BB&T Washington Editor

Makers of devices and diagnostics have watched as pharmaceutical companies struggle with declining patent portfolios and makers of biologics struggle to get their products to market. Recent events overseas have introduced further unease as Asian nations make use of trade laws to manufacture patented therapeutics without reimbursing the patent holder, further clouding the prospects for profitability.

To date, the device and diagnostics industries have been spared some of these problems, but generic devices are no longer just a back-of-the-envelope speculation and novel device designs are part of a flood of patent applications swamping reviewers at the U.S. Patent and Trademark Office (PTO).

If the problems in the pharmaceutical industry hit the makers of devices and diagnostics with the same force, this sector could well feel the IP pinch even more severely than pharmaceutical and biologics firms.

For some time now, many device and diagnostics makers have wondered when a competitor would adopt the concept of generic drugs, and Generic Medical Devices (GMD; Gig Harbor, Washington) has done precisely that. In an interview with BB&T’s sister publication, Medical Device Daily, Richard Kuntz, the firm's president/CEO, pointed out that many of the devices now commonly used “in today's healthcare organizations have undergone few, if any, changes in the decades since they were first introduced.”

Kuntz said that his company's business model is based on “offering medical devices that are equivalent, if not better, than their branded counterparts and at prices that will be attractive to hospitals, physician-owned surgery centers, Medicare and third-party payers.”

Wasting no time, GMD obtained a 510(k) for a circumcision clamp on Jan. 22, and Kuntz hinted at a very aggressive business strategy in saying that this is “the first of what we hope will be many generic medical devices brought to market over the next few months.”

Paying to not play

One of the lessons that might be learned from the pharmaceutical industry is that holders of expired patents might try to ward off such competition by paying the generic firm not to manufacture off-patent drugs. but Congress has indicated that it will not tolerate such action for long. In a Jan. 17 hearing of the Senate Judiciary Committee, Jon Leibowitz, the commissioner of the Federal Trade Commission, told the committee that it is "critical to eliminate the pay-for-delay settlement tactics employed by the pharmaceutical industry," a plea that found a sympathetic committee chairman, Pat Leahey (D-Vermont), who insisted that "Congress never intended for brand-name companies to be able to pay off generic companies not to produce generic medicines."

As for authorized generics, Herb Kohl (D-Wisconsin) introduced the Preserve Access to Affordable Generics Act to the 109th Congress, which would suppress some of the interference by holders of expired patents, but the bill died in committee. However, the bill is back in play as S. 316 in the 110th Congress.

Getting a patent cleared with the PTO might seem to some applicants almost as burdensome as getting a device through the FDA gauntlet. On the one hand, the PTO web site says the agency "completed 332,000 patent applications in 2006, the largest number ever, while achieving the lowest patent allowance error rate — 3.5% — in over 20 years On the other hand, PTO approved only slightly more than half the patent applications, with the 54% from last year "the lowest on record."

Backlogs — and more coming

A clear indicator of the size of the task facing PTO was provided by the commissioner of patents, John Doll, who said recently that PTO could end up with a backlog of about 800,000 patents in 2007 and is using bonuses to attract college grads to its workforce.

The agency anticipates hiring an additional 1,200 patent examiners, assuming the House of Representatives goes along with that portion of the president's budget, which would also allow PTO "to continue toward its goal of processing all patent and trademark applications electronically" and work toward securing U.S. intellectual property abroad, the web site stated.

In an effort to keep up to speed on patent applications in other nations, PTO announced on Jan. 24 that it has extended an agreement with IP Australia in which the Aussie office reviews applications filed under the Patent Cooperation Treaty (PCT), which is administered by the World Intellectual Property Organization (WIPO; Geneva). IP Australia will process as many as 1,200 PCT applications during the new contract period, which runs 12 months from March 1.

Innovators in the nanotechnology sector may have reason to be especially concerned about their PTO applications. At least one legal expert believes that the current inventory of pending and existing nanotechnology patents is ripe for conflict.

In the February/March 2006 edition of Nanotechnology Law & Business, Albert Halluin of Wilson Sonsini Goodrich & Rosati (Palo Alto, California) wrote that because of the lack of specificity of many nanotech patents, “patentees are not excluded from broadly claiming a variety of theoretical fields or devices [into which] the nanoparticle or other nanomaterial could be incorporated.” Halluin also noted that at that time, more than 1,700 nanotech patents were awaiting PTO adjudication. The existing base of nanotech patents at that time was roughly 3,800. If Halluin is correct about the specificity issue, PTO will have to reject some of those pending patents.

Working around patents

One situation that has hit the biologics sector already is that of compulsory licensing, a work-around on international intellectual property (IP) law that the poorest nation members of the World Trade Organization are taking advantage of to deal with infectious diseases.

Compulsory licensing allows a nation to avoid a range of patent and production difficulties if a product is too expensive or not made in the particular country, and specifically to address a large public health need. However, this application of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement is being used to obtain licensing of pharmaceuticals for common chronic disease, such as cardiovascular illness — clearly not the intent of the TRIPS agreement.

Whether this situation will crop up for medical devices and diagnostics is difficult to say, but the use of compulsory licensing for products addresing conditions other than deadly infectious diseases suggests that anything is possible.

TRIPS builds on the Paris Convention of 1887, which included provisions for compulsory licensing in broad terms, including when necessary to "prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work" the patent. Now the domain of the WIPO and the World Trade Organization (WTO; Geneva).

TRIPS originally allowed production of patented medical articles without a license only if the patent holder was approached first and was reimbursed, and only for domestic use. That provision was recently permanently amended to allow exceptions to the ban on export of drugs produced under compulsory licensing so long as the importing nation is also on WTO's list of poorest nations and is demonstrably unable to produce the article.

However, nations have broad latitude in defining the public health imperatives that can be used to justify compulsory licensing, and nations that appear on a list of the poorest nations are not required to consult with, reimburse or even notify the patent holder at all.

The case of Thailand is one that gives patent holders a special case of heartburn, especially since it is not on the list of nations exempt from the requirement to deal with the patent holder before going into production or importation. The Associated Press reported on Jan. 30 that Thailand's public health minister, Mongkol Na Songkhla, announced that his government will use the compulsory licensing mechanism to justify importation of generics for the HIV combo drug Kaletra (lopinavir/ritonavir), currently under patent by Abbott Labs (Abbott Park, Illinois). Another drug included in the action is Plavix (clopidogrel), sold by Bristol-Myers Squibb (New York) and Sanofi-Aventis (Paris).

Wanted: a bigger discount

Roughly 580,000 citizens of Thailand are infected with HIV, but the national drug program has provided treatments for only about 80,000 patients, and an offer by Abbott to drop the per-patient treatment price for Kaletra from almost $350 to less than $170 was rebuffed by the government since apparently not enough of a price break. Mongkol was quoted as saying that if Abbott would give “a certain amount of discount,” he wouldn’t use a compulsory licensing. "We don't call this a threat," he said, but declined to refute allegations that the nation's Government Pharmaceutical Organization (GPO) is preparing to challenge patents on a wide range of other drugs, including anticarcinogenics. "These were drugs proposed by the panel a long time ago, which could be changed any time," Mongkol said.

Regarding Thailand's method of obtaining drugs for AIDS treatment, Lila Feisee, managing director for intellectual property at the Biotechnology Industry Organization (BIO; Washington), told BB&T: "We are not at all comfortable with their approach…and hope this does not become precedent-setting." She said "its clear that not all nations are as fortunate as we are . . . and we understand that there should be some flexibility," but that BIO's members prefer that the language of TRIPS would not be so liberally applied.

"We would like these compulsories to be used very sparingly if at all," especially since biotech products that are still in development are very dependent on financing, and indiscriminate use of compulsory licensing "reduces the incentive for others to invest in your patented technology."

Feisee added: "We think that compulsory licensing should only be a last resort to deal with true public health emergencies. Even under public health emergencies, if you deal with companies, you'll find that they are the best ones to get you what you need."

As to the amendment to TRIPS that would allow one licensing nation to export drugs to another eligible nation that is not in a position to produce drugs, Feisee remarked that "the language is a lot more loose than we would like to see, but we have yet to see how this will play out."

Abbott is not alone in dealing with Thailand's pursuit of AIDS drugs. A number of members of Congress have weighed in on the subject of Thailand's compulsory licensing in the form of a Jan. 10 letter addressed to U.S. Trade Representative Susan Schwab, urging that "the United States government respect the [Nov. 29] decision of the Thai government to issue a compulsory license for the AIDS drug Sustiva (efavirenz),” manufactured by Merck (Whitehouse Station, New Jersey).

The 20 signers, all House Democrats, argued that "[u]nder TRIPS, Thailand is not required to negotiate in advance with the patent holder because the drug will be produced in the near-term future by the GPO and distributed for non-commercial public use."

Search ‘a surprise’

At present, Thailand is said to