Amicus Curiae Brief — Bolar Pharmaceutical Co. v. Roche Products, Inc.

Office - Supreme Court US

AUG

No. 84-130 G 31 jag,

: Se STEVAS.

IN THE CLERK

Supreme Court of the Gnited States

OCTOBER TERM, 1984

BOLAR PHARMACEUTICAL Co., INc.,

Petitioner,

Vv.

RocHE Propucts, INc.,

Respondent.

On Petition For Writ Of Certiorari To The

United States Court Of Appeals For The Federal Circuit

BRIEF AMICUS CURIAE OF THE

PHARMACEUTICAL MANUFACTURERS

ASSOCIATION IN OPPOSITION TO PETITION

FOR A WRIT OF CERTIORARI

IN SUPPOKT_OE AFFIRMANCE

PETER BARTON HUTT

(Counsel of Record)

Of Counsel: ELLEN J. FLANNERY

Bruce J. BRENNAN CovINGTON & BURLING

Vice President and Genera! 1201 Pennsylvania Avenue, N.W.

Counsel P.O. Box 7566

Pharmaceutical Manufacturers | Washington, D.C. 20044

Association (202) 662-5522

1100 Fifteenth Street, N.W. = Attorneys for Amicus Curiae

Washington, D.C. 20005 Pharmaceutical Manufacturers

August 31, 1984 Association

PRESS OF BYRON S. ADAMS, WASHINGTON, D.C. (202) 347-4203

BEST AVAILABLE COPY

TABLE OF CONTENTS

Page

eT Mig occas cece cnentcesdesdece ii

INTEREST OF AMICUS CURIAE .... ......ccccccccccces l

SY os i Sivvccevccesecsenvevesecess 2

COUNTERSTATEMENT OF THE CASE ...........-eee0000- 3

REASONS For DENYING THE WRIT..................-- 5

I. The Federal Circuit’s Decision Correctly Provides

Strong Protection For Drug Patents, Consistent

With The Constitution And Patent Law, At A Time

When FDA Requirements For Approval Of New

Drugs Have Substantially Reduced The Effective

Patent Life Of These Products ................ 5

A. It Takes 7-13 Years During the Patent Term To

Satisfy FDA Premarketing Requirements for

Testing and Approval of Pioneer Prescription

I cb orcs cheese scale bbaws 6 as x 6

B. The Cost of Developing a Pioneer Prescription

New Drug Has Escalated ................. 8

C. The Effective Patent Life ofa Pioneer Prescrip-

tion New Drug Has Been Cut in Halfas a Result

of FDA Regulatory Requirements ......... 11

II. The Unlicensed Use Of Patented Drugs For The

Purpose Of Developing Generic Drug Products And

Conducting The Tests Required For FDA Approval

Directly Injures The Patent Holder ............ 13

III. The Federal Circuit Properly Declined To Create

For Generic Drug Companies A New Exception To

The Use Prohibition ich Would Further Erode

Patent Protection For Pioneer New Drugs And

Would Thus Be Contrary To The Patent Law And

Harm Public Health In The United States ...... 15

SEE, SO nb uu ua oh uke ieee cs 0ds%%d eek d essa oe 18

APPENDICES:

Page

Appendix A: Real Research and Development Costs Per

Pioneer Prescription New Drug, 1962-1972 ...... la

Appendix B: Trends in Average Effective Patent Life of

Pioneer Prescription New Drugs, 1966-1981 ..... 2a

ii

TABLE OF AUTHORITIES

CASES: Page

Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176

(IGT) ..cccccccsscesnsvedeahessscuseeasapnreees 15

Eli Lilly and Co. v. Premo Pharmaceutical Laborator-

ies. Inc., 360 F.2d 120 (3d Cir.), cert. denied, 449

U.S. 104 (1980) .....cccccccccccccccccccccccess 15

Weinberger v. Hynson, Westcott & Dunning, Inc., 412

7.5, GOD (IGT) co cccvccccsvesssssvebenscsevares 6

CONSTITUTION. STATUTES, BILLS, AND REGULATIONS:

United States Constitution, Article I, Section 8

21 13.9.0. OSB no. ccwcveccedenceuenesees beeteaee 4,5

SE 13 BC, 8 STMa) icc cccsccbecnvceensbelaGuseeates 13

42 13.8. ODIOS uo cvcccccacdcsaedatauseeeeuneaees 14

49 13,.9.C. 6 FOS cccccccsuccnncecesuenecea waceeeeen 14

Drug Amendments of 1962, 76 Stat. 780 (1962) ....... 3,9

Federal Food, Drug, and Cosmetic Act, 52 Stat. 1040

(1QDR). a6 GINOMEOE onc ccccccccccdcnsescescccces 5

Patent Amendments of 1980, 94 Stat. 3015 (19380) .... 16

21 Codé of Federal Regulations:

ee MD. cccessueseeesenpennensspneseaeeerneees 6

ek OPPO rer ee 7

Dent OB. kccudccsesebssduasauseseuucetaeeeeere 7

A eee eee ee ee 6

Dent GA... cccusdaesoccssasdauudeeseueenseeesres 7

Post O16... ccccaccecceodadwesnbssesensnese teas 7, 8

Piet S00. ss ccccesceseeshbeds CREGeeebereesars 8

44 Federal Register 20796 (Apri! 6, 1979) ........---- 6

45 Federal Register 41705 (June 20, 1980) ........--- 6

46 Federal Register 24693 (May 1, 1981) ......---.-.-- 6

H.R. 6245, 87th Cong., Ist Sess. (1961) .........----- 14

H.R. 915, 97th Cong., Ist Sess. (1981) .........----. 14

S. 1552, 87th Cong., Ist Sess. (1961) .........------- 14

S. 1297, 88th Cong., Ist Sess. (1963) .........-.----- 14

a Y

iii

Table of Authorities Continued

S. 2287, 93d Cong., Ist Sess. (1973) ................. 14

OTHER AUTHORITIES:

