Qualifying Intellectual Property II: A New Innovation Index for Pharmaceutical Patents & Products
Bouchard, Ron A., Santa Clara Computer & High Technology Law Journal
Table Of Contents I. Abbreviations II. Introduction III. Why Qualify Intellectual Property? A. Pancakes and Global Intellectual Property Waves B. Product Clusters: Path of Least Resistance to Patent Portfolios C. Summary IV. Study Objectives V. Methods A. Drug Approval Nomenclature and Classification B. Innovation Index C. Examples of LOI Compound-Indication Classifications D. Curve Fitting E. Data Analysis VI. RESULTS A. Presentation of Data B. Total Approval Cohort C. MP Approval Cohort D. MP Patenting Cohort E. MP Chemical Cohort F. Class Trends Across Indicators VII. Discussion A. Interpretation of the Data 1. Drug Approval 2. Drug Patenting 3. Drug Chemical Components 4. Class Trends Across Indicators 5. Limitations B. Interpretation of the Model 1. Objective-Subjective Considerations 2. Intellectual Property Law Considerations C. Relevance to Pharmaceutical Law and Policy 1. Patent and Innovation Policy 2. Listing of Patents on the Patent Register 3. Cluster-Based Drug Development 4. Impact on Competition VIII. SUMMARY & CONCLUSIONS
ANDS Abbreviated New Drug Submission
ER Expedited Review
FIC First in Class
NAS New Active Substance
NCE New Chemical Entity
NDS New Drug Submission
NDS NAS NDS drug containing a NAS
NDS ER NDS drug undergoing ER
NDS FIC FIC drug approved via NDS route
NDS Me Too Me Too drug approved via NDS route
NDS MI Most Innovative NDS Drug
NOC Notice of Compliance
NOC/c Notice of Compliance with Conditions
PR Priority Review
SANDS Supplemental Abbreviated New Drug Submission
SNDS Supplemental New Drug Submission
SNDS ER SNDS drug undergoing ER
SNDS FIC FIC drug approved via SNDS route
SNDS Me Too Me Too drug approved via SNDS route
Governments around the world have become uniformly locked in to the political mandate of innovation, both in developed and developing nations. It is a race no one wants to lose. Yet, despite the non-rival nature of knowledge, (1) it is one few will win. Innovation is widely accepted to be a fundamental gateway to national and global productivity and prosperity. (2) Nowhere is this truer than in the fields of science and technology, particularly in the life sciences. (3) The argument in favor of patenting in the pharmaceutical industry has been made consistently and with vigor for over a half-century. (4) The pharmaceutical industry claims that its research and development (R&D) activities are responsible for most new and innovative medicines. (5) Indeed, a major justification for high and increasing drug expenditures is that such profits are necessary to underpin the development of new and innovative drugs. (6)
To date, innovation is measured using primarily quantitative methods. (7) Patents are usually used as the prime measure. (8) Methods most often reported include counting patents, patent citations, prior art citations and related litigation outcomes. (9) These measures are used extensively in prominent domestic, regional and global reports focused on productivity and prosperity. (10) indeed, much of what governments understand about innovation is currently shaped by measurements of patenting activity. For example, patenting licensing, litigation, and prior art citation data can be useful as indicators of how general knowledge flows within and between different industries, (11) and has helped to shape priority areas for government investment, (12) including several sectors within the life sciences rubric. (13) Citation counting has demonstrated differences between public and private patentees in the medical research and product development sector, leading some to conclude that non-profit patents, such as those to universities, are valuable to the ultimate commercialization of medicines. (14) others have suggested patents are a good indicator of employee productivity. (15)
However, a focus on quantifying intellectual property, and patents in particular, relating to life sciences inventions is acknowledged to be problematic for an array of reasons. First, not all innovating firms perform R&D with the express purpose of inventing new and innovative technologies, and not all R&D outcomes are necessarily patented. (16) Even when firms do obtain a substantial amount of patents, this may simply reflect the size of the firm or its commitment to obtaining more patents. (17) Many firms and industry leaders do not consider patents an effective appropriation mechanism, focusing instead on secrecy, lead time, and learning curve advantages. (18) in addition, patent filings are often indiscriminate with respect to determinations of the value or quality of a patented invention, (19) although there is some evidence that patents cited as prior art in later patent applications should be accorded more value than merely counting once. (20) Even so, utilization statistics indicate that a very low percentage of granted patents actually have value. one widely quoted study showed that only 5% of patents are actually implemented in the market through licensing or via litigation. (21) This is not surprising, since the US Patent and Trademark Office (USPTO) apparently approves most of the applications it processes, (22) leading some to claim that patents are an "unwieldy measure of productivity." (23)
Other studies have demonstrated that the substantial majority of granted patents create little or no revenues for patentees, (24) and that close to 50% of granted patents are abandoned by patentees rather than paying renewal fees. (25) There is also evidence suggesting that citation counts do not account for a firm's R&D priorities or productivity in the pharmaceutical sector. (26) Finally, even when patents can be shown to have financial value, the numbers cited are much lower than might be expected. For example, the mean patent value in the US market was approximately $20,000, $15,000, $5,000, and $4,000 for electronic, mechanical, chemical, and pharmaceutical patents, respectively. (27) Similar results have been demonstrated in the European Union. (28) Given the link between patenting incentives, profits obtained by patent monopolies, and the use of some of these profits for R&D into new and innovative drugs, (29) the low value of pharmaceutical patents is somewhat surprising. This issue will be dealt with in greater detail below with regard to the rising prominence of product cluster models of drug development.
