It could be said that the goal of the industry is commercially to help alleviate the mental and physical issues of people and animals. There are also those who say that these aims may be in conflict with profit making and who argue that drugs should be available at low cost to all who need them. Although perhaps desirable in an ideal world, another perspective is that this would remove the incentive to keep on inventing drugs, especially with the expensive research and other costs that are involved. And for a number of reasons, many pharmaceutical companies today are already struggling.
The length of time that patent protection provides to an innovative company so that it can exclude others from entering a market has been much discussed. It has been suggested that 20 years of patent life, even if protection is extended by up to five years through Supplementary Protection Certificates (SPCs), is too short in comparison with the amount of time, effort and money that pharma companies invest in drug development, and that patent terms should, in fact, be extended further.
Clearly, coming off patent means that drugs are usually cheaper and more widely available – good for society in the main – but the effects on pharma companies can be dramatic, and not just on the companies themselves but also the whole economy, with corresponding longer term effects on society as a whole.
Ireland’s pharmaceutical exports are the seventh largest in the world, according to Dublin-based industry group PharmaChemical Ireland.1 The group claims that in 2011, the Irish pharmaceutical and chemical sector exported products to the value of €56.1bn, up 5.4% from €53.2bn in 2010. The sales of five of the world’s top-selling dozen medicines which are produced in Ireland will fall 52% to $13bn by 2013 from $27bn in 2010 as their patents expire, according to data compiled by Bloomberg2 based on analysts’ estimates. These include Pfizer’s cholesterol treatment Lipitor, the patent for which expired in 2011, and the erectile dysfunction drug Viagra.
It could be argued that the huge profits that the pharmaceutical companies make from the remedies they bring to market are not ethical when money to buy them is in short supply
This could have an effect on millions of pounds of these exports, arguably making Ireland’s exit from its EU bailout more problematic. The Irish Exporters Association (IEA) in its Half Year 2013 Export Review3 projects a contraction in exports of 1.6% for the full year 2013; the greatest contraction will be in sales to the UK, with exports falling by 32%, affected by blockbuster drugs such as Viagra coming off patent protection in the first six months of the year. The contraction brought exports for the six months to t88.6bn, down €1.7bn on the same period last year. The merchandise sector took the main brunt of the fall in export demand, and contracted by €2.9bn or 6.4%, mainly due to the loss in the value of pharmaceutical exports associated with the end of their patent protection on a range of blockbuster drugs manufactured in Ireland.4
Global generic spending is expected to increase from $242bn in 2011 to between $400bn and $430bn by 2016, according to a 2012 report entitled Global Use of Medicines: Outlook Through 2016 by the IMS Institute for Healthcare Informatics.5 This is because of the growth in emerging markets and a move to generic drugs in more developed countries.
It could be argued that the huge profits that the pharmaceutical companies make from the remedies they bring to market are not ethical when money to buy them is in short supply in the community. However, in a recent development, Roche decided to give up its patent on the breast cancer drug Herceptin in the Indian market, allowing other companies to make lower-cost equivalents. The company said it had decided ‘not to pursue the patent, because of the strength of the particular rights, and the intellectual property environment of India in general’.
It is, the argument goes, quite reasonable that generic drugs should be developed, usually much more cheaply, once a drug comes off patent. After all, the company that developed them enjoys 20 years’ control over associated revenues. Perhaps a Creative Commons or ‘Open Source’ for pharma should exist. But if this were the case then what about the investment, the incentives to the drugs companies, and the effect on the entire economy of a country where those drugs are manufactured?
Drugs companies claim that they need the revenue from best-selling remedies to fund the pipeline of new inventions, not just the research but the testing and conformance to rigorous legal safety and efficacy requirements – many drugs fail this hurdle – as well as the very long development times, with costs often well over $1bn that need to be funded. With all this, it is calculated that in reality companies usually have only about 11 years to market their drugs exclusively4 and only a small proportion of drugs actually make a profit for the company that develops them.
Those who propose that patents should be extended beyond the current 20 year limit to avoid more and more pharmaceutical companies falling off the so-called ‘patent cliff’ when their patents expire, make the point that to have more costly drugs is preferable to not having any drugs at all.
