By Joseph Walker
A patent law change sought by the pharmaceutical industry could
cost federal health-care programs $1.3 billion over a decade by
delaying new generic medicines, an analysis by the Congressional
Budget Office found this summer, according to people familiar with
the matter.
Pharmaceutical trade groups are asking Congress to exempt drug
patents from being challenged through an administrative process
that is cheaper and faster than the federal courts. The procedure
has become popular with generic drug companies looking to sell
copies of brand-name products.
Drug makers say hedge-fund manager Kyle Bass used the procedure
to challenge companies whose shares he is betting against, or
selling short. The Coalition for Affordable Drugs, a group created
by Mr. Bass, has this year challenged more than 20 patents held by
companies including Biogen Inc., Celgene Corp., and Jazz
Pharmaceuticals PLC.
The Pharmaceutical Research and Manufacturers of America, also
known as PhRMA, and the Biotechnology Industry Organization, or
BIO, say brand-name pharmaceutical patents should be excluded from
the procedure, called Inter Partes Review, or IPR, through patent
legislation that Congress is considering.
"Our solution," said Mit Spears, general counsel at trade group
PhRMA, "is to essentially exempt [pharmaceutical] products" from
IPR challenges.
The potential for such an exemption to increase drug spending is
opposed by some lawmakers, health insurers, and consumer advocates
alarmed by rising drug costs. This summer, Rep. Mimi Walters (R.,
Calif.) withdrew her proposal to include an exemption in a U.S.
House Representatives' patent bill after it was opposed by Rep. Bob
Goodlatte (R., Va.), the bill's lead sponsor and chairman of the
House Judiciary Committee.
"When I talk to my constituents, they frequently express concern
about the high cost of prescription drugs," Rep. Goodlatte, said at
a committee meeting in June, according to a transcript. "I
certainly would have to answer to my constituents as to why I
allowed a provision into a bill that makes their medicine more
expensive."
The IPR system went into effect in September 2012 with the
support of many technology companies, which saw it as a way to
combat patent trolls--nonoperating companies that profit by
accusing companies of patent infringement. Under IPR, judges
employed by the U.S. Patent and Trademark Office evaluate patent
challenges that would be heard in lengthier court proceedings.
Several U.S. Senators, including Sens. John Cornyn (R., Texas)
and Chuck Schumer (D., N.Y.), asked the CBO this summer to estimate
how much a pharmaceutical exemption for IPR would cost, according
to congressional aides. The CBO's conclusion, communicated orally
to Senate staffers in July, was that federal spending would
increase by $1.3 billion over 10 years because the exemption would
delay the launch of certain generic products, the aides said.
Generic drugs can cost 90% less than their brand-name
equivalents.
The CBO, a nonpartisan federal research agency, provides
"thousands" of preliminary analyses each year to Congress as early
drafts of new laws are hashed out, according to the CBO's
website.
A CBO spokeswoman declined to comment.
Some senators backing the broader patent law are open to the
idea of an IPR exemption for drug patents and to finding ways that
offset the projected increase in drug costs, congressional aides
said. In July, 79 House members called for exempting drug patents
in a letter to congressional leadership.
Tom DiLenge, BIO's general counsel, said the trade group is
aware of the CBO estimate and disagrees with it because the IPR
system is unlikely to lead to faster generic approvals. Mr. Spears
of PhRMA also said he was aware of the CBO estimate.
Drug makers say the IPR process, in which judges employed by the
U.S. Patent and Trademark Office evaluate challenges, is being used
to circumvent a decades-old system for settling patent disputes
between generic and brand-name drug companies. That system, created
by a 1984 law requires the FDA to wait 30 months, or 2.5 years,
before approving generic versions of medicines whose patents are
being challenged in court.
IPR challenges are usually decided within 15 to 18 months, using
a different legal standard than what's used in the federal courts,
and which legal experts and drug makers say is less favorable to
patent owners. Patents can be challenged through the IPR system and
in the federal courts simultaneously, forcing drug makers to defend
themselves on two fronts.
"We agreed on a system 30 years ago for how generic drugs should
be litigated," said Mr. DiLenge. "Now we're seeing generic drug
companies trying to skirt those rules."
Individual drug companies, including Amgen Inc., AbbVie Inc. and
Biogen, have lobbied lawmakers about changes to the IPR system,
according to federal disclosure documents. Companies say IPR
challenges have created new uncertainty as they evaluate which
experimental drugs to invest in.
"I understand people being concerned about drug prices, but we
won't have any new drugs come along at all if we don't support the
investment that's needed to make them happen," Bart Newland, chief
counsel for intellectual property at Biogen, said in an
interview.
But opponents of the exemption, such as the health insurance
industry, say drug makers often use the slow pace of the federal
courts to delay generic launches. The IPR system "is a critical
consumer protection," said Matthew Eyles, executive vice president
of policy and regulatory affairs at America's Health Insurance
Plans, say: "An exemption would be really bad for consumers and
really bad for the system."
Other groups opposing an exemption include AARP, an advocacy
group for retirees, insurers represented by the Blue Cross and Blue
Shield Association, and the Pharmaceutical Care Management
Association, an industry group for pharmacy-benefit managers.
Mylan NV, a generic drug maker, has filed more than a dozen IPR
challenges against brand-name drug patents and has lobbied against
the exemption, according to federal disclosure documents. IPR
challenges "could eliminate a lot of these patents that are
frivolous, which would allow more access to affordable medicines,"
Mylan Chief Executive Heather Bresch said in an interview.
Still, it is too soon to say if the IPR system will
significantly alter the industry. Many challenges to technology
patents have been successful, but most pharmaceutical cases haven't
been decided yet, said Jacob S. Sherkow, an associate law professor
at New York Law School. Among pharmaceutical challenges that have
been decided, the patent office has upheld most of them, he
said.
In August, the patent office declined to review the first of Mr.
Bass's challenges against patents for Acorda Therapeutics Inc.'s
multiple sclerosis treatment Ampyra, but agreed to consider a
challenge brought by Mylan against Teva Pharmaceutical Industries
Ltd.'s drug Copaxone.
"Generally speaking it seems easier to invalidate patents in IPR
than in federal courts," Mr. Sherkow said. "For pharma patents, the
jury is still out."
Andrea Fuller contributed to this article.
(END) Dow Jones Newswires
August 31, 2015 19:35 ET (23:35 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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