When quantitative measurements of patent value are described, they often provide less meaningful data than one might hope. This is because one must often wait post hoc until licensing, prior art citation and litigation events occur, when the public incurs a significant fraction of related spillover costs. Even so, it is not necessary for licensing or litigation events to occur for patents to be valuable in a defensive context. (30) This observation is strengthened in legal forums that have brought in some form of pharmaceutical linkage, (31) where highly selective listing of patents on a patent register can yield an effective two-fold increase in the term of cumulative patent protection. (32) The costs to the public resulting from the absence of qualitative patent value are potentially enormous. They are at least proportional to the degree of litigation on contested patents in general, (33) the degree of litigation relating to patents eventually found to be invalid or not infringed when assessed on the merits in particular, (34) and the delay between the original patent's termination date and the termination date of the latest listed patent.
Finally, it remains difficult to determine the degree to which an individual patent represents a socially beneficial innovation in so far as it is embodied in a product, service, or process. The question of whether a new innovation represents a substantial source of new value, significant change in practice, or is incremental in nature always arises in this instance. The problem of incremental innovations assumes critical importance in the pharmaceutical industry. (35) This is because many (though not all) follow-on innovations can have little clinical benefit compared to existing therapies. (36) A regulatory preference for incremental innovation may present a particularly intractable problem in sectors that privilege the cluster-based, or portfolio-based, strategies for innovation. (37) The same conclusion applies under circumstances where patents of unknown value are aggressively employed as a legal tool to game the system. (38)
The need for a rational and evidence-based mechanism to value, or qualify, intellectual property is clear from the above discussion. This is true
not only in the debate between patent scholars and law makers; an evidence-based mechanism that values patents at various points in their product lifecycle would have critical importance for venture capitalists and entrepreneurs who wish to commercialize new products at varying points in the product and regulatory lifecycles. The need for a lifecycle-based qualitative assessment of intellectual property associated with pharmaceutical products assumes greater importance as the number of patents per product increase, the number of legislative and regulatory vehicles providing intellectual property protection on pharmaceuticals expands over time, as the emphasis on incremental innovation assumes more importance than breakthrough innovations; and to the extent that lowered standards for drug approval, patenting, and latent listing result in an increased capacity to restrain competition between pharmaceutical firms and prolong patent monopolies for older products that would otherwise come off patent protection.
III. WHY QUALIFY INTELLECTUAL PROPERTY?
A. Pancakes and Global Intellectual Property Waves
it is one thing to acknowledge that there is a patent bargain and that leading appellate courts require reasonably proportional balancing of public and private interests under the quid pro quo of this bargain, but what do you do when there are two groups at the table and one side has 30 pancakes on its plate and the other has 300? Such is the state of affairs that developed, and increasingly developing, nations face with regard to the public and private interests in the nexus between food and drug law and intellectual property law. This Section briefly reviews how and why the ratio of 300 to 30 has occurred and why there are more pancakes on the pharmaceutical plate than on most other plates at the table.