But would extending the patent term stimulate innovation if companies did not have the same pressures to develop new products? And would extending the life of patents for pharmaceutical companies be the thin end of the wedge? Telecoms manufacturers, for example, often invest substantially in new developments, so that they can request patent extensions as well.
There are, of course, other means of protecting the long term future of the pharmaceutical industry. Some have already recognised the threat from the patent cliff and are responding to it and to the other challenges they face in a number of ways. One of these is through an increasing emphasis on technology transfer.
Organisations generally look to intellectual property (IP) to protect their market share, through licensing and royalties or by selling the IP portfolio for others to exploit. Transferring technology, however, can also help pharmaceutical companies who, conscious of the high costs of R&D, may decide to buy in technology from another source – perhaps another pharma company, a hospital, a university or an innovative biotech company.
The trend towards collaboration in the industry as a means of maximising resources and reducing costs is demonstrated by initiatives such as the 2012 announcement that GlaxoSmithKline and Johnson & Johnson are creating a $200m fund with Index Ventures to invest in early-stage biotech companies. Another example is the formation of a non-profit organisation, TransCelerate BioPharma, by a number of biopharmaceutical companies to accelerate the development of new medicines.
The current pharmaceutical industry business model is both economically unsustainable and operationally incapable of acting quickly enough to produce the types of innovative treatments demanded by global markets
PwC has produced a number of reports looking at the future of the pharmaceutical industry. In Pharma 2020: The vision: Which path will you take?6 PwC claims that ‘the current pharmaceutical industry business model is both economically unsustainable and operationally incapable of acting quickly enough to produce the types of innovative treatments demanded by global markets. If they are to prosper, they will need to improve their R&D productivity, reduce their costs, tap the potential of the emerging economies and switch from selling medicines to managing outcomes. These are activities that few companies, if any, can accomplish on their own.’
One of the challenges in developing a collaborative business model, however, relates to identifying the organisation that has the right technology to fit with the current and future business plan of another, and then perhaps persuading them that collaboration is also in their interest.
Conversely, for universities or biotech companies the challenge may be which of their technologies might be saleable and to whom. Those in a position to dispose of technologies and the associated IP also need to prepare their IP portfolios carefully before they make overtures to another organisation with a view to a technology transfer deal.
It is essential that all those planning a potential deal have a good appreciation of the IP assets that underpin it
These transactions typically involve combining expertise from many disciplines, including technical, marketing and legal. It is, however, also essential that all those planning a potential deal have a good appreciation of the IP assets that underpin it. All organisations involved need to understand the intangible and future potential value of the various aspects of their IP portfolios and the options regarding disposal of parts of the portfolio that no longer fit projected business models. Those wanting to transfer technology also need to know how fully to protect and commercialise the IP to make it attractive and relevant to larger organisations that may be interested in such an arrangement.
Techniques such as an ‘IP landscaping’ exercise undertaken by an IP specialist can prove very useful in helping companies review their IP portfolio and prepare for technology transfer opportunities. Using recognised databases and registers, a map of the intellectual property landscape surrounding an organisation’s core technology, secondary technologies, processes and know-how is created that can help determine what it is worth retaining in terms of intellectual property for further development and commercialisation, and what it might be better to sell or lease to another organisation.
The debate about how to protect the future of the pharmaceutical industry is likely to run and run. But intellectual property will certainly be an important part of it, whatever direction it takes.
References
1. http://www.pharmachemicalireland.ie/Sectors/PCI/PCI.nsf/vPages/About_us~industry-profile?OpenDocument
2. http://www.bloomberg.com/news/2011-11-22/ireland-faces-26-billion-export-headache-as-drugs-stop-working.html
3. http://www.irishexporters.ie/section/Exportscontractagainforthesecondquarterandpullthefirsthalfyearexportsdownby17billionwithlittleprospectforimprovementforbalanceofyearstatedthe
IrishExportersAssociationIEAastheorganizationreleaseditsHalfYear2013
4. http://online.wsj.com/article/SB10001424052970204542404577156993191655000.html
5. http://www.imshealth.com/deployedfiles/ims/Global/Content/Insights/IMS%20Institute%20for%20Healthcare%20Informatics/Global%20Use%20of%20Meds%202011/Medicines_Outlook_Through_2016_Report.pdf
6. http://www.pwc.com/gx/en/pharma-life-sciences/pharma-2020/pharma-2020-vision-path.jhtml
