Although Europe is more generous in its period of market exclusivity, it is notoriously ungenerous in its willingness to pay for drugs. Therefore, in many cases, both markets offer weak incentives. If a company were to pitch investors on the idea of funding development of a drug with dwindling patent coverage that would receive ten years of market exclusivity in Europe and five years in the US, investors might refuse unless the drug could be reformulated somehow and re-patented to provide a longer period of exclusivity for the US market where the company would expect to generate profits more reliably (as discussed in Chapter 10, due to America’s unwillingness to deny). Absent such patentable tweaks, there’s currently no path forward for funding development of the drug.
The US should adopt a policy like Europe’s, simply granting a minimum of ten years of regulatory exclusivity to any approved novel drug.
In cases where a drug is already generic but isn’t being developed for a promising new use, then even ten years of exclusivity for the new indication might not be motivating since investors would fear that physicians would simply prescribe the generic version for the new use. J&J was only able to justify developing intranasally delivered, chirally pure esketamine for depression despite the availability of generic, infused, impure ketamine (approved for anesthesia but not depression) precisely because of how extensively it upgraded the generic ketamine into a depression drug. While physicians can elect to treat patients with depression using generic, infused ketamine, most won’t consider it an acceptable alternative to J&J’s FDA-approved, intranasal, pure esketamine.
When an existing generic is already well-suited for a new use but just isn’t approved for it yet, the FDA could offer different kinds of incentives to get companies to run trials for the new indication and submit it for approval so that it could be reflected in the drug’s label. The agency already has an array of “priority review vouchers” that companies can earn when they develop drugs for tropical diseases or pediatric conditions, for example.323 These vouchers typically let a company speed up FDA review of any drug it wants from the standard ten months to six months—and so they are valuable and tradable assets valued these days at around $100 million.324 Similarly, a reward for getting an old generic approved for a new use could be an “extension voucher” for a six-month exclusivity extension for any other drug (though one would want to limit the number of such extensions one could put towards one drug or else AbbVie would buy them all to put towards Humira!).
Funding Awareness of a Generic’s New Use
For reasons discussed in Chapter 12, there would be no profit in marketing a generic drug for a new use, so how would doctors come to learn of it? An awareness campaign funded by the FDA could let both doctors and patients know about the inexpensive drug’s new use. Of course, putting a government agency at the center of generic drug repurposing might mire the process in bureaucracy, but that would still be better than what we have now.325 An alternative would be to contract with a third-party marketing firm to promote the drug for its new use in exchange for charging all generic manufacturers a fixed price per unit sold that they would then factor into their prices (akin to my proposal in Chapter 12 for how to keep promoting awareness of the EpiPen after it has gone generic). Society’s total spending on the drug would go up by the amount of this added fee, which would fund the education campaign, but the generics companies would still compete with one another on price to win share of the now larger market (expanded by the new use of the drug).
As much as our current system of mostly patent-based incentives appears overly generous in rewarding incremental innovation, such innovation can be quite valuable in the long run, and we need the right incentives, no more no less, to encourage as much as of it as possible.
Contractual Genericization: Proposing a Roadmap
Now that we have covered both contractual genericization in Chapter 8 and the use of brief monopoly extensions for standard incremental innovations in this chapter, we have the key elements to explore how contractual genericization might actually work.
First, we would need a regulator to ensure that all drugs go generic without undue delay, in accordance with the Biotech Social Contract. Let’s say Congress passes a Contract Generic Drug Act, creating the Generic Drug Contracting Bureau (the “Bureau”) to oversee this process.
Then, every time a company files for FDA approval of a new drug, it would register the patents protecting its drug with the Bureau and sign a contract to ensure the price of the drug drops when those initial patents expire without undue delay (allowing for due delays for legitimate upgrades, as we’ll see). The purpose of this contract would be two-fold: 1) To serve as a failsafe326 in case the price of the branded drug doesn’t drop due to conventional generic competition,327 and 2) To provide a mechanism for granting brief monopoly extensions to incentivize incremental upgrades of marketed branded drugs in lieu of the current, mostly patent-based system.
The contract would stipulate that if no generic manufacturer has received approval for a generic by the registered patent expiration date, the originator company would be obligated to drop the US price of its drug. I suggest that a fair contract generic price could be twice the cost of production and distribution (i.e., a 50% gross margin),328 where the price would remain indefinitely. Since the price would depend on company’s costs, the Bureau would audit the financials of the production facility to confirm that they are properly reported. The idea would be that the production facility’s costs would be set at no more than what it would cost if the facility were run as a standalone company.