“Administered Prices — Drugs,” S. Rep. No. 448, 87th

MS ME I IOI) oc ov conc cc'escccoececee, 14

Baily, Research and Development Costs and Returns:

The U.S. Pharmaceutical Industry, 803. Pol. Econ-

omy 78 (January/February 1972) ................ 10

Clymer, “The Changing Costs and Risks of Phar-

maceutical Innovation,” in J.D. Cooper, ed., Eco-

nomics of Drug Innovation 123 (1969) ........... 10

Clymer, “The Economics of gly Innovation,” in Par-

nowski & Darrach, ed., The Development and Con-

trol of New Drug Products 109 (1972) ........... i)

—_ newman Antitrust Act,” Hearings before the

ntitrust Subcommittee of the Committee on the

Judiciary, House of Representatives, 87th C ong., 2d

SAI aie aici elie 14

“Drug Industry Antitrust Act,” Hearings before the Sub-

committee on Antitrust and Monopoly of the Com-

mittee on the Judiciary, United States Senate. 87th

Cong., Ist Sess., Parts 1-5 (1961) ............... 14

Eisman & Wardell, “The Decline in Effective Patent Life

of New Drugs,” Research Management 18 (January

RNR GG rere ne Sob eb koencesn..,. 13

Fries, “Aging, Natural Death, and the Comprehension of

Morbidity,” 303 New Eng. J. Med. 130, 132 (J uly 17,

Ne ie BU clones dw 5044s boo bos be 16

General Accounting Office, Problem Areas Affecting

Usefulness of Results of Government-Sponsored Re-

search in Medicinal Chemistry, Report No. B-

es 16

Hansen, “The Pharmaceutical Development Process:

Estimates of Development Costs and Times and the

Effects of Proposed Regulatory Changes,” in R.I.

eon Issues in Pharmaceutical Economics 151

RCE UIE ES oat kc weeny scescdoesissde voce. 10

iv

Table of Authorities Continued

Page

Mansfield, Panel Discussion, in J.D. Cooper, ed., Eco-

nomics of Drug Innovation 149 (1969) ...........

_ National Academy of Engineering, The Competitive Sta-

tus of the U.S. Pharmaceutical Industry (1983) .11,

National Center for Health Statistics, Monthly Vital Sta-

tistics Reports — Annual Summary of Births,

Deaths, Mirae and Divorce: United States, 1980,

ees eh EEE ads bisa dckecexeeaesseese

National Center for Health Statistics, Vital Statistics of

the United States, 1960, Vol. 2, Pt. A (1961) .....

Office of Technology Assessment, Patent Term E.xten-

sion and the Pharmaceutical Industry (1981) ....

“Patent Term Extension and Pharmaceutical Innova-

tion,” Hearing before the Subcommittee on In-

vestigations and Oversight of the Committee of Sci-

ence and Technology, House of Representatives,

Pits Caee.. DE BONS. CRUE) oc ccc ccccteccccss.

Pracon, Inc., The Effective Patent Life of Pharmaceutic-

al Products: Trends and Implications (1978)

Sarett, “Impact of Regulations on Industrial R&D: FDA

Regulations and Their Influence on the Future of

R&D,” Research Management 18 (March 1974)

Schnee, “Development Costs, Determinants and Over-

runs,” Journal of Business 347 (July 1972) ......

Schwartzman, Jnnovation in the Pharmaceutical Indus-

MME GS ctkdivaresreteesncrdccteccesecseen. 9,

Statman, “The Effect of Patent Expiration on the Market

Position of Drugs,” in R.B. Helms, ed., Drugs and

Health: Economic Issues and Policy Objectives 140

(1980) and in Managerial and Decision Economics 61

(FUE SUE Cea kicen caanssaudidauseseensseuns’

“The Food and Drug Administration’s Process for

Approving New Drugs,” Report by the Subcommit-

tee on Science and Technology, House of Represent-

atives, 96th Cong., 2d Sess. (1980) ..............

Vv

Table of Authorities Continued

Page

U.S. Department of Health and Human Services, Mor-

bidity ar ta oe Weekly Report — Annual Sum-

mary, 1981, Vol. 29, No. 56 Gotuniee ea) sea 17

U.S. Department of Health, Education and Welfare.

Morbidity and Mortality Weekly Report — Annual

Supplement, 1961, Vol. ‘9, No. 54 (September 1961) 17

Wardell, “The History of Dru Discovery, Development

and Regulation,” in R.I. Chien, ed., Issues in Phar-

maceutical Economics 10 (1979)

Bee A nt ol i eI RRND,

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

No. 84-130

- BOLAR PHARMACEUTICAL Co., INC.,

Petitioner,

vs

RocHE Propucts, INc.,

Respondent.