The debate over the social value of pharmaceuticals in developed nations is usually framed in one of two contexts. The first is in relation to the social value of patented medicines that are "new" drug products versus products variously referred to by the courts, the intellectual property bar and legal commentators as "follow-on," "incremental," "line extension," "me too," or "supplemental." A number of critics have derided the social value of follow-on innovations, (39) while others assert follow-on drugs to be a critical component of pharmaceutical innovation. (40) indeed, the issue consumes significant resources of drug regulators, who are tasked with determining the mechanisms and priorities of evidentiary standards for various types of new and follow-on drugs. The second component of the debate over the social value of pharmaceuticals is in regards to the ability of brand-name drug companies to forestall generic entry on older blockbuster drugs under pharmaceutical linkage laws using so-called weak or defensive patenting strategies and practices. While it is now understood that both brand and generic firms play the system for their own ends, (41) support of generic firms has taken on a life of its own due to the presumed cost savings aspect of generic substitutes. (42)
While there has been widespread criticism of the ability of the patent system to encourage innovation, (43) the pharmaceutical industry in particular has been singled out as a successful example of the need for strong intellectual property protection. (44) indeed, over the last 25 years the global public has witnessed a veritable landslide of patent and related regulatory protection mechanisms. This has occurred via alterations in the standards of patentable subject matter, obviousness, novelty, prolongation of the terms of single patents and cumulative patent portfolios, and prolongation in the terms of data exclusivity protection for clinical trial data required for regulatory approval. Most recently, we have seen new forms of legal protection for drugs at the end of their patent life in the form of so-called "linkage regulations," which tie generic entry to all patents deemed relevant to the marketed reference product. (45) In this manner patent law has become fundamentally linked to food and drug law through the specific legal nexus of linkage regulations.
These means of protecting life sciences inventions have come into being as a result of purposeful, and largely targeted, intellectual property-based policies in the United States. The basket of policy and legal vehicles to achieve this end are widely accepted to include the decision of the U.S. Supreme Court in Diamond v. Chakrabarty, the Bayh-Dole Act, the Hatch-Waxman Act, the consolidation of intellectual property appellate courts into the Federal Circuit, and the institution of fee-for-service provisions in the grant of both drug approvals and drug patents. (46)
Based on a review of applicable literature, it appears there have been at least three distinct waves of intellectual property reform largely centered in the United States that have swept the globe over the last half century. The first of these came about as a result of major reforms to the U.S. Patent Act (47) in 1952. (48) One of the most significant amendments removed the "flash of genius" requirement for invention and replaced it with the skill level appropriate to a "person having ordinary skill in the art," otherwise known as the PHOSITA. (49) This rendered what was once considered to be "mere workshop" improvements patentable. (50) This had two long-ranging effects on pharmaceutical law and practice. First, it gave rise to an increase in the perceived value of incremental innovation, which paved the way legally for the accumulation of such inventions into clusters of patents and related products. (51) it is these clusters to which linkage laws would later add the new tool of patent listing. Secondly, and consistent with the lowering and broadening of the standard of invention, the 1952 amendments also rendered the PHOSITA capable of being represented by entire teams of skilled technicians, as is abundantly clear in the case law pertaining to pharmaceuticals and biotechnology. (52) Similar changes were made to patent legislation in Japan, Sweden, France, Germany and Britain between 1959 and 1977. (53)
The second wave of global legal reform relating to patenting in the life sciences sector came in the 1980s. The 1980 decision by the U.S. Supreme Court in Chakrabarty began the process, (54) under which "everything under the sun" became patentable, including for the first time, living matter. (55) The 1980 Bayh-Dole Act allowed university inventors to patent their inventions, (56) launching an intense pursuit by domestic universities of licensing and other technology transfer revenues. (57) In 1984, the Hatch-Waxman Act yielded patent term restoration at the front end of the product lifecycle for inventors whose products were held up in regulatory review for a significant portion of patent term. (58) Hatch-Waxman also gave generic firms significant patent rights, in particular, an exception to patent infringement narrowly construed to mean the ability to "work up" generic versions of products that were still under patent protection. (59) in exchange for the working up exemption, Hatch-Waxman gave to brand firms extended patent terms for older blockbuster drugs at the back end of the product lifecycle by obliging generics to litigate all relevant patents to the reference product prior to gaining market entry. (60) Hatch-Waxman has been credited for successfully launching the generic drug industry in the United States. (61)
Currently, we are witnessing a third major wave of global patent reform favoring strong intellectual property protection. The leading edge of this wave occurred in the early 1990s, at which time the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (62) was negotiated and ratified by many nations. (63) This was followed by additional nations signing bi-lateral or multi-lateral Free Trade Agreements (FTAs) with the United States. (64) FTAs in particular are proving to be an excellent vehicle for the global spread of pharmaceutical linkage. (65) As patent protection available for pharmaceutical products under linkage provisions extends beyond the harmonized patent regime under TRIPS, linkage is referred to as TRIPS-Plus. (66)
In addition to expanded patent rights, TRIPS and other FTAs also provided for data protection, whereby brand firms are provided with a guaranteed period of market exclusivity tied to their regulatory approval submission packages. (67) During the period of market exclusivity, generic firms cannot rely on the evidence of safety and efficacy of the brand reference drug and hence cannot obtain regulatory approval to market generic substitutes. (68) Under conditions where the regulatory approval stage was lengthy, data protection ensures that brand firms have some form of legal protection for their drug development efforts should the patent protection expire prior to approval and marketing.