If one or more generic manufacturers receives FDA approval of a generic by the time of the originator’s patent expiration date, then the originator would be obligated to drop its price no later than two years after the patent expiration date. For every additional generic approved, the expiration grace period would be extended by three months to a maximum of three years, creating an incentive for the originator to help more generics come to market, which would help protect against supply shortages and give the free market a chance to bring prices down for drugs that can go generic the old-fashioned way. Still, the contract would remain in place to ensure that society pays no more than two-times the cost of production in the long term in case the free market doesn’t get the job done.329
If the originator wants to make a straightforward incremental upgrade to the drug before it goes generic, the company could apply to the Bureau for a delay of genericization, indicating how long an extension it is seeking in order to incentivize development of the upgrade. The Bureau would publish a list of standard, precedented, and relatively common incremental upgrades that are comparatively straightforward to implement compared to developing a novel drug.330 For expediency, applications would be considered automatically approved within 90 days unless the Bureau explicitly objects. For drugs with greater than $1 billion per year in US sales at the time of the upgrade’s approval by the FDA, the Bureau would likely grant a short extension (for example, six months). For drugs with lower sales, it might grant a longer extension, possibly based on a formula linked to the drug’s most recent sales (i.e., the lower, the longer).331
Because the industry would rely on timely decisions from the Bureau, the Bureau would need to be well-staffed with knowledgeable people.332 The funding for such an agency would come from the savings society realizes from implementing contractual genericization.
When deciding whether to recognize an upgrade as worthy of an extension, the Bureau could seek input from patients, physicians, and the FDA, just as the FDA often seeks input from many stakeholders when considering whether to approve a new drug and which warnings and uses to include in its label. If the Bureau rejects a company’s application for an extension application because it does not consider the proposed upgrade sufficiently meaningful, the company would know that it shouldn’t waste its time or money pursuing that upgrade. If the Bureau grants an extension for a proposed upgrade, then the
company could decide to pursue its development and, upon FDA approval of the upgraded version of the drug, would receive the agreed-upon extension of the contractual genericization date.
The originator would be eligible for as many extensions as the number of standard upgrades the Bureau and FDA approve. As discussed earlier, under this scheme, AbbVie’s Humira would have earned nine six-month extensions (4.5 extra years): One for improved tolerability and eight for demonstrating that the drug can treat eight additional diseases.
Per the originator’s contract with the Bureau, the company would agree to narrowly license the patents covering any upgrades to generics manufacturers so that they could launch generics of the upgraded drug on or after the new expiry date.333 To the extent that generics companies struggle with the steps to create a generic, the FDA and Bureau would be able to direct the originator to transfer certain know-how to those manufacturers (e.g., trade-secrets for how to make the drug at a high quality).334 It would be in the interest of the originator to have one or more other generics approved by the expiration date since that would delay the contractual genericization date by 2-3 years, during which time the originator would have to compete on price but might expect to be able to sell its product at a price higher than the relatively low price set by its contract. Absent any generic competition by the extended contractual genericization date, the contract would require the upgraded drug to drop in price.
Since the cost of production might rise over time and the market for the drug might shrink, a company under a contract would have the right to submit audited financials to the Bureau showing that its costs per dose are rising and argue that it needs to raise its price.
There might come a day when the originator may not want to keep making its drug at this low cost. If there are already generics on the market and the price of those drugs is already less than the originator’s contract generic price, then society would have no need for the originator to keep making its drug.335 But if the drug is not conventionally genericizable or if there are too few generics to keep the price as low as twice the cost of production, then the originator would not have the right to stop production. The originator would have to either continue to manufacture the drug at the contract generic price or sell the contract to a qualified manufacturer.
It would make sense for the Bureau to work closely with a few vetted contract manufacturers that already produce drugs on behalf of many drug companies.336 Somebody has to be ready to take over a manufacturing facility from an originator that proves unable or unwilling to meet the requirements of its contract for low-cost, high-quality production. In fact, the Bureau could periodically put the right to take over production of each contract generic out to bid, obligating the originator to sell the contract (at a price pre-defined in the generic contract) to the one that most credibly promises to make the drug to a high quality standard and sell it at a lower cost, unless the originator can match the price. Society’s right to benefit from the drugs on which the mortgage has been paid off must be honored.
A company with a drug under contract may want to develop a new drug based on the first one but involving complex, non-standard upgrades and considerable development risk (e.g., a novel chemical variant with new properties or an oral formulation of an injectable drug). The originator would be able to seek confirmation from the Bureau that it recognizes the new drug’s novelty at any point during the drug’s development, including before the company has started funding expensive clinical trials, so that it knows whether it could look forward to the incentive of a long patent-protected period of branded pricing. But if the Bureau doesn’t consider the drug novel, the company could either (a) Stop wasting time and money on its development; (b) Enlist the help of physicians, patients, and the FDA to make the case that the new drug is distinct enough and challenging enough to merit the longer exclusivity than the incremental extension process permits;337 or (c) Accept an exclusivity extension of the original drug.