On Petition For Writ Of Certiorari To The

United States Court Of Appeals For The Federal Circuit

BRIEF AMICUS CURIAE OF THE

PHARMACEUTICAL MANUFACTURERS

ASSOCIATION IN OPPOSITION TO PETITION

FOR A WRIT OF CERTIORARI

INTEREST OF AMICUS CURIAE

This brief amicus curiae in opposition to the petition for writ

of certiorari is submitted on behalf of the Pharmaceutical Man-

ufacturers Association (PMA).' PMA is a voluntary nonprofit

association of 135 companies that are responsible for discover-

ing, developing, manufacturing, obtaining Food and Drug Ad-

ministration (FDA) approval of, and selling almost all of the

pioneer prescription new drugs in this country.’ One of the

' Letters from counsel for the parties consenting to the filing of this brief

are being filed with the Clerk.

* In contrast, the members of the Generic Pharmaceutical Industry Asso-

ciation (GPIA), which is submitting a brief amicus curiae in support of the

petition for writ of certiorari in this case, only rarely conduct research on, or

otherwise develop, pioneer new drugs.

2

most important incentives in the development of these life-

saving products is the United States patent system. Without

patent protection, the enormous investment necessary for the

development of a pioneer new drug would not be feasible.

This case strikes at the heart of patent protection. Petitioner

Bolar Pharmaceutical Co., Inc. (Bolar), a generic drug com-

pany that does almost no developmental research of its own,

asserts the right to encroach upon the patent of Roche Prod-

ucts, Ine. (Roche), in order to satisfy FDA regulatory require-

ments for marketing a generic drug. PMA believes that the

decision of the United States Court of Appeals for the Federal

Circuit, which petitioner Bolar asks this Court to review, is

clearly correct in holding that the unlicensed use of a patented

drug for development, testing, and other purposes in order to

satisfy regulatory requirements is an illegal infringement, and

the decision does not present any issue that warrants further

review by this Court.

QUESTIONS PRESENTED

1. Is the unlicensed use of a patented drug, while the

patent remains valid and unexpired, prohibited by the patent °

law where the user is conducting tests and experiments to

adapt the patented invention to the user’s business and to

satisfy FDA regulatory requirements for marketing the prod-

uct?

2. Can a generic drug company encroach upon the valid

patent of a research-intensive pharmaceutical company and

reduce the effective patent life by about two years by using the

patented drug in order to satisfy F DA preimarketing require-

ments prior to expiration of the patent term, where the effec-

tive patent life of the pioneer new drug is reduced by an

average of seven to thirteen years while the research-oriented

company conducted investigations to satisfy FDA premarket-

ing requirements?

3

COUNTERSTATEMENT OF THE CASE

There are two categories of-prescription new drugs mar-

keted in the United States. The first category consists of the

pioneer new drugs, developed by research-intensive phar-

maceutical companies. It requires many years and millions of

dollars to develop new pharmaceutical products and then to

conduct the safety and effectiveness testing that is necessary

to obtain FDA approval for marketing these drugs. The second

category consists of generic copies of those pioneer new drugs.

These copies require only a modest investment for marketing

by generic drug companies like petitioner Bolar, which conduct

no innovative new pharmaceutical research or development for

these products.

Since enactment of the stringent regulatory requirements in

the Drug Amendments of 1962,’ the time required to develop

and obtain FDA approval for a pioneer prescription new drug

has increased from about 2 years to about 7-13 years. The cost

of financing this process of innovation and regulatory approval

for an average pioneer new drug has correspondingly escalated

° in constant dollars from about $6 million prior to 1962 to $44

million in 1972 and a great deal more today. The time needed to

satisfy these requirements, moreover, inevitably is taken out

of the innovator’s patent life. Because a patent usually is filed

and granted in the early years of drug innovation, every year

required for testing and governmental approval reduces the

effective patent life at the front end. A pioneer new drug

approved for marketing by FDA today can be expected, as a

result, to have an effective patent life of about half of the 17

years intended by Congress.

In contrast with this lengthy process that is required of the

pioneer manufacturer, the generic manufacturer need spend

only about 2 years to copy the pioneer drug, do the testing

required, and obtain the expedited FDA approval that exists

for these products.’ Thus, generic manufacturers have an

376 Stat. 780 (1962) (amending 21 U.S.C. § 355).

‘Petition for writ of certiorari, p. 4.

4

enormous competitive advantage in copying the results of the

research of pioneer manufacturers, with little investment and

no risk.

In this case, Bolar used Roche’s patented drug, while the

patent remained valid and unexpired, to begin to perform the

research required to formulate its own generic drug product.’

Bolar also used the patented invention to begin to develop the

data that must be submitted to FDA in order to obtain approv-

al to market the generic drug product. Bolar asserts that it had

the right to encroach upon Roche’s patent, without authoriza-

tion from Roche, for purposes of developing and testing its

competitive drug product.

The Court of Appeals for the Federal Circuit held that this

use by Bolar was an infringement of Roche’s patent.” It is

obvious that unlicensed use of a patented drug, in violation of a

valid unexpired patent, directly injures the patent holder by

depriving the patent holder of profits from the sale or licensing

of the drug to other drug manufacturers, during the patent

term, for whatever development and testing is necessary to

satisfy regulatory requirements. The Court of Appeals deci-

sion prohibited Bolar from obtaining the benefits of such a sale

or license arrangement without authorization from Roche.