Thus far, we have seen how the pancakes have been stacked on our two sets of plates. on the one plate, the one with 300 pancakes, we have patent laws and regulatory rights favoring the development of "new and innovative" products by "innovator" firms. importantly, the policy underpinning these reforms was purposefully directed to encouraging the development of breakthrough remedies as opposed to low-level incremental innovations. We saw that the flash of genius requirement for patenting was obviated in favor of workshop improvements, and that the inventor no longer need be a lone genius working in the basement, but, in fact, can be a whole team of PhDs and MDs working in well lighted laboratories of multinational firms towards incremental innovations. This change in the law gave rise to a new emphasis and appreciation on the value of the whole stack of pancakes, rather than the skill in rendering one particularly beautiful pancake. After this, we observed a series of legal changes that lowered the standard of patentability relating to subject matter, obviousness, and utility, increasing the stack of pancakes further. in addition, more people obtained licenses to make pancakes, furthering the number of pancakes yet again. Finally, through TRIPS and FTA, we saw a new round of pancake appreciation, increasing the height of the stack through a combination of patent rights and data protection rights. The piece de resistance is a new type of pancake syrup developed at this time, which prolongs the life of older pancakes at the bottom of the stack that would have otherwise been thrown out. This last touch, of course, was provided by the TRIPS-Plus pharmaceutical linkage regime.
On the other plate, the one with 30 pancakes, we have patent laws favoring the development of "copycat" products by generic firms. We saw the pile increase from zero to 30 pancakes through the early working provisions of Hatch-Waxman. This legislation is responsible for increasing the percentage of generic drugs as a fraction of all domestic US prescriptions from 19% in 1984 to 69% in 2008. (69) However, this stack of 30 pancakes seems to increase and decrease in number fairly frequently, as the linkage system is gamed by both the people making and serving the pancakes. (70) As a result, the people eating the copycat pancakes never quite know what their share will be, or how much they will have to pay for a pancake on any given day. Moreover, in other nations, the system of producing these pancakes does not work as well as it does in the united States, resulting in much less than 30 pancakes per stack. (71) Some nations have decided not to cross "picket-lines" set up as a result of differing opinions on whether to allow access to generic drugs because of differing interpretations of TRIPS and TRIPS-Plus obligations. Combined, these factors have led to some nations and major economic regions such as the European Union and India deciding against having the second stack at all as it applies to pharmaceutical linkage. (72) This has, not surprisingly, created much havoc in nations with less bargaining power and more hunger for pancakes. (73) in total, of the legislation brought into force over the last 25 years alone in the united States designed to stimulate the production of new and innovative drugs and encourage timely generic entry; six of seven legislative vehicles are aimed at facilitating innovation by brand firms and one is directed to encourage the timely entry of generic drugs. (74)
Adding to the uncertainty in patent and innovation policy is the observation that the identity of the first and second stacks is becoming increasingly blurred over time. This is for two reasons. First, because emerging empirical data demonstrates that the brand pharmaceutical landscape is increasingly dominated by low level innovations that by and large parallel the innovative characteristics of so-called "copycat" generic products. Data from the companion study show clearly that the vast majority of drug development and patenting by multinational pharmaceutical firms is in relation to line extension drugs generally, and line extension Me Too drugs specifically. Secondly, generic firms are accruing, and indeed exercising, ever greater intellectual property and regulatory rights in order to protect their inventions. (75) For example, in the companion paper we demonstrated that generic firms are accruing larger numbers of regulatory approvals, patents, and chemical compound designations that may have been previously recognized on their products, such that it is becoming increasingly difficult to distinguish between the drug development and intellectual property strategies of brand and generic firms. As a result, it is not only getting more difficult to tell the two sectors apart from one another from an output perspective, but also more challenging to justify distinctions in patent and innovation policy for the two sectors under conditions where the outputs of both systems mirror one another so strongly.
