical companies are faced with numerous development issues. From the instigation of a drug development project it can take 10 to 12 years for the drug to reach the market with the necessary regulatory approval. Patent protection, particularly on the key patents, will very often have been applied for early in the development process, not least because most pharmaceutical companies are researching in the same areas and early patenting is the best way to guarantee market exclusivity.

But early patenting followed by the development time to bring the product to the market leaves precious little time to exploit the exclusive market, even if (as in Europe) a supplementary protection certificate is applied for and granted, giving a further five years of protection. Challenges to the key patent protection, if successful, undermine the revenue stream still further.

market advantage

In the main, this is because regulatory approval for generic drugs is considerably easier to obtain. For example, the US Food and Drug Administration (FDA) has specific requirements for generic drug approval, but under the Hatch-Waxman Act, provided they meet these criteria, the generic drugs do not need to undergo lengthy and expensive clinical trials, which means lead times to market are much shorter. Clearly, market exclusivity for as long as possible is valuable, for once the patent goes the income stream is seriously affected.

Which brings us back to Lipitor and the case before the UK Patents Court. Commercially, the case is vital for Pfizer. Lipitor is its biggest selling product. The case also signals a more aggressive approach by the generic manufacturers. Two patents are in issue and Ranbaxy has applied for a declaration of non-infringement in respect of the core patent, as well as (in tandem with Arrow Generics) the more standard revocation action in respect of a downstream research patent. There are important ramifications for the pharmaceutical industry arising from the decisions of the UK Patents Court on each of the two patents at issue.

Before looking at the decision and its impact in detail, we should briefly consider the technology. The patent against which Ranbaxy has requested a declaration of non-infringement is the core patent underlying Lipitor and is for the chemical compound atorva-statin. Lipitor itself is the calcium salt of atorvastatin. The specific calcium salt is the subject of the second patent, which Ranbaxy and Arrow have applied to revoke. Protection on the core patent would have expired in 2006, but Pfizer applied for and was granted a supplementary protection certificate that extends the protection by five years to 2011. Protection on the patent for the calcium salt was due to expire in 2010.

The claim over the core patent (which was the claim at issue) was for racemic atorvastatin. Ranbaxy argued that its product, which comprised the resolution of racemic atorvastatin to its active enantiomer, would not infringe this claim it was the racemate that Pfizer claimed, not the enantiomer, it said.

Mr Justice Pumfrey disagreed. He judged that it was well known that a racemate was comprised of enantiomers and that only one enantiomer performed the pharmaceutical action. He also judged that it was well known how to get from the racemate to the active enantiomer. In the light of this, he decided that the claim covered the racemate and its enantiomers and refused to grant the declaration of non-infringement sought by Ranbaxy. His decision effectively guarantees Pfizer's monopoly for Lipitor until the expiry of the core patent in 2011.

The position on the downstream patent, however, was not as rosy for Pfizer. Mr Justice Pumfrey held that this patent was invalid because the invention claimed was neither new in light of what had gone before nor was it inventive. Both are required for a patent to be validly granted. His decision on this point creates uncertainty about the position of downstream research patents.

downstream patents

Legally, the decision is important because the judge applied a robust construction to the claims and as a result the core patent for atorvastatin was upheld. Patenting the racemate early in the development process protects the later identification of the pharmaceutically active enantiomer. This means that research-based pharmaceutical companies can patent early, secure in the knowledge that later resolutions of the core compound into the commercial product will still be protected. This in turn suggests that funds directed to continuing r&d once the core compound has been identified will be protected - hopefully - by market returns from the commercial monopoly once the drug has regulatory approval and is released to the market.

However, pharmaceutical companies look to patent downstream research as a means of prolonging patent protection for their products.

Justice Pumfrey's decision throws this strategy into doubt as he indicated that downstream research was merely routine - in this case, screening for the calcium salt was something that the development team would inevitably do when looking to isolate a commercial product. In the particular circumstances of this case, the impact of the latter decision is less commercially damaging for Pfizer because the downstream patent had an expiry date of 2010, whereas the core patent with its supplementary protection certificate lasts until 2011.

In many cases though, this will be reversed and the expiry of the core patent could end the market exclusivity, meaning that pharmaceutical companies need to be prepared and have strategies in place to protect revenue streams that are threatened by an earlier loss of market exclusivity.

future judgements

From the patents owners' point of view, it is good to see the UK Patents Court upholding some intellectual property rights. Nobody disputes that the provision of affordable drugs to the public is important, but so too is the development of new and more effective drugs. It is the ability of the research-based pharmaceutical companies to continue this development that is protected by Justice Pumfrey's decision just as much as market exclusivity for Lipitor itself.

The UK is a fast, effective and comprehensive jurisdiction for patent actions, and the effect of the judgment may be felt in other jurisdictions where proceedings are ongoing. In particular, the story has since moved to the US where (at the time of writing) judgment in the equivalent US case was expected in December 2005. Pfizer will approaching that hearing with more confidence now that it has the UK decision under its belt.