Bolar also argued that it should be permitted to encroach

upon the unexpired patent to develop its competitive product

and to perform the tests required for FDA approval of the

product so that it could compete with the patented product

immediately upon expiration of the patent. According to Bolar,

any other result would extend for 2 years after patent expira-

tion the rmmonopoly of patent holders in the pharmaceutical

industry. The Court of Appeals rejected this argument. The

Court recognized that Bolar was asking it to apply the patent

laws to drugs differently than to other products. Because the

Federal Food, Drug, and Cosmetic Act (21 U.S.C. § 355) re-

quires Bolar to conduct testing and obtain FDA approval be-

» Petition for writ of certiorari, p. 3.

° 733 F.2d 858 (Fed. Cir. 1984) (Appendix A to Petition for writ of cer-

tiorari).

ep tat) oho i seated

5

fore it can market its generic drug product, Bolar wanted the

Court to allow it to encroach upon a valid and unexpired patent

for that two-year period. The Court of Appeals refused to allow

this commercially significant encroachment in the guise of an

expanded “experimental use” defense to liability for infringe-

ment.

REASONS FOR DENYING THE WRIT

The Federal Circuit’s decision, which carefully reviewed and

unanimously rejected petitioner’s legal and factual claims,

rests on settled patent law principles, is clearly correct, and

does not present any issue that warrants further review by this

Court.

I. The Federal Circuit’s Decision Correctly Provides Strong

Protection For Drug Patents, Consistent With The Con-

stitution And Patent Law, At A Time When FDA Require-

ments For Approval Of New Drugs Have Substantially

Reduced The Effective Patent Life Of These Products.

Section 505 of the Federal Food, Drug, and Cosmetic Act of

1938’ required the manufacturer of a pioneer new drug to

submit to FDA a new drug application (NDA) containing in-

formation relating to the safety of the drug. If FDA did not

disapprove the drug within 60 days after receiving the NDA,

marketing could begin.

Congress enacted the Drug Amendments of 1962” to

strengthen Section 505’ in light of the thalidomide disaster.

Beginning in 1962, an NDA was required to contain data prov-

ing effectiveness as well as safety. FDA was also required

affirmatively to approve the NDA rather than just to permit

marketing by inaction.

The new drug requirements that existed between 1938 and

1962 were relatively innocuous and had little impact on the

752 Stat. 1040 (1938).

*76 Stat. 780 (1962).

* Section 505, as amended, is codified at 21 U.S.C. § 355.

6

development of pioneer prescription new drugs. The provi-

sions of the Drug Amendments of 1962, however, have re-

sulted in a substantial increase in the time required for devel-

opment and approval of a pioneer new drug. Thus, FDA regu-

latory requirements have substantially reduced the effective

patent life of pioneer new drug products."

A. It Takes 7-13 Years During the Patent Term To Satisfy

FDA Premarketing Requirements for Testing and Ap-

proval of Pioneer Prescription New Drugs.

As demonstrated in a 1980 Report by the House Subcommit-

tee on Science, Research and Technology, FDA regulatory

requirements impact upon the drug development process from

the moment a new chemical entity is synthesized until final

FDA approval of an NDA." That process is divided into three

major stages: preclinical research, clinical investigation, and

NDA approval.

Preclinical Research. Before clinical investigation of a new

chemical entity may begin, sufficient animal testing data must

exist to justify use of the chemical in humans.” Innovators

must also undertake substantial research on the chemical,

pharmacologic, and toxicologic properties of the chemical dur-

ing preclinical research. The FDA requirements for good

laboratory practices (GLP) in conducting preclinical research

for a new drug have substantially added to both the cost and

the time for this type of research. Accordingly, it is not surpris-

The “effective patent life” of a drug is measured from the date of FDA

approval of the NDA to the date of expiration of the patent.

'\“The Food and Drug Administration's Process for Approving New

Drags,” Report by the Subcommittee on Science, Research, and Technol-

ogy, Committee on Science and Technology, House of Representatives, 96th

Cong., 2d Sess. (1980) (hereafter “House Subcommittee Report”). See also

Weinberger v. Hynson, Westcott & Dunning, Inc., 412 U.S. 609 (1973).

2 Formal guidelines are issued by the FDA pursuait to 21 C.F.R.

$ 10.90(b). See, e.g., 44 Fed. Reg. 20796 (April 6, 1979); 45 Fed. Reg. 41705

(June 20, 1980); 46 Fed. Reg. 24693 (May 1, 1981); 21 C.F.R. Part 58.

oni saiediad, teeies: Jha,

7

ing that the House Subcommittee Report found that preclinical

research can take 1 to 4 years to complete.”

Clinical Investigation. Once adequate preclinical research

is completed, innovators may submit the results of this re-

search to FDA in order to obtain permission to begin clinical

investigation of the investigational new drug (IND) in humans.

Lengthy and detailed regulations and guidelines establish

what FDA demands for evidence of safety and effectiveness of

a pioneer new drug." The House Subcommittee Report found

that it takes about 4 to 6 years to conduct this IND research in

accordance with FDA requirements in order to demonstrate

that the drug is both safe and effective.

