Scaling the pharmaceutical patent cliff11 October 2013
In recent years, the term ‘patent cliff’ has come to be associated almost exclusively with the pharmaceutical industry. World Pharmaceutical Frontiers examines how drug companies are counteracting the threats posed by expiring patents and their generic challengers.
Typically, the patent life of a substance patent is around 20 years; by the time of launch, at least half of this time has usually passed. In some cases, the patent has been effectively expanded by introducing the active enantiomer or a different salt or formulation with a clinically relevant benefit, but often this has not been possible.
As drugs are now introduced almost simultaneously to major markets, the loss of a patent generally manifests itself in a few years - or less - through loss of sales. For many of the drugs that have lost patent protection, this near simultaneous launch has been a reality.
In the past, when patents had different lives, this loss was much more protracted; because of the vagaries of marketing authorisations, the effective loss of patent protection usually spread over a decade. People slowly slid down a hill and did not fall down a 'cliff'. Interestingly, the market share of the top ten companies has not changed much since then: while some companies moved to lower ranks, others accelerated, but their market share is still below 50%.
The market contraction extended to the US and European markets, but emerging markets were spared, and Japan showed only small changes. Overall, in Europe, during the years 2008-12, the sales of companies affected by the patent cliff went down by 6%, while those of others surged by around 3.5%. In the US, 13 companies had a total loss of at least $5 billion during that time.
The threat posed by generics, known as the 'patent cliff', has not so far led to many companies leaving the business or had a major impact on sales and profit. An example to the contrary has been the pharmaceutical arm of Altana (formerly BYK Guldenwerke), which was heavily dependent on the protected pantoprazole and quickly went down when the drug's patent protection came to an end. Despite other projections, big pharma companies have found ways to compensate for the effect of the 'cliff' - this is even more remarkable as the cliff constituted a perceived negative impact over a few years rather than a gradual erosion of patented sales.
Predictions made about five years ago showed some companies expecting an impact on sales of up to 30%. The assumed price reductions happened in most cases, with 10-20% of the market often retained by the originator company. By the time journalists spoke of the cliff, this threat had been realised for some ten years and precautions had been taken. While the price erosion of these products has not stopped due to low-cost generic offers, the sales of the originators have almost stabilised.
Companies have since sought to counteract this threat in different ways. Some have undertaken major cost-cutting programmes, particularly with regard to the size of operations, and the number - and complexity - of studies needed for approval. Entire non-critical business areas have been outsourced, such as toxicology departments.
The best companies integrated gold-standard comparisons early in development to sooner eliminate compounds that might turn out to be me-too products. This brought down the percentage of compounds that fail in phase III to an overall 30% (which is, of course, still too high). Where outsourcing meant reducing cost, this has been done.
In some cases, R&D organisations have been shrunk in the hope that promising compounds could be acquired from outside much more conveniently. The demand for new compounds, however, has persisted, meaning there were no such compounds looking for a developer and the market for early development compounds has increasingly become a seller's market.
Some companies built up, acquired or bought a stake in or shares of generic companies. This facilitated the industry's entry into developing markets, but also diversified risks. In addition, it introduced the possibility to continue marketing generic versions of original substances on which the patents had expired.
This generic experience has shown big pharma firms how things can be done more efficiently as, without it, such businesses would falter. This may radiate into the classical pharmaceutical business.
For other companies, focusing on small - but key - niches has become a solution. In the infection area, for example, Gilead has succeeded in building a franchise for HIV and hepatitis C, and in rare diseases, Actelion has made a successful entry. This niche focus requires a strong drive to innovate as otherwise one is caught in a pattern of me-too developments - consider, for instance, the plight of a particular mid-sized company that used to be more diversified, but now mostly relies on pain medications.
Most of the bigger pharma organisations have put more effort into the added value of their future products in order to outsmart generics. Take Boehringer Ingelheim, which defied the notion that the age of blockbusters was over and came forth with Pradaxa to prevent strokes suffered as a result of atrial fibrillation. Logically, such a move made sense because, outside of oncology, personalised medicine is not yet gaining ground (although this possibility cannot be excluded in future). Our highly conservative bodily processes - optimised for survival - make it unlikely that there will be significant variations of response in some diseases as long as those are well described and their overall pathophysiology is well understood.
Clinical development consortia
Competition has increased, very much among generic challengers, but also between other big pharma players. The time between the first and the second compounds of a class, which was about seven years in the 1980s, has now shrunk to less than a year. In a sizeable therapy area or indication, there are usually two to five new compounds on the market within five years that rarely make a significant difference in patient benefit. This competition, however, has led to more focused life-cycle management, where potential benefits are explored and shown in robust clinical trials - head-to-head with competitors. The concentration on smaller indications, such as malignant melanoma, has aggravated this competition, which is already mired in the clinical development 'race for patients'.
New ways to cooperate have also been explored. They are usually known as 'pre-competitive' (so named as aligned way of working could be perceived as an anti-competitive move itself) because they cover areas where the achievement of a competitive advantage is hardly possible for an individual company. The consortia formed are therefore open to all companies that wish to join. This approach began in toxicology, where much exchange has been made possible in the area of biomarkers, particularly for renal toxicity.
In clinical development, the formation of the TransCelerate consortium has shown that, despite fierce competition, pre-competitive areas can be defined as those where collaboration helps to reduce costs and speed up development - for all.
TransCelerate is a 16 company-strong non-profit organisation that aims to rectify problem areas in which cooperation is needed to reduce duplicate efforts. These include GCP training; documentation of investigator CV and site assessment; and the mutual provision of comparator compounds for clinical trials. More areas are to follow, including work on common data standards (CDISK), risk-based monitoring, and common investigator and site databases. In the end, however, implementation power is what counts - not the sheer know-how - and there is a waiting list of others hoping to join TransCelerate.
While, in the past, companies didn't seem to be limiting themselves to their home geographies, which could in theory open the way for marketing and sales collaborations, the opposite seems to be true now. And, more interesting still, the age of big mergers appears to be almost over, possibly due to lack of reasonable targets. Following Pfizer/Pharmacia (2003), Sanofi/Aventis (2004), Roche/Genentech (2009), Merck/Schering Plough (2009) and Pfizer/Wyeth (2009), one might count Sanofi/Genzyme (2011), but this is a much smaller deal.
Word is spreading about 'open innovation' - see GlaxoSmithKline's Tres Cantos Open Lab as a case in point - but this area seems to be becoming less attractive. Although focusing on drugs to treat the diseases of the developing world has been open to external scientists for several years, no much systematic approach is ongoing. While open innovation makes finding new targets easier, the protection of this knowledge is much less secure, meaning any competitive advantage may disappear much faster than with conventional discovery and development. It is also unclear as to whether open innovation will show the necessary speed of development.
Has the patent cliff been scaled?
In summary, the patent cliff has by now been well overcome, with some exceptions. Companies are focusing on smaller market segments and are working to reduce their vulnerability - that is, the 'height of the cliff'. That said, the rise in outsourcing has likely contributed to higher costs compared with traditional drug development methods, and this trend may continue as some companies - through too close ties - become 'hostages' of their own CROs.
If this and research productivity fail to improve, the future will look bleak: new targets will be harder to find and more expensive to buy in the early stages. Beyond this, a fast-follower strategy is becoming increasingly attractive.