If the Bureau recognizes the new drug’s novelty, the company would register its patents with the Bureau before FDA approval and receive a new exclusivity expiration date, subject to extension based on future approved standard upgrades. In that case, the originator would still be obligated to honor the contract on its first drug and therefore the novel version would have to compete with its low-cost predecessor, just as Lyrica CR has to compete with generic pregabalin. If the second drug is meaningfully better than the first and sells well despite its predecessor being generic, society should be glad to pay off the mortgage on this advance, since it too will someday go generic and offer lasting value.
This rough framework for how contractual genericization could work would surely benefit from input from all relevant stakeholders, including the FDA, payers, and the biopharmaceutical industry.
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273The product was first launched in 2013 by Sanofi, which licensed the tech in 2009 from Kaleo, then called Intelliject. Sanofi voluntarily withdrew Auvi-Q from the market in 2015 amid manufacturing problems and weak sales, subsequently returning the product back to Kaleo.
274We would not have to pay for it out of pocket if insurance were reformed to eliminate or cap out-of-pocket costs, but “we have to pay for it” would still mean that it would come out of society, factoring into insurance premiums and taxes. So let’s say that the Auvi-Q needed to earn $2 billion over a decade ($200 million/year) in the US to justify its development cost. That would be roughly 60 cents per person per year (330 million people in the US). Sounds small. But there are many such technological upgrades to add up, and so it’s worth considering the value of incremental innovation.
275It is a major flaw in the delivery of healthcare that there are trained professionals at every stage except, in most cases, the actual taking of the medication by the patient. For that step, there is no standardization; each patient is expected to look out for themselves, and yet that patient’s physician and insurance plan and entire US healthcare system are judged by the outcome. That’s why real-world outcomes are often worse than those generated by clinical studies in which investigators and their staffs closely watch patients to make sure they adhere to treatment. It doesn’t matter how good the drug or how astute the physician; if the patient doesn’t take the drug, the outcome is poor and reflects poorly on the drug, physician, and America’s entire healthcare system. If we recognize the problem of adherence, we’ll all appreciate the need for technological upgrades that improve convenience and adherence. Some of these are changes to the drugs themselves, but in some cases may be smartphone apps that remind patients to take their medication. Some companies are developing pills in which they embed sensors that signal when a patient has taken the pill, inform a physician whether a patient is taking their medication as prescribed. There’s value in any approach that improves adherence. Interestingly, and this is a challenge for the FDA, there is no good way to show improved adhere in a well-conducted clinical trial because patients always adhere better when they are being closely watched. So you have to run a real-world clinical trial, which is easier said than done, because patients have to be informed that they are in a trial and so inevitably behave differently when watched. So if you hear someday about the FDA approving what seems like a slightly modified old drug with greater adherence properties, a lot more went into developing it and proving that it works as advertised than may seem on the surface.
276Kunal Srivastava, “Impact of Reducing Dosing Frequency on Adherence to Oral Therapies: A Literature Review and Meta-Analysis,” Patient Preference and Adherence 7 (2013): 419-34, accessed Oct. 15, 2019. doi: 10.2147/PPA.S44646, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3669002/;
Dirk Kuypers et al., “Improved Adherence to Tacrolimus Once-Daily Formulation in Renal Recipients: A Randomized Controlled Trial Using Electronic Monitoring,” Transplantation Journal 9 no. 2 (2013): 33-40, accessed Oct. 15, 2019. doi: 10.1097/TP.0b013e3182725532, https://www.ncbi
.nlm.nih.gov/pubmed/23263559;
Kevin Haehl, “The Importance of Convenient Dosing Formulations for Elderly Patients,” American Pharmaceutical Review, Jan. 31, 2016, https://www.americanpharmaceuticalreview.com/Featured-Articles/183038-The-Importance-of-Convenient-Dosing-Formulations-for-Elderly-Patients/.
277HIV was treated with three pills that were prescribed separately, but they were famously combined into a single pill, a triple cocktail. Individual components of these combination pills were replaced with better versions, reducing side effects, reducing drug-drug interactions, and increasing efficacy. The easier it is for patients to adhere to and tolerate their HIV medications, the less likely they are to develop resistance and to infect others. The branded drugs sold now are notably better than the ones that were first approved for HIV in the 1990s, and they will eventually go generic, leaving us far better equipped to inexpensively combat this disease than if we just stuck with the first generation of drugs.
278Migraines can cause severe nausea in some sufferers, such that they can’t even swallow a small tablet with a bit of water—it just comes back up. The mortgage for this upgrade has been paid off; we now have generic migraine drugs that rapidly dissolve on the tongue without water.
279In 2018, 16 years after AbbVie first introduced Humira, its blockbuster therapy for rheumatoid arthritis and other auto-immune disorders, it launched an upgraded formulation that was less painful to inject.
280Recombinant insulin is human insulin produced from cells into which the gene for insulin has been genetically engineered (i.e., the cells’ genetic code has been “recombined”). Insulin analogs are actually chemically different from human insulin, altered to make it better in certain ways.
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