Editor’s note: Ed Ergenzinger, J.D., Ph.D., is an Associate in the Biotechnology Patent Group of Alston & Bird, LLP. Murray Spruill, J.D., Ph.D., is a Partner at Alston & Bird, LLP where he serves as Biotechnology Patent Group Chair.As Congress reconvenes following their August recess, one of the key issues expected to take center stage is Medicare reform.

Before their recess, the Senate Judiciary Committee held hearings on August 1 to assess competing Senate and House versions of prescription drug and Medicare legislation (S. 1 and H.R. 1). In addition to provisions relating to Medicare, however, both of these complex bills include provisions that would amend current patent and regulatory laws by targeting provisions of the Drug Price Competition and Patent Term Restoration Act of 1984 (commonly known as the Hatch-Waxman Act).

Although this attempt at Hatch-Waxman reform is motivated by a desire to prevent perceived abuses by brand name drug companies, the unfortunate consequence of such changes if adopted may actually be to slow the development of new drug therapies.

Before delving into the nuances of these bills and how they will have the impact asserted above, a little background is in order. The Hatch-Waxman Act represented an attempt at balancing the interests of the health care system in making lower cost generic drugs more widely available, and the interests of the patent system in providing incentives to develop new drugs.

One of the ways Hatch-Waxman attempted to achieve such a balance was by providing for a period of market exclusivity for 180-days to the first generic drug manufacturer to successfully win an infringement suit or to successfully challenge the validity of a patent on an approved drug. The original goal of this provision was to encourage challenges of patents by ensuring that a second generic manufacturer would not get a “free ride” by enjoying the benefits of the litigation efforts of the first.

As it stands now, the triggering event for the start of the 180-day exclusivity period can be either the start of commercial marketing or a court decision of invalidity or non-infringement. Under S. 1 and H.R. 1, the trigger due to a court decision is replaced by a set of forfeiture provisions that can defeat the 180-day period. Unfortunately, however, if a patent challenge is unsuccessful, the 180-day exclusivity period cannot usually be forfeited until the challenged patent expires.

Generics’ challenge

Why is this a problem?

Because, many brand name companies hold multiple patents around a given drug (including patents on the compound itself, methods of using the compound, manufacturing processes, formulations, etc.). As the law currently stands, there is a disincentive for generics to bring challenges to the patents around a given drug early in their terms because chances are good that at least one of the patents will survive the challenge (usually the original patent around the compound itself).

If challenges to related patents are successful, meaning there is a finding of invalidity or non-infringement, the start of the 180-day exclusivity period is triggered. But because there is at least one surviving patent, such as to the compound itself, the generic company will be unable to take advantage of their exclusivity period if there is a significant amount of time remaining in that patent’s term.

Under the forfeiture provisions of S. 1 and H.R. 1, the 180-day exclusivity can be held until the challenged patent expires. Thus, there is now an incentive for generic manufacturers to challenge patents early in their terms, since they no longer have to worry about triggering events that could make their exclusivity period start and run out while a surviving patent term is still in effect.

Eroding of incentives

Challenges to patents on drugs early in their terms erode the incentives built into the system to undertake the substantial investment of time and money it takes to develop new drugs. On average, it has been estimated that it takes 10-15 years to develop a new drug, at a cost of over $800 million. By allowing generic manufacturers the ability to “bank” their 180 day exclusivity period and pull it out at the end of the patent term, brand name drug companies will be faced with even greater up-front costs associated with drug development.

These forfeiture provisions can be amended to prevent such early and speculative challenges without affecting other provisions that are designed to address conduct by innovator companies that might unfairly delay generic competition once the basic patents on a new medicine had expired. As suggested Vice Preseident and General Counsel for Eli Lilly & Co., in his testimony before the Senate Judiciary Committee on this issue, a provision could be added “stating that once all the innovator’s basic patents have expired and a competing generic company has demonstrated that it does not infringe any of the remaining innovator patents, the 180-day exclusivity period will be forfeited.”

Although the goals of S. 1 and H.R. 1 are to provide greater access to prescription drugs and speed the entry of generics, if the provisions altering the trigger for the 180-day exclusivity period are retained, the net result may be to hamper the development of new drug treatments. Companies who actually conduct the research to develop new drugs will be faced with increased court challenges early in their patent terms, thus adding to the cost of development and forcing a narrowing of the lines of research they can pursue.

The conference committee appointed in mid-July to resolve differences between S.1 and H.R.1 is scheduled to reconvene in September.

Ed Ergenzinger, J.D., Ph.D., is an Associate in the Biotechnology Patent Group of Alston & Bird, LLP. Murray Spruill, J.D., Ph.D., is a Partner at Alston & Bird, LLP where he serves as Biotechnology Patent Group Chair. They can be reached at eergenzinger@alston.com and mspruill@alston.com, respectively.