NDA Approval. After the FDA requirements for preclinical

research and clinical investigation are completed, an NDA is

submitted to FDA to obtain approval of the drug for market-

ing. Until that approval is obtained, the drug may not be

commercialized. Although the statute requires FDA to act

upon an NDA within 6 months, approval actually takes longer

to obtain. The House Subcommittee Report found that the

average NDA approval time was 14 months in 1963 and

climbed to 35.2 months in 1979. During this substantial amount

of time, the new drug cannot be marketed.

Summary. The House Subcommittee Report documents a

period of 7-13 years to satisfy the requirements for preclinical

research, clinical investigation, and NDA approval for a

pioneer prescription new drug. This is in addition to the time

needed to synthesize the new chemical entity before the drug

development process itself can begin.

In contrast with this lengthy process that is required of the

pioneer manufacturer, the generic manufacturer may spend

only about 2 years to copy the pioneer drug, do the required

testing, and obtain the expedited FDA approval that exists for

'3 Note 11 supra.

421 C.F.R. Parts 50, 56, 312, 314.

8

these generic products." Thus, generic manufacturers have an

enormous competitive advantage in copying the results of the

research of pioneer. manufacturers, with little investment and

no risk.

B. The Cost of Developing a Pioneer Prescription New

Drug Has Escalated.

The cost of developing and obtaining approval of a pioneer

prescription new drug has risen dramatically since 1962. It is

estimated that about 10,000 candidate drugs are synthesized

for every sne that actually gets to market. For every ten drugs

that reach the very expensive and time-consuming clinical

investigation (IND) stage, only one is ultimately marketed."

The costs of chemical, animal, and clinical testing of pioneer

new drugs have soared. As a result, the total amount of invest-

ment needed to produce a single approved pioneer new drug

has increased exponentially.

The economic literature discloses several studies of the in-

crease in the cost of developing a pioneer new drug in real

'® Petition for writ of certiorari, p. 4.

Unlike pioneer drug manufacturers, generic manufacturers do not conduct

original research to discover new active drug ingredients. Rather, they take

active drug ingredients developed by pioneer manufacturers and formulate

products that are copies of the pioneer new drug product, except that the

generic products may have different binders and excipients. Generic manu-

facturers do not perform the lengthy and expensive preclinical research and

clinical investigations to show drug safety and effectiveness that are re-

quired of pioneer manufacturers. Instead, to obtain FDA approval of their

products, generic manufacturers need only conduct short-term and thus

inexpensive tests to show that their generic copies will perform in the same

way as the pioneer drug product, that is, tests to show bioavailability (ability

of the active ingredient to get into the bloodstream) and bioequivalence

(equivalent rate and extent of absorption of the active ingredient). The

results of these tests are submitted to FDA in an “abbreviated new drug

application” (ANDA). This ANDA procedure permits expedited FDA ap-

proval of generic drug products. See 21 C.F.R. § 314.2 and Part 320.

'° Wardell, “The History of Drug Discovery, Development and Regula-

tion,” in R.I. Chien, ed., /sswes in Pharmaceutical Economics 10, 11 (1979).

9

dollars during the past 20 years. As demonstrated below, these

studies show that the average cost of an approved pioneer new

drug for 1962 was $6.5 million, and after 1962 it was $44.7

million, in 1980 dollars."

Schwartzman found the R&D cost per pioneer new drug to

be $1.3 million in 1960 and $24.3 million in 1973, excluding the

cost of capital.'* Adjusting these figures to 1980 dollars ($3.7

million and $48.6 million), this reflects a 13-fold increase in the

real cost of a pioneer new drug in this 10-year period.

Sarett found the cost per approved drug (not per pioneer

new drug) in one pharmaceutical firm to be $1.2 million in 1962,

$3.0 million in 1967, and $11.5 million in 1972, excluding the

cost of unsuccessful projects, capital, and discovery research."

Adjusting the 1962 and 1972 figures to 1980 dollars ($3.4 mil-

lion and $25.9 million), they reveal a 7.6-fold increase in this

10-year period.

Mansfield” and Schnee* jointly studied some 75 drug re-

search projects undertaken in one pharmaceutical firm during

the period 1950 to 1957. For the period prios to 1962, R&D cost

per marketed pioneer new drug was $1.1 million, or $3.1 mil-

lion in 1980 dollars, excluding the cost of capita] and discovery

research.

Clymer found that the R&D cost for a marketed pioneer new

drug in one pharmaceutical company in 1971 was $12 million.~

‘7 See Appendix A, summarizing the results of the studies.

'* Schwartzman, /nnovation in the Pharmaceutical Industry 65-70

(1976).

'? Sarett, “Impact of Regulations on Industrial R&D: FDA Regulations

and Their Influence on the Future of R&D,” Research Management 18

(March 1974).

*® Mansfield, Panel Discussion, in J.D. Cooper, ed., Economics of Drug

Innovatior 149 (1969).

“1 Schnee, “Development Costs, Determinants an. -verruns,” Journal of

Business 347 (July 1972).

= Clymer, “The Economics of Drug Innovation,” in Parnowski & Darrach,

ed., The Development and Control of New Drug Products 109 (1972).

10

Clymer also found that the R&D discovery cost amounts “to at

least as much as the development costs” for a pioneer new

drug, thus making the total costs approximately $24 million in

1971 or $56.5 million in 1980 dollars, excluding the cost of

capital.”