B. Product Clusters: Path of Least Resistance to Patent Portfolios
In addition to the number of intellectual property mechanisms over time, there has also been a slow evolution away from highlighting the value of single patents resulting from the exercise of the flash of genius toward clusters, (76) or portfolios, (77) of patents on incremental innovations held under common control. in fact, some have gone so far as to say the era of the individual patent is over. (78) in this way, not only are individual pancakes in the stack assumed less attractive, but the value of the stack has grown in proportion to the sum of individual pancakes.
As noted by Kingston, rational investment in a portfolio of relatively high-risk products becomes increasingly attractive when the risk attaching to the portfolio as a whole is statistically lower than that of the more risky individual components. (79) Such investments are more attractive when patents are easier to come by and defend, and where drug development strategy is focused on rational drug design rather than the (apparently) more creative or flash of genius oriented drug screening methods. Patent portfolios have also been described by Polk and Parchomovsky, who observed that the right to exclude conferred by a collection of related patents under common control is greater than the sum of individual patents. (80) These authors properly point out that the portfolio literature and practice is at least a decade old, (81) stating that "the value of patent portfolios has been widely recognized in commercial circles, but has received little attention (and virtually no discussion of its implications outside of antitrust) in the legal-academic circle." (82) Citing an array of literature, they define a patent portfolio as a strategic collection of discrete yet related patents under common control that, when combined, offer advantages to the patentee that would not otherwise occur. (83)
As previously noted in the context of the complex nature of technological invention, (84) an important feature of patents in a portfolio is their degree of functional relatedness. The value of obtaining a cluster of related patents on a number of related drug products has been recognized in the pharmaceutical industry for some time. (85) This property of relatedness contributes to the scaling effects of portfolios, which provides non-linear market power to patentees that would be impossible with single patents. (86) it is this scale feature that led both Kingston (87) and Polk and Parchomovsky (88) to speculate that the power of portfolios is greater than the sum of individual patents.
The scaling effect of patent or product clusters has been demonstrated empirically to shift power in the litigation arena to the portfolio-holder; the likelihood of success in a given case increases as the number of litigated patents in the portfolio increases. This is true even if the chance of success on individual patents is low. (89) observations such as these help to explain the very large number of patents per drug for pharmaceutical products (41:1 to 48:1) as well as the finding that the percentage of listed patents can increase quite considerably with drug profitability (from 5-27%). (90) The patent portfolio theory also helps to explain the observation that while up to 50-75% of patents in linkage litigation can be invalid or not infringed, (91) brand firms still win in approximately 50% of litigation on the merits. (92)
As we have noted previously in the context of drug development, (93) product clusters appear to be a fundamental feature of the regulated Therapeutic Product Lifecycle (rTPL) that characterizes drug development. (94) The rTPL has characteristics of a complex adaptive system, where the whole is greater than the sum of its parts. (95) in a regulatory landscape with complex features, scale effects occur as a result of the degree of interconnection and interdependence of actors and institutions in the innovation ecology. This ecology can be local or global, (96) with appropriate scaling. The value-added aspect of a complex innovation ecology comes from the combination of nodal interdependence and the resulting increase in cumulative market exclusivity afforded to the entire cluster of products and patents. (97) The specific nature of the scaling effect in the context of pharmaceutical linkage is a direct function of patent law interacting with food and drug law through linkage regulations. our empirical data to date wholly support the notion of patent portfolios, and extends the concept to include not only patents, but also multiple related products and patent listing under the tandem of patent law acting in conjunction with newer forms of linkage laws. (98) The issue of clusters or portfolios becomes even more problematic for policymakers and other stakeholders when the technology that is the subject of product clusters was also the recipient of substantial public funding in earlier stages of development. (99)
Combined, these possibilities highlight the importance of providing a rational and evidence-based mechanism to qualify as well as quantify intellectual property rights associated with pharmaceutical products. An index of this nature would be particularly valuable if it had sufficient functional utility and flexibility to extend to other regulated technologies and to mitigate the types of restrained competition that have been observed to occur between brand and generic pharmaceutical firms in jurisdictions with linkage laws.
