Saturday, December 03, 2011

Innovation Incentives Part 1: Regulated Therapeutic Product Lifecycle

Understanding the Consequences of Linking Market and Regulatory Incentives for Drug Development: Part 1

This is a three-part series by guest blogger Ron A. Bouchard.

Dr Ron A. Bouchard is an intellectual property lawyer and scholar, specializing in biomedical products. He began his career as a medical scientist, completing a PhD and Postdoctoral Fellowship in the field of ion channel biophysics and Ca2+ imaging. He shifted focus to obtain a law degree specializing in pharmaceutical and biotechnology law and has been involved in the prosecution, acquisition, financing, distribution, and litigation of intellectual property rights. Dr Bouchard has appeared before the Federal Court of Canada and the Supreme Court of Canada. He is a Professor of Law and Medicine, and is the recipient of a Canadian Institutes for Health Research (CIHR) New Investigator Award. He is currently on sabbatical.


Patent valuation has become a hot button issue of late, particularly in the area of pharmaceuticals. In the effort to win the global innovation race, substantial policy and economic efforts are being made by developed and developing nations alike in support of innovation, both in terms of understanding it and making more of it when innovation does occur.

The issue of patent valuation presents to an increasingly educated lay audience as a kind of titanic contest of wills between those who prefer big incentives for innovation and those who focus of the social benefits, or outcomes, of innovation.

Many studies of innovation and patent valuation use economic models to assess the business value associated with patents at a given point in time, as well as ways of maximizing value from those patents. Although there are certainly many skeptics, innovation and patenting have nevertheless become synonymous in economic discussions of national productivity and prosperity in a wide variety of debates, including scholarly, political, civil service, and in the media.

Read the rest of this post . . . .In the world of life sciences products, a distinction can be made between an economic analysis - even one cast in a law and economics light - and a patent law analysis. This is because one is primarily (though not exclusively) in service of utilitarian benefit and the other is primarily (though not exclusively) in service of equity, equality and the terms of the traditional patent bargain. As instructed by the courts when pharmaceutical patents are at issue, the patent bargain is itself to be interpreted through the public health mandate as it is bound by the unique trifecta of patent law, food and drug law and linkage law.

This places patent valuation front and center of any discussion of law reform focused on pharmaceutical innovation, as well as discussions and law reform aimed at reducing drug costs and expenditures. The fact that, unlike in many other industries, follow-on products may offer little benefit compared to existing products raises the bar on this discussion, as does the fact that patents associated with these products can be used as more of a sword than a shield to evergreen older product lines and keep drug prices high.

Because the availability, costs and expenditures of drugs are regulated by such a complex array of legal, policy and political vehicles, their analysis is quite amenable to “complexity”-based frameworks, which by design place significant emphasis on feedback loops between multiple interrelated nodes.

In this case the nodes, or spheres to use the nomenclature of Walzer, are industrial, economic, public health, and political in nature but also play out in numerous intersecting ways in statutory, regulatory, policy, and judicial terms. In our Berkeley study, we presented the model below for the development, consumption and regulation of drug products, referring to it as a regulated Therapeutic Product Lifecycle (rTPL).

Fig. 1. rTPL Innovation Ecology Model for Drug Development. Innovation is represented as an iterative process over time involving several functional groupings, including national science and technology (S&T) policy, clinical research, university and firm commercialization, innovation by private firms, drug regulation by national governments, and intellectual property and regulatory (IPR) rights covering both drug submissions and marketed products. Large red nodes represent functional groupings, and include sub-functions enumerated in the figure. Red lines are multi-directional between nodes and sub-functions and are independent of time (acknowledging that the process generally moves clockwise).

Through diagrams such as these, one can see that patent rights and incentives permeate all stages of the rTPL. As we have noted elsewhere, even assuming a relatively linear innovation process, because of regulatory incentives that allow the public to gain access to therapeutic products prior to conventional Phase 3 trials, and because linkage laws allow for the development of clusters of interrelated new and follow-on drugs and associated patents, the regulatory lifecycle for drugs has become at once increasingly complex, intertwined, and collapsed. Linkage laws in particular complicate the picture as they are intended to both facilitate industrial development in the form of new drugs and to satisfy the public health mandate by yielding cost savings on generic entry.

One might argue that the convergence of public health and industrial policy of this nature calls for a clear and concise set of policy levers governing the complex innovation ecology for therapeutic products, particularly in jurisdictions where the availability of both brand and generic drugs are regulated by linkage laws.

Yet, as noted in the recent decision of the High Court of Delhi in India, where (like the E.U.) linkage was rejected, the court held that worldwide there is a "raging debate on whether patent linkage should be permitted," concluding there is "no uniformity in the policy of different countries."

In North America, the birthplace of linkage, the Supreme Court of Canada held in its seminal decisions in Biolyse and AstraZeneca that linkage regulations tying generic entry to brand-name patents must be made in a patent-specific manner. The court's pronouncement highlights the importance of the qualitative and quantitative nature of the balance inherent to the patent bargain, especially when read in light of the so-called “special provisions” of linkage laws when parsing pharmaceutical patents.

As pointed out by the Global Consortium on Pharmaceutical Linkage in a recent article, patent law is also antecedent to linkage in the United States, which was the first jurisdiction globally to promulgate linkage laws. This was made clear by the seminal reports of the Committee on the Judiciary (COJ) and the Committee on Energy and Commerce (CEC) prior to the coming into force of Hatch Waxman. Both the COJ and CEC made it clear that the twin policy goals of linkage laws were to encourage the development of “new and innovative” drugs and to facilitate the “timely” entry of generic drugs.

Both of these competing policy goals depend on patents, and so again we arrive at a pivotal role for patent valuation in determining outcomes related to the twin policy goals at issue.

So, what evidence is there to assess whether these two policy goals have been met by patent, food and drug, and linkage laws? What evidence is there to determine the role of “strong” and “weak” patents in producing outcomes, including unintended consequences that may have been completely unanticipated by law-makers at the time pharmaceutical law and policy came to the fore in the early 1980s and 1990s?

This will be the subject of Parts2 and Part 3 of the series.

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