You may have heard of the Biden Administration’s recent proposal to waive the patents for Covid-19 vaccines in order to speed up production and global distribution. In this blog we wanted to discuss why we think this is a mistake and why patent protection is fundamental to the solution and to innovation.
Covid-19 should probably be seen as an extraordinary event and therefore making decisions based purely on the circumstances of COVID-19 that could have ramifications for the whole pharmaceutical and biotechnology sector going forward can have potential adverse consequences.
Viruses do not respect borders, or wealth, and it is tragic that less developed nations sadly do not get access to the best medical advances in the way the more developed world does. One approach to even out this imbalance is to sell a drug or vaccine on a ‘not for profit’ basis. This is where the pharmaceutical company manufactures the product and charges less wealthy nations only for the cost of production. This is not a new phenomenon; we have seen this happen previously with HIV and Hepatitis C (HCV) drugs. This not only allows global access to vital medicines but also maintains the motivation at a company level to keep innovating, as profits can still be made in countries which can afford to pay the normal price for their products. We should also remind investors of the honourable decision that AstraZeneca took to sell its Covid-19 vaccine on a “not for profit” basis even to wealthy countries, which is a decision that should be commended for a company whose goal is to generate profits for shareholders. Sadly, the negative press that AstraZeneca has endured since then may have reduced its appetite (and that of its competitors) for this kind of arrangement in the future.
The need for patent protection
Effective and sustained patent protection is an essential element of the pharmaceutical industry's ability to recoup development and production costs from the revenues generated from marketed products. The cost of successfully bringing a new drug to market has steadily increased and protecting the drug's exclusivity, via patents and other methods, generates revenues in the absence of competition for a fixed period of time. After a fixed period, the drug is then generically available at a fraction of the price to society in perpetuity. These companies also invest a significant portion of those profits back into R&D as they are motivated to find a new innovative product to offset the loss of the old now genericised drug. This model is tried and tested globally and underpins the whole sector. It is particularly important as without it, why would companies spend time and money looking for cures to meet unmet medical need, especially for conditions where patient numbers are relatively few?
Patents have a long history, with the English Crown granting patents in the mid-15th century. A patent in the biotech sector is the granting of exclusive rights, a monopoly, by the state for a fixed period of time in exchange for the public disclosure of certain details of an invention at the end of the patent life. The invention may be a device, method of development or production, process or composition of matter, which is new, inventive and useful or industrially applicable. The term of a therapeutic patent is usually 20 years from the filing date, with a potential extension in specific circumstances of 5 years, and this is the case in Europe, the US and Japan. Bearing in mind that it can be 10 to 15 years from filing to the date it is approved for sale, the period during which the company can recoup the developmental costs is limited and, often less than 10 years.
For a patent to be granted, it must demonstrate novelty, utility, and be non-obvious to a skilled person in the trade. For patents relating to therapeutics, the utility is quite easy to demonstrate, while novelty and non-obviousness may be less clear. Any disclosure of the invention prior to filing a patent application may have detrimental future value as the novelty claim is then compromised. This is not uncommon when scientists, eager to publish novel findings, undermine the value of their own inventions.
What does pharma and biotech patent
When dealing with therapeutics, we tend to have major classes of patentable inventions that
relate to pharmaceuticals, although many patents encompass claims that cover most or
all of these to varying degree.
Composition of matter: Product patents form the mainstay of protection for pharmaceutical companies since they claim a novel chemical entity (NCE) or novel biological entity (NBE) and are considered to hold the best protection as they protect the “core” invention. Patents for a novel chemical/biological entity are generally filed early in the R&D process so usually also have the shortest patent time and expire before other patents in the family of patents that are developed around a significant product.
Formulation: Formulation patents tend to be filed later in the development cycle, or even when the
drug is marketed and provide coverage of innovative delivery forms for purposes of targeted delivery, extended release and other features that improves the characteristics of the original product. At the same time these patents prohibit any generic company from using the same technology making outright generic substitution more difficult. Even if other patents eg composition of matter, have already expired
Process: these patents describe novel methods of producing therapeutic substances and/or formulations. Previously this category was considered of lower value and relatively easy to circumvent. With the recent development of cell therapies that deal with complexities and heterogenicity when growing, modifying and expanding human cells, process patents have become essential.
Use: these protect the use of a drug for treating a given condition or conditions. They may relate to either the original and established use of a drug or to novel (and unanticipated) uses. In many cases “old” compounds are no longer under patent because of the time lapsed or due to a successful novelty claim deeming the compounds unpatentable. However, if one finds an unanticipated use for the product, a use patent can be granted and may be as solid as a composition of matter in their specific therapeutic use.
In some instances when patents are impossible to enforce or relate to a compound that is very old or widely known, the regulatory agencies have introduced incentives for pharmaceutical developers not to discard promising and potential future drugs, just because patents no longer are applicable.
In US, there is a general five year automatic data protection for any drug approved that applies without any patents whatsoever. Once that is lifted, potential generics may start to copy, a process that tends to take 1-3 years, which in reality provides the originator a seven year market protection. Europe has an even better regulatory protection, offering an eight year data protection, an additional two years market entry hiatus which could be extended by another year (8+2+1) if the product expands its use in additional diseases.
For rare/orphan diseases, the regulatory agencies have added additional incentives for companies to be able to recoup costs incurred when developing drugs for these conditions, as they recognise that the lower number of patients may otherwise deter companies from investing in innovation in these areas. Below is a description of the terms applied:
Table 1: Legislation in major markets offering commercial incentives for orphan drug development
Maximum prevalence criteria
At least partial
Source: Frost & Sullivan
We at IBT are always scrutinizing a potential investment prospect´s IP protection as the basis of our investment decision. Lack of effective IP protection may render a company uninvestable, in our view, and this is core to our thesis. We are seeing new variants of Covid-19 appearing which is a worrying yet predictable result of a pandemic. Removing patent protection may deter the vaccine companies from continuing their work in finding future new vaccines to fight the moving target that is Covid-19. Angela Merkel’s comments following the Biden announcement said that such a move would have “severe complications” for the sector. Although IBT does not currently invest in vaccine companies, we also view this proposal as a deeply concerning for the remainder of the biotech sector.