Hansen, using an accounting approach, directly studied

R&D expenditures based on a sample of new chemical entity

drugs from several drug companies. He found the average

cost between 1963 and 1975 to be $54 million. Expressed in

1980 dollars, this amounts to $70 million including the cost of

capital and $47.6 million excluding the cost of capital.

Baily developed a model of new product development and

applied it to the pharmaceutical industry on the basis of aggre-

gate industry figures.” He projected $6 million per pioneer

new drug before 1962, or $16 million in 1980 dollars.

The table in Appendix A summarizes these 6 studies. These

figures do not, of course, show the increase in real R&D cost

per approved pioneer drug for the past 10 years. They show

only the increase during the 10-year period from about 1962 to

1972. If figures were available during the past 10 years, they

would show a further increase in the real R&D cost per ap-

proved pioneer new drug. Nonetheless. the available studies

show that the average cost of an approved pioneer new drug

before 1962 was $6.5 million, and after 1962 it was $44.7 mil-

lion, in 1980 dollars. This represents a real 6.9-fold increase

even without including the cost of capital.

Thus, for any given level of research and development in-

vestment by the pharmaceutical industry today, the country

realizes fewer pioneer new drugs than it once did. Because of

3 Clymer, “The Changing Costs and Risks of Pharmaceutical Innovation,”

in J.D. Cooper, ed., Economics of Drug Innovation 123 (1969).

“4 Hansen, “The Pharmaceutical Development Process: Estimates of De-

velopment Costs and Times and the Effects of Proposed Regulatory

Changes,” in R.I. Chien, /ssuwes in Pharmaceutical Economics 151 (1979).

» Baily, Research and Development Costs and Returns: The U.S. Phar-

maceutical Industry, 80 J. Pol. Economy 78 (January/ February 1972).

11

this decrease in real investment by the industry, it is not

surprising that a 1983 study by the National Academy of Engi-

neering documented a substantial decline in pharmaceutical

‘innovation in the United States:”

“Data compiled by this study indicate a clear relative

deterioration in the foundation of pharmaceutical competi-

tive position — the research efforts necessary for discove-

ry and introduction of new patented drugs.”

Strong patent protection is an essential element in reversing

this deterioration.

C. The Effective Patent Life of a Pioneer Prescription

New Drug Has Been Cut in Half as a Result of FDA

Regulatory Requirements.

Although Congress has not changed the 17-year patent term

for pharmaceutical products, the increase in FDA research,

testing, and approval requirements just described has reduced

the effective patent life of a pioneer prescription new drug by

half.

When a research-intensive pharmaceutical firm discovers ¢

new chemical compound with promising biological activity, the

first thing it does is to file for a patent, even before making the

investment to develop the entity into a marketable medicine.

Once that patent is issued, its 17-year term immediately begins

torun. But at the time the patent is issued, the innovating firm

may be far from sure it will ever develop a marketabl¢ drug.

For that assurance, the law requires FDA approval of an NDA

which, as documented above, takes 7-13 years to obtain.

For pharmaceutical products, therefore, the 17-year patent

term has become a legislative figment. In reality, a drug patent

has a much shorter effective life. As a result, incentives to

invest in pharmaceutical research and development have been

substantially reduced.

26 National Academy of Engineering, The Competitive Status of the U.S.

Pharmaceutical Industry 1 (1983).

12

The erosion of effective patent life” for pharmaceutical prod-

ucts began about 20 years ago. It coincides with the erosion in

pharmaceutical innovation, as measured by the yearly FDA

approval of pioneer new drugs.

A number of studies have been conducted regarding the

precise reduction that has occurred in the effective patent life

for pioneer prescription new drugs during the past twenty

years. All studies show the same trend. Both individually and

in combination, they confirm a substantial decrease in effective

drug patent terms. The effective patent life of the pioneer new

drugs approved by FDA in 1980 and 1981 was less than half the

17 years provided by Congress under the patent law.

Pracon, Inc., an independent consulting firm, found that the

average effective patent life of pioneer new drugs approved by

FDA during the period 1950 to 1977 was reduced from 12.9

years to 8.8 years between 1966 and 1977.*

Schwartzman studied the pioneer new drugs approved by

FDA during 1966 to 1973.” He calculated the arithmetic mean

of their effective patent life during this time to be 13.1 years.

Moreover, he found a progressive reduction in the average

effective patent life during that period, from 13.9 years be-

tween 1966 and 1973 to 12.4 years between 1970 and 1973.

Statman studied a sample of 126 pioneer new drugs ap-

proved by FDA between 1949 and 1975.” He found “a con-

tinuous decline in the effective life of drug patents” and de-

veloped an equation to estimate the effective life of drug.pat-

ents for 1960 to 1978.

27 Note 10 supra.

*Pracon, Inc., The Effective Patent Life of Pharmaceutical Products: °

Trends and Implications (1978).

“9 Schwartzman, Innovation in the Pharmaceutical Industry 167-173

(1976).

% Statman, “The Effect of Patent Expiration on the Market Position of

Drugs,” in R.B. Helms, ed., Drugs and Health: Economic Issues and Policy

Objectives 140 (1980) and in Managerial and Decision Economics 61 (June

1981).

