Controlling drug costs … one lawsuit at a time

People generally think that lawyers cost too much and don’t do much for the economy. But there is at least one area where lawsuits need to be encouraged – to fight weak and invalid patents on prescription drugs. Unfortunately, current Canadian policy on generic drug patent lawsuits is thwarting our ability to achieve the savings necessary to afford the drugs of tomorrow.

This article was published by on August 28th 2012.  To see this article and other related articles on  website, please click here

Most Canadians are blissfully ignorant of the cost of our prescription drugs. Our doctors write the prescription, our pharmacy dispenses the drugs, and our insurers pick up most (if not all) of the tab.

Motivated by spiraling healthcare costs, insurers are starting to crack down. This means denying or delaying coverage for new drugs and limiting the scope of coverage for drugs that are already covered. This may sound reasonable, unless you are the patient who needs a drug that is not covered.

One key driver of drug costs is patents. When drugs are patent-protected they enjoy monopoly protection in the market. This monopoly prevents generic drug manufacturers from selling a cheaper version of the product that is a fraction of the monopoly price.

Although a patent lasts for 20 years, most drugs are protected by multiple patents that expire over a much longer period of time. While some patents cover genuine inventions associated with the drug, many cover trivial aspects of the drug that should not prevent competition.

The Patent Office often grants these weak patents because it is not well-equipped to evaluate the true merits of the tens of thousands of patent applications it receives annually. The only person providing any guidance is the patent applicant whose objective is to ensure the patent is granted.

This is where generic drug companies come in. They serve as the watchdogs for Canada’s drug patent system, ensuring the weak patents that slip through the Patent Office do not block the market entry of low-cost generic medicines.

Take the cholesterol medications Lipitor and Crestor. If generic manufacturers waited for the last patent to expire on these drugs, cost-saving competition would not have been available to Canadians until 2020 or later. Yet generic companies’ legal challenges of the weak patents covering these drugs brought generic Lipitor to market in 2010. Generic versions of Crestor became available earlier this year. Litigation on these two drugs have created savings of $60 million per month in Ontario alone.

But fighting patents may now be more trouble than it’s worth. Provinces have cut retail generic prices by more than 50 per cent over the past few years, to control costs. Provincial governments used to set generic prices at 60 to 70 percent of the branded price, but some years back they began to notice that pharmacies were earning huge profit margins at these prices. Since 2006, led by Ontario, the provinces have legislated generic prices down further and further. Prices are now as low as 25 percent of the price of the branded product in some provinces.

Before they can sell drugs, generic drug companies have to notify patent-owners and wait to be sued. This is called “patent linkage” because regulatory approval of the generic drug is linked to the drug’s patent status. Linkage is unique to drug patents.

Regardless of the strength of the case, the patent-owner gets an automatic injunction preventing the generic company from entering the market – without having to provide any upfront proof. The courts have described this system as “Draconian” on several occasions.

If the generic loses in court, it can’t sell its product and its legal fees and drug development costs are wasted. If the generic company wins in court, as has happened in 71 per cent of decided cases, this is hardly cause for celebration as the generic is likely to be sued again. Brand companies have the ability to sue the generic for infringement of the very same patents that were addressed in the patent linkage litigation.

This second litigation is expensive, and losing can cost the generic company damages that are many times larger than the size of the competitive generic market. The costs of these multiple litigations of the same patents are prohibitive, as Canada represents less than three per cent of the global drug market.

Any incentives that may have existed for generic companies to fulfill their watchdog role for the Canadian drug patent system have largely evaporated for all but a few products.

If Canadians want generic companies to continue to challenge weak and invalid drug patents, they will need an improved patent litigation system and an incentive that adequately rewards them for creating fair market competition.

While generic companies are theoretically able to obtain damages, such damage claims have been extremely limited by the courts. Court decisions were released in May 2012 for two damages claims involving the blood pressure drug ramipril, where over two years of generic competition were lost while generic companies invalidated ramipril’s weak patents. The cases were the first of their kind to reach a trial in the 19 years that generic damages have been available, and they took many years and millions of dollars to litigate to conclusion.

The court limited the generic companies’ recovery of damages for being kept off the market in several ways. Generic losses occurring outside a narrowly-defined time window were deemed ineligible for recovery. Damages were reduced to account for the brand company marketing its own “generic” product to cut into the profits of the patent-challenging generic. These limitations weaken the incentives to challenge patents and strengthen the incentives to assert them.

No doubt the assessment of damages is complicated and isn’t a topic that most consumers would want to discuss over their morning coffee. But awareness of the barriers to generic companies entering the market will help people understand why generic drug patent challenges are important, and how governments can make it easier for consumers to receive high-quality, lower-cost prescription drugs.

Note: Gilbert’s LLP currently works (and has worked in the past) for several drug firms, both generic and brand-name. They are currently litigating on behalf of a generic drug firm in relation to the topic covered, though that firm does not stand to benefit from the recommendation in the article in its litigation. They also represent government, consumers groups and non-profit organizations in respect of drug commercialization and policy matter.