In summary, it seems reasonable to speculate that the transition from the flash of genius approach to the PHOSITA approach underpinning invention was meant to be commercially "inclusive." In other words, the amendments were intended to avoid preventing or otherwise chilling incremental inventions that could have as much value as breakthrough inventions. With time, and serial legal reforms, more and more emphasis has been made on protecting the possibility of innovation by minimizing the legal hurdles for innovators and maximizing incentives. This evolution of intellectual property law has occurred with perhaps less effort going toward the other side of the balance that ensures that only inventions with significant social benefits are rewarded with the grant of patent. (100) The result is that we have moved from a comparatively single-inventor single-product system focused on breakthrough innovation to a multiple-inventor multiple-product system concentrated on incremental innovation. Tellingly, this transition has been fully enabled by law.
As a result of the history reviewed above, we have wound up with a tall stack of pancakes that are perhaps less tasty and less nourishing, but more impressive from a dimensional perspective. Despite claims to the effect that all the good wheat for making pancakes has been used up (low hanging fruit) (101) or that good tasting and nourishing pancakes have become too expensive to make (rising R&D costs), (102) it remains possible the bakers are simply making more lower quality pancakes because they are given substantial subsidies to do so (basket of IP rights). As noted previously, (103) the implication of this scenario is that bakers are aiming ex ante at legal targets which provide the most return on investment rather than the most benefit to the public. This result parallels data from studies of complex political systems, where "yardsticks" designed to measure progress reorient behavior narrowly towards fulfillment of yardstick metrics. (104) in the present instance, it is possible that the relevant yardstick is represented by a "paradoxical drug approval drug patent linkage," whereby firms can obtain the largest scope of cumulative patent protection and market exclusivity with products with relatively low levels of innovation. (105) This yardstick is a function of weak evidentiary standards for patents, approvals, and listed patents that combined do not provide the greatest benefit to society but do provide the least risk and most benefit to pharmaceutical firms in their drug development activities. (106)
IV. STUDY OBJECTIVES
As we have seen with the pancake analogy, the result of sequential waves of intellectual property reforms is that there is now a significant amount of patent and related regulatory rights associated with pharmaceutical products. We are no longer primarily looking to make tasty and nourishing pancakes, but towering stacks of pancakes with impressive visages. of course, with these rights come prolonged periods of market exclusivity and monopoly pricing, the costs of which are passed on to consumers. one question that arises from this discussion is what is society getting in return for all these rights? In particular, is this new basket of intellectual property and regulatory rights for private firms balanced by a proportional social benefit to the public? As the legal mechanisms for patent protection generally, and patent protection in the life sciences sector in particular, become increasingly harmonized globally, the presence or absence of empirical data to support the harmonized model becomes central. As noted in Section iii supra, nowhere is the need more great than for qualifying patent value.
Considerations such as these motivated the present study. The objective was to develop a novel innovation index to qualify intellectual property rights associated with pharmaceutical products. A second goal was to design the index such that it could qualify the value not only of drug patents, but also of related drug approvals and chemical components associated with particular drugs as well as other drug-related metrics deemed relevant to innovation and its valuation. The primary reason for investigating chemical components in addition to approvals and patents was to gain some understanding of the utility of chemicals to cluster-based drug development. This was based in part on our earlier and somewhat surprising observation that chemical patents represented the lowest quantity of patent classifications for a cohort of the most profitable drugs. (107) A third goal was to create an innovation index that accorded with both the plain meaning of the words "new" and "innovative" but also a purposive legal interpretation that accorded with the first principles of statutory interpretation and leading jurisprudence on the patent bargain. (108)
Through the terms of the patent bargain, as modified by the specific nexus between food and drug law and patent law via newer forms of linkage law, (109) the index would therefore reflect the degree of social benefit attached to varying degrees of innovation. A fourth goal was to create an index that could be used to qualify patents for listing on the patent register. This need follows the growing divergence of listing practice from the policy underpinning linkage regulations in both originating jurisdictions, which placed clear limits on the scope of patents allowed to be listed on the register. A final objective was to design an innovation index that would be sufficiently flexible to be customized by jurisdictions in accordance with their food and drug laws interacting with domestic and global intellectual property laws, as well as for other technologies with regulatory requirements stipulated and prioritized by federal or state regulators.
