By: Blake Na
Patents grant an inventor the right to exclude others from making, using, or selling their invention. The public policy behind patenting is to incentivize and reward the inventor, to recoup research and development costs and to encourage new inventions. Thus, patents are considered a significant incentive to stimulate innovation, specifically the development of newly prescribed medicines given the nature of research and development.
Why are patents important for the pharmaceutical industry? How is the pharmaceutical industry protecting its intellectual property rights? Here are the answers.
The Pharmaceutical Industry
Innovation drives the pharmaceutical industry. Innovation also differentiates research-based pharmaceutical companies from generic drug companies. Pharmaceutical companies heavily invest in lengthy and costly research and development processes to remain relevant in the market. The average time it takes for a new drug to come to the marketplace is at least ten years, with clinical trials alone taking about six to seven years. The cost to develop one new drug is about $2.6 billion according to a study by Tufts Center for the Study of Drug Development. Furthermore, there is only a 12 percent success rate of bringing a drug through clinical trials. A considerable number of drugs that move to clinical trials never receive government approval. Even if a new drug successfully completes all the necessary steps to get to market, pharmaceutical companies face heavy competition with other pharmaceutical companies. This pressure has led big pharmaceutical companies to spend far more on marketing than on research and development. For example, Johnson & Johnson spent more than twice the development costs on the marketing directed to physicians, who write prescriptions. Accordingly, companies in the pharmaceutical industry usually depend on a period of both (1) market exclusivity derived from patent protection, and; (2) data exclusivity in order to recoup their research and development costs.
According to the Food and Drug Administration (“FDA”), generic drugs constitute 80 percent of prescription drugs in the United States.  Therefore, it is important for companies in the pharmaceutical industry to have the right strategy in utilizing their patent and data exclusivity rights. Patents and data exclusivity are similar in some respects, but can be clearly differentiated from one another. The Patent and Trademark Office (“PTO”) grants patents while the FDA grants data exclusivity rights. Data exclusivity refers to the period where approval of generic drug applications from clinical trial data that has already been approved for a new drug application is prohibited or delayed. That is, it protects the clinical trial data collected and submitted to the federal government for the market approval of a new drug. If a drug is still under the period of data exclusivity, generic entrants must submit complete clinical trial data. Due to the high cost of research and development, this creates a significant barrier to entry for generic companies.  As the FDA explains, design exclusivity rights exist to “promote balance between new drug innovation and generic drug competition.” This right can be enjoyed simultaneously with or without a patent.
A pharmaceutical company may apply for a patent from the PTO at any time in the development lifetime of a drug. A drug is patentable if it is non-obvious, new, and useful. The drug must be non-obvious when comparing the drug with another previously invented drug, i.e., it does not bring the same type of information as the other drugs. The drug must also not exist, and it must have a purpose.
Intellectual property rights, especially patent rights, are the foundation of the pharmaceutical industry. The industry heavily depends on the future profits which innovation (and as a result, exclusivity) enable. Drug patents grant the originator company to market exclusivity for a fixed term of 20 years from the patent’s original filing date. By giving this 20-year patent term in which the government cannot regulate the price, market exclusivity allows pharmaceutical companies to have a monopoly over the market. To maximize their profit, pharmaceutical companies work on extending the exclusivity of a drug. For example, AbbVie extended the manufacturing exclusivity of Humira by delaying generic companies from manufacturing generic entrants until 2023. The market exclusivity can be lengthened anywhere between 180 days to 7 years. Thus, due to efforts to derive profits from patents, pharmaceutical companies’ patents contribute to roughly 70-80 percent of their overall revenues. Patents in the pharmaceutical industry are normally referred to as their product portfolio and are the most effective method for protecting innovation and creating significant returns on investments. Accordingly, as mentioned above, patents help in recouping costs related to research, development, and marketing of a drug.
Patents not only help pharmaceutical companies recoup investments, they can also act as a shield against infringement claims. Strong patent protection can safeguard drugs from potential infringers. Without consent from the patentee, other competing companies cannot use, make, or distribute the invention. However, because a drug can be easily imitated by competitors, bringing an infringement suit can also protect a patentee’s rights. Recently, DUSA Pharmaceuticals, Inc.—an arm of the Indian pharmaceutical company Su Pharma and ranked among the top 50 global Pharma Companies—was recently granted injunctive relief from a U.S. court against Biofrontera Inc. in a patent infringement case. The court’s order prohibited Biofrontera from making use of information, including sales data, marketing data, technical information, and unpublished clinical data, of DUSA Pharmaceuticals. Although bringing an infringement suit is a valuable remedial measure for patentees, pharmaceutical companies often face difficulty with the high costs and uncertainty of litigation.
Ultimately, it is necessary for pharmaceutical companies to set a budget for research and development, marketing, and legal costs. It is also essential for pharmaceutical companies to utilize the benefits of patent rights and data exclusivity to compete with generic manufacturers. But, most of all, it is critical for pharmaceutical companies to have an effective intellectual property strategy that will maximize returns on investment and maintain strong patent protection.
 See Biopharmaceutical Research & Development: The Process Behind New Medicines, Pharma (2015), http://phrma-docs.phrma.org/sites/default/files/pdf/rd_brochure_022307.pdf.
 See Thomas Sullivan, A Tough Road: Cost To Develop One New Drug Is $2.6 Billion; Approval Rate for Drugs Entering Clinical Development is Less Than 12%, Policy & Medicine (last updated Mar. 21, 2019), https://www.policymed.com/2014/12/a-tough-road-cost-to-develop-one-new-drug-is-26-billion-approval-rate-for-drugs-entering-clinical-de.html.
 See Ana Swanson, Big pharmaceutical companies are spending far more on marketing than research, Wash. Post, Feb. 11, 2015, https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/?noredirect=on&utm_term=.fb51ba7da933.
 See Renu Lal, Patents and Exclusivity, FDA/CDER SBIA Chronicles (May 19, 2015), https://www.fda.gov/downloads/Drugs/DevelopmentApprovalProcess/SmallBusinessAssistance/UCM447307.pdf.
 See 21 C.F.R. § 314.108.
 See Fabian Gaessler & Stefan Wagner, Patents, Data Exclusivity, and the Development of New Drugs, Northwestern University Pritzker School of Law (June 3, 2018) (unpublished manuscript) (on file with the author).
 Lal, supra note 6.
 See 35 U.S.C. §§ 101, 102, & 103.
 DUSA Pharm. Inc. v. Biofrontera Inc., No.18-cv-10568 (D. Mass Dec. 11. 2018) (order granting preliminary injunction).