As the United States deals with the aftermath of the fiscalcliff, the pharmaceutical industry is facing a precipice of its own. As patentson existing blockbuster drugs expire, Big Pharma companies are forced toparachute off the proverbial patent cliff. This legal escarpment means the endof patent protection on various blockbuster drug products, opening the marketto generic substitutes.
With the end of market exclusivity on blockbuster drugs,pharmaceutical companies are faced with billion-dollar revenue losses. It hasbeen estimated that a combined $170 billion annually will go off patent by2015. What makes the current timing sointeresting is the large quantity of patented blockbuster drugs that haveexpired in the last few years, or that will expire soon. Over the past fewyears, the patents have expired for Enbrel, Zyprexa, Plavix, Arimidex andLipitor. This year, Seroquel, Actos, Singulair and Lexapro have gone or will gooff patent. In the coming two years, drugs including Oxycontin, Cymbalta andNexium will expire.
With the loss of patent protection on so many blockbusterdrugs, Big Pharma's financial outlook is entering a new phase of opportunity.
Identification of new blockbuster drugs has been slow withinthe industry, particularly with the growing costs of research and developmentcoupled with the broader worldwide economic downturn and healthcare reform.This has raised questions as to how and whether Big Pharma can maintain a stakein the marketplace. The impact of the patent cliff may be widespread, however,as Big Pharma has been taking and continues to take positive steps to adapt tothese changes.
To successfully navigate the changing times, diversificationis the key. Research and development efforts have been refocused as one way toparachute safely off the patent cliff. In spreading the focus beyondblockbuster drugs, companies are creating more alternatives to account fortheir revenue streams. For example, the IMS Institute for HealthcareInformatics has predicted the launch of 32 to 37 new molecular entities annuallyover the next five years. Additionally, companies are gravitating towardsorphan drugs, specialty drugs and the biologics market, all of which are areasripe for growth in the biopharmaceutical industries.
While directed to relatively small patient pools, thesealternative drug markets bring a new focus and unquestionable value to thepatients that they treat. According to Thomson Reuters, the orphan drug marketwas worth more than $50 billion worldwide at the end of 2011. Orphan drugs alsoprovide a unique attraction in that they may have shorter clinical trialperiods and extended exclusivity. Additionally, according to PembrokeConsulting, in 2011, $46.9 billion of specialty drugs were dispensed bypharmacies. The ongoing and potential growth in these areas are clearindications of areas for expansion.
Further, while biologics were once limited to treat specificdiseases such as metabolic disorders, they are now available to treat morecommon diseases. The growth of the biologics market is even more prominent, andhas been noted to account for more than a third of blockbuster drug revenues in2010.
Another area of diversification that pharmaceuticalscompanies have actively pursued is strategic mergers and acquisitions, rangingfrom mega-mergers to smaller partnerships. Examples of some notable and recent mergers include Pfizer's merger withWyeth and Merck's merger with Schering Plough. Mergers and acquisitions providenumerous strategic considerations. For example, mergers allow companies tocombine their revenues and consolidate costs and expenses. Acquisitions ofsmaller or medium-sized entities may be attractive for their research and development.For example, certain companies may have drug targets where preclinical tests orearly-stage clinical trials have already been completed, allowing for immediateaccess to an advanced pipeline.
Additionally, depending on the target mergers or acquisitions,location of facilities may bring opportunities to extend research pipelines andextend geographic reach that companies would otherwise not have. Extendinggeographic reach is not necessarily limited to mergers and acquisitions.Certain companies are shifting some of their focus from the developed marketsto emerging markets in India, Brazil, Russia, China or Mexico, to name a few.Emerging markets have a number of challenges, including local regulatoryrequirements and differentiated pricing. However, the potential for marketgrowth cannot be ignored. It is estimated that about 70 percent of world growthover the next five years will come from emerging markets, of which China andIndia are expected to account for 40 percent.
Recent examples of successful placement in emerging marketsinclude the following. Novartis targetedsales of its blood-pressure medication Diovan in emerging markets in LatinAmerica and parts of Asia in order to maintain a third of its sales.Additionally, last year, 80 percent of GlaxoSmithKline's vaccine distributiontook place in emerging markets.
Additional avenues for diversification can be found inintellectual property strategies as another means to steer through the patentcliff. With a desire for additional patent protection, pharmaceutical companieshave been investigating various research options to extend patent exclusivity. Suchoptions may include investigations into new formulations for existing productsincluding new modes of delivery or delivery systems, or perhaps new dosages. Anothertarget may include additional methods of treatment or indications for existingproducts. The feasibility of next-generation products may also warrantadditional patent filings, including further research into purified isomers andenantiomers, metabolites, new salts or even polymorphs. Alternatively, newcombination therapies may be targeted to extend the patent portfolio. All ofthese options may allow for new patent filing opportunities.
New patent opportunities may require a certain level ofstrategic consideration. Continuation practice through divisional, continuationor continuation-in-part applications, may allow for earlier effective filingdates, assuming a pending application with supportive disclosure exists. Reissuepractice may be a worthwhile consideration if an applicable patent withappropriate support may be utilized.
However, with an eye toward obtaining patent coverage in anexpedited fashion, alternative patent filings may be advantageous.
Variousoptions are available in the United States for different accelerated patentprosecution procedures. For example, strategic filings for acceleratedexamination may be sought for new patentable subject matter as a means toachieve quicker or faster patent claims. Petitions to Make Special may alsoprovide an opportunity for rapid review. The Patent Prosecution Highway alsoprovides fast-track examination in an office of second filing. Expeditedprograms may require costlier prosecution costs and assumes full development ofthe targeted subject matter, and thus may not be an immediate option. However,upon filing, patent claims may be obtained within twelve months or shorter. Certain,but not all, foreign jurisdictions may also allow for expedited or modifiedexaminations or participation in accelerated programs. As such, globalconsiderations may need to be taken into account to assess the impact onforeign procurement concerns.
With the many strategic options available to apharmaceutical industry facing the patent cliff, the outlook remainsencouraging. Companies have been well informed of the projected dates as to whentheir drug products go off patent, and as a result have anticipated the need todiversify. With the inevitable end to existing exclusivities, the opportunitiesfor strategic change have offered a positive outlook. The vast options thathave been available to adapt with these changes have shed light on that factthat Big Pharma continues to flourish after the patent cliff.
Sandra S. Lee is apartner in the Intellectual Property and Life Sciences practices of New Yorklaw firm Baker Botts LLP. Her concentration is on worldwide intellectualproperty counseling, strategic planning, patent procurement, due diligence,opinion work and ANDA litigation. Prior to her legal career, Lee was inbiomedical research in the Department of Anesthesia at the Brigham &Women's Hospital in Boston.