<li 6 Nah So

13

Eisman and Wardell studied the effective life of pioneer new

drug patents during 1966 to 1979.*' They found the average

effective patent life declined from 13.6 years in 1966 to 9.5

years in 1979.

The Pharmaceutical Manufacturers Association obtained

additional data for the year 1980." They show that, for pioneer

new drugs approved by FDA in 1980, the average effective

patent life decreased still further, to 7.4 years.

Wardell recently obtained the patent data for pioneer new

drugs approved by FDA in 1981. They show an even lower

average effective patent life of 6.8 years.”

In order graphically to illustrate the results of these studies,

they are plotted on the chart shown in Appendix B. The con-

gruence of these studies is striking.

II. The Unlicensed Use Of Patented Drugs For The Purpose

Of Developing Generic Drug Products And Conducting

The Tests Required For FDA Approval Directly Injures

The Patent Holder.

The patent law specifically defines as an illegal infringer any

person who “makes, uses, or sells” a patented product during

the term of the patent. 35 U.S.C. § 271(a). There are sound

reasons why the law thus prohibits any “use” of a patented

product while the patent remains valid and unexpired, as illus-

trated by the situation involved in this case.

Use of a patented drug, in violation of a valid unexpired —

patent, directly injures the patent holder by depriving the

patent holder of profits from the sale or licensing of the drug to

31 Kisman & Wardell, “The Decline in Effective Patent Life of New

Drugs,” Research Management 18 (January 1981).

x “Patent Term Extension and Pharmaceutical Innovation,” Hearing be-

fore the Subcommittee on Investigations and Oversight of the Committee on

Science and Technology, House of Representatives, 97th Cong., 2d Sess.

159-160 (1982).

3 Id. at 110-112.

14

other drug manufacturers, during the patent term, for what-

ever testing is necessary to satisfy regulatory requirements.

Research-intensive pharmaceutical companies may sell an

active ingredient to another drug manufacturer, or may license

another drug manufacturer to make or use an active in-

gredient, during the term of a patent. Such contractual

arrangements permit the other manufacturers to conduct the

testing necessary to satisfy FDA regulatory requirements

before the patent expires. Such sales or licenses generate

profits for the patent holder.

Bolar seeks to obtain the benefits of such an arrangement

without any license from Roche. In effect, Bolar is appropriat-

ing unto itself a compulsory license without compensation. The

patent law nowhere provides for such an extraordinary result.

Congress has on several occasions explicitly declined to enact

legislation that would require compulsory patent licensing,

either for all patents generally or for new drug patents in

particular, even with compensation.” For this reason alone,

Bolar’s arguments were properly rejected by the Court of

Appeals.

4 B.g., S. 1552, 87th Cong., 1st Sess. (1961) (Kefauver); H.R. 6245, 87th

Cong., Ist Sess. (1961) (Celler); S. 1297, 88th Cong., Ist Sess. (1963)

(Kefauver); S. 2287, 93d Cong., Ist Sess. (1973) (Hart); H.R. 915, 97th Cong. ,

Ist Sess. (1981) (Rosenthal). See “Drug Industry Antitrust Act,” Hearings

before the Subcommittee on Antitrust and Monopoly of the Committee on

the Judiciary, United States Senate, 87th Cong., Ist Sess., Parts 1-5 (1961);

“Administered Prices — Drugs,” S. Rep. No. 448, 87th Cong., Ist Sess.

(1961); “Drug Industry Antitrust Act,” Hearings before the Antitrust Sub-

committee of the Committee on the Judiciary, House of Representatives,

87th Cong., 2d Sess. (1962). Congress has adopted compulsory licensing only

for particular areas such as air pollution technology, 42 U.S.C. § 7404, and

atomic energy, 42 U.S.C. § 2183.

15

III. The Federal Circuit Properly Declined To Create For

Generic Drug Companies A New Exception To The Use

Prohibition Which Would Further Erode Patent Protec-

tion For Pioneer New Drugs And Would Thus Be Contra-

ry To The Patent Law And Harm Public Health In The

United States.

The patent law clearly provides that the unlicensed use of a

patented product during the patent term is an infringement.

Bolar asked the Court of Appeals to create an exception to this

use prohibition that would allow generic drug companies to use

patented pioneer new drugs, without license from the patent

holder, to conduct all of the necessary formulation and tests to

obtain FDA approval of the generic drug product before ex-

piration of the patent term. This would allow generic drug

companies to offer their products in competition with the pat-

ented product immediately upon expiration of the patent,

rather than requiring them to comply with the requirements of

the Federal Food, Drug, and Cosmetic Act after expiration of

the patent. In essence, Bolar requested permission from the

Federal Circuit to violate the patent law in order to avoid

marketing delays imposed by the federal drug law and FDA

regulatory requirements. The Court of Appeals properly re-

fused to create this exception for generic drug companies.

This Court has repeatedly recognized and reinforced “the

policy of stimulating invention that underlies the entire patent

system.”*” Without the stimulus of the temporary period of

exclusivity provided under the patent law, there would be far

less incentive for pharmaceutical companies to invest their

funds in risky pharmaceutical R&D ventures than in other

competing investment opportunities.”

The data discussed above document the substantial decline

since 1962 in the effective patent life of pharmaceutical prod-

ucts, the increase in the cost of developing pioneer new drugs,

35 Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176, 221 (1979).