A. Drug Approval Nomenclature and Classification
The rationale and methods for categorizing drug approvals, drug patenting, and associated chemical components, as well as that for drug class nomenclature are the same as in the companion paper. (110) Briefly, drug approvals, patenting, and associated chemical components were analyzed across numerous classes within the broader categories of "new" and "follow-on" drugs. This included approvals in the new drug approval route directed to First in Class drugs (NDS FIC), Me Too drugs (NDS Me Too), drugs containing a New Active Substance (NDS NAS), drugs undergoing one of the two pathways (NOC/c; PR) for expedited review (NDS ER) and drugs deemed to be the most innovative (NDS Mi) in the cohort of analyzed drugs. Drugs moving through the new drug approval route that did not have an extra designation (NDS) were also quantified. Line extension drugs approved via the follow-on pathway were studied alone (SNDS) or in conjunction with FIC (SNDS FIC), Me Too (SNDS Me Too), and ER (SNDS ER) designations. Finally, generic drugs undergoing the conventional (ANDS) and follow-on (SANDS) abbreviated review were studied. Terms and abbreviations were those in the companion paper, and drugs are said to be in approval, patent, chemical cohorts and indicators, new and follow-on classifications, and the various FIC, Me Too, ER, NAS, and MI classes. The nomenclature for analysis of all data relating to new and follow-on drugs is summarized for convenience in Table 1.
B. Innovation Index
Using the quantitative data in the companion as a starting point, a qualitative innovation index was constructed. The innovation index is a linear representation of the qualitative value of drug approvals, patents, and chemical components. Calculated values represent transformed data in that the raw quantitative values pertaining to drug approvals, patents and chemicals are substituted with innovation index values. As discussed in greater detail below, the transformed data were determined by a combination of objective and subjective analysis of the degree of difficulty in obtaining regulatory approvals in various new and follow-on categories and the prioritization of various drug classes as described and determined by drug regulators in relevant disclosures of both pharmaceutical and innovation policy.
As the innovation index values reflect regulatory goals and priorities set by federal regulators in pursuit of their public health mandate informed by patent and innovation policy, it is reasonable to assume they accord with the plain reading of the terms "new" and "innovative" and thus represent a good first order approximation of the patent bargain as it is guided by the three legal vehicles underpinning pharmaceutical innovation: patent law, linkage law, and food and drug law.
The method for constructing the innovation index and resulting index values are illustrated in Table 2. The index is linear, moving up and to the left generally with increasing qualitative value. The various new and follow-on drug classes are represented in the top of each column. The four major categories of approvals (NDS, SNDS, ANDS, and SANDS) are represented in the first column. Both the classes and categories have individual multipliers (indicated in brackets) that were calculated to yield the innovation index for each drug class. As before, these move from the lowest level of innovation (LOI) values at the bottom right of the table associated with follow-on generic drugs (LOI= 0.5) to the highest LOI values for NDS MI drugs (LOI= 15) at the top left of the table. All four sets of tabulated LOI values for the Total Approval, MP Approval, MP Patent, and MP Chemical Cohorts follow this pattern (Tables 4-7).
The index has been constructed using data obtained from Health Canada websites and personal interviews conducted with Health Canada regulators with the intent of elucidating metrics that objectively demonstrate the level of difficulty in obtaining approval for new and follow-on drugs and that meet the requirements for prioritized forms of drugs as defined by regulators (e.g., drugs meeting set criteria for Most Innovative, Expedited Review, New Active Substances, First in Class, and Me Too drugs). These metrics were then cross-referenced by analyzing the global drug regulation literature with the aim of gaining further information about what metrics and drug classes various groups (regulators, patient groups, industry-funded scholars, independent scholars, etc.) prioritized or otherwise defined as "new" or "innovative" in their analyses. Where there was a clash between criteria, the regulatory requirements enumerated by the federal government were given privilege.
Where Phase 1-3 trials demonstrate that the potential therapeutic benefits of a given new pharmaceutical outweigh its potential risks, the manufacturer may file a New Drug Submission (NDS). (111) The NDS contains data on drug safety, efficacy, and quality, including data from all relevant preclinical studies and clinical trials pertaining to a drug's manufacturing, packaging, labelling, claimed therapeutic value, conditions for use, and side effects. (112) A Supplemental New Drug Submission (SNDS) may be filed by a manufacturer for changes to a drug product already marketed by that sponsor. (113) Drugs of this nature are referred to as "line extension" drugs. (114) When NDS and SNDS applications contain sufficient data on drug safety, efficacy, and quality to warrant approval, they received a market authorization referred to as a Notice of Compliance or NOC. (115)
Manufacturers of generic drugs submit an Abbreviated New Drug Submission (ANDS) in order to obtain market authorization. An ANDS requires that the generic drug be pharmaceutically equivalent to the reference brand name product. (116) In this context, "equivalence" means that the generic product must be the same as the reference product with regard to (a) chemistry, (b) manufacturing, (c) route of administration, (d) conditions of use, and (e) therapeutic and adverse systemic effects when given to patients under the same conditions. (117) Similar to brand name sponsors, generic sponsors may also submit Supplemental Abbreviated New Drug Submissions (SANDS) where certain changes are made to a generic drug that is already on the market. Consequently, both brand name and generic firms can make "new" and "supplemental" submissions.
Compared to NDS drugs, SNDS drugs (typically called line extensions) involve relatively minor changes to dosage, strength, formulation, method of manufacture, labelling, route of administration, or indication. (118) For this reason, the first distinction made in the present study was that between drugs approved via NDS and SNDS pathways. NDS and SNDS classes with no additional metrics or attributes (in other words no FIC, ER, or NAS designation) were given the value of LOI= 4 and 2, respectively. The two-fold increase in NDS value compared to the SNDS value reflects the difference between drugs that are "new" and those that are "follow-on" in nature. The values also reflect the relative similarities in evidentiary hurdles between the two categories.
Given their so-called "copycat" nature it is not surprising that generic drugs will have lower values than NDS and SNDS drugs. Generic drugs undergoing conventional bioequivalence-based approval (ANDS) received an LOI value= 1 whereas SANDS approvals received a value of LOI= 0.5 for what essentially amounts to a follow-on generic approval.
Moving upwards on the innovation index we come to Me Too drugs in the new drug and line extension categories. As with conventional NDS and SNDS drugs, the LOI values were low. For NDS Me Too drugs there need only be a demonstrable change in benefit-risk or chemical structure. This class of drugs is not the first product on market for a given indication and chemical class, hence its designation Me Too. A typical Me Too drug offers a better therapeutic option than existing drugs in this class. (119) By contrast, a line extension (SNDS) Me Too drug represents a better therapeutic option in combination with a change in chemical form compared to existing products. Regarding the index, NDS Me Too drugs represent a slightly higher value compared to the NDS class in the absence of any further class designations. A higher value for NDS Me Too drugs encompasses the hypothetical possibility that a small fraction of NDS Me Too drugs may be close to their corresponding First in Class drugs by dint of differences in regulatory lag. (120) Having said this, the scientific, therapeutic, and economic value of Me Too drugs have been routinely scrutinized by many industry observers and regulatory agencies. For this reason, the value of NDS Me Too drugs was set to LOI= 4.5, slightly greater than that for NDS approvals without a further class designation (LOI= 4). The value for the SNDS Me Too class (LOI= 3) reflects the need for this class of drugs to be lower than the corresponding value for NDS Me Too drugs while also acknowledging the increase in regulatory requirements of needing to have a positive change in benefit-risk combined with a change in chemical form compared to existing drugs.
It is considered a hallmark of innovation by many for a drug to contain a novel chemical form and, indeed, some commentators have claimed a drug should be considered new or pioneering when NCE or new active substance (NAS) status is conferred. (121) This plays out in the current regulatory context in one of two ways: drugs may either contain a new active substance or have sufficient chemical novelty and use characteristics to be denoted First in Class. (122) For now, we will focus on the NAS designation.
Previously referred to as a new chemical entity (NCE), (123) the definition of a NAS encompasses a wide range of chemically active substances, including (1) a chemical or biological substance that has not been previously approved for sale as a drug; (2) an isomer, derivative, or salt of a chemical substance that is already approved for sale as a drug but differs in safety and efficacy properties; or (3) a biological substance previously approved for sale as a drug that differs in molecular structure, the nature of the source material, or the manufacturing process. (124) Given the wide breadth of chemical modification encompassed by the NAS definition, although not as wide as for that for SNDS drugs, a high LOI value cannot reasonably be ascribed to this class of drugs. A value of LOI= 7 was given for NDS NAS drugs. This value was chosen to reflect the relative difficulty of synthesizing compounds that meet the regulatory criteria for the NAS designation but which would also appropriately fall …
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Publication information: Article title: Qualifying Intellectual Property II: A New Innovation Index for Pharmaceutical Patents & Products. Contributors: Bouchard, Ron A. - Author. Journal title: Santa Clara Computer & High Technology Law Journal. Volume: 28. Issue: 2 Publication date: January 2012. Page number: 293+. © 2000 University of Santa Clara, School of Law. COPYRIGHT 2012 Gale Group.
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