36 This was recognized by the court in Eli Lilly and Co. v. Premo Phar-

maceutical Laboratories, Inc., 630 F.2d 120, 137 (3d Cir.), cert. denied, 449

U.S. 1014 (1980).

16

and the reduction in pharmaceutical innovation. The import-

ance of patent protection obviously increases with the size of

the investment needed to achieve innovation in any field. If

. innovation can be purchased cheaply patent protection is rela-

tively unimportant. As the investment cost escalates, how-

ever, patent protection becomes far more important. In the

pharmaceutical industry, where the cost of a pioneer new drug

has escalated so dramatically, the assurance of strong patent

protection has become increasingly crucial to the future of the

industry. This fact has been explicitly recognized in recent

reports by the National Academy of Engineering” and by the

Office of Technology Assessment,* in the Patent Amendments

of 1980, and in a 1968 General Accounting Office report on

pharmaceutical research.” Without an adequate patent sys-

tem, innovation in the pharmaceutical industry would wither

and the public health would correspondingly suffer.

Pioneer new drugs represent our major hope as a society for

reducing the burden of morbidity and mortality in this country.

The infectious diseases that took such a heavy human toll at the

turn of the century now cause less than 2 percent of the deaths

they caused then.” Diseases dreaded as recently as 30 years

ago now largely are under control. New pharmaceutical prod-

ucts have played a key role in the declining rates of death and

disease for a wide variety of serious disease categories.” New

37 National Academy of Engineering, The Competitive Status of the U.S.

Pharmaceutical Indusiry 79-80 (1983).

8 Office of Technology Assessment, Patent Term E.ctension and the Phar-

maceutical Industry 28 (1981).

3994 Stat. 3015, 3019 (1980).

#” General Accounting Office, Problem Areas Affecting Usefulness of Re-

sults of Government-Sponsored Research in Medicinal Chemistry, Report

No. B-164031(2), 18-19 (1968).

4! Fries, “Aging, Natural Death, and the Comprehension of Morbidity,”

303 New Eng. J. Med. 130, 132 (July 17, 1980).

These disease categories include measles, mumps, rheumatic fever,

rubella, tuberculosis, whooping cough, and meningitis. See National Center

for Health Statistics, Monthly Vital Statistics Reports — Annual Summary

17

medicines to achieve the same dramatic results against our

current leading causes of death — heart disease and cancer —

are now major targets for the pharmaceutical industry..Phar-

maceutical innovation is also a primary means through which

the skyrocketing costs of health care can be brought under

control and perhaps eventually even reduced.

Extraordinary investments are needed to assure that the

insights provided by new scientific information are translated

into pioneer new drugs in the future. Whether those invest-

ments will oceur, however, depends in substantial part upon

the incentives provided by a strong patent system. By

preserving the integrity of the patent term of pioneer new

drugs against attempted encroachment by generic drug com-

panies, the Court of Appeals has preserved the current and

necessary stimulus to innovation in the pharmaceutical indus-

try.

of Births, Deaths, Marriage and Divorce: United States, 1980, Vol. 29, No.

13, p. 20 (1981); National Center for Health Statistics, Vita/ Statistics of the

United States, 1960, Vol. 2, Pt. A, pp. 5-102 (1961); U.S. Department of

Health and Human Services, Morbidity and Mortality Weekly Report —

Annual Summary, 1981, Vol. 29, No. 56, pp. 12 & 14 (September 1981); U.S.

Department of Health, Education and Welfare, Morbidity and Mortality

Weekly Report — Annual Supplement, 1961, Vol. 29, No. 54, p. 4 (Septem-

ber 1961).

18

CONCLUSION

For the reasons set forth above, the petition for a writ of

certiorari should be denied.

Respectfully submittec,

PETER BARTON HutTT

(Counsel of Record)

ELLEN J. FLANNERY

COVINGTON & BURLING

1201 Pennsylvania Avenue. N.W.

P.O. Box 7566

Washington, D.C. 20044

(202) 662-5522

Attorneys for Amicus Curiae

Pharmaceutical Manufacturers

Association

Of Counsel:

Bruce J. BRENNAN

Vice President and General

Counsel

Pharmaceutical wlanufacturers

Association

1100 Fifteenth Street. N.W.

Washington, D.C. 20005

August 31, 1984

APPENDICES

la

APPENDIX A

Real Research and Development Costs per Pioneer

Prescription New Drug: 1962-1972

Pre-1962 Post-1962

Schwartzman 3.7 48.6

Sarett 3.4 25.9

Mansfield/Schnee 3.1 o-

Clymer — 56.5

Hansen _- 47.6

Baily 16.0 —

Average 6.5 44.7

NOTE: All figures adjusted to 1980 dollars.

2a

APPENDIX B

Trends In Average Effective Patent Life

Of Pioneer Prescription New Drugs, 1966-1981

[rends In Effective Patent Life From Various Sources

ms

Stecave Parenc Live | Years)

3

- l

4 a

~~. oa

VA 72a "

13 Pr \ nw al

: nat ¥

ss WC.

\2 » > a 2

2

10

39

3.

7

fear of NDA Approval

a

1966 1967 1968 1965 1970 1971 1972

1973 1974 1975 1976 1977 1973 1979 1980 L981

\. Schwarcman 2. Sacman 3. fisman & Wardeil + Pracon 5. PMA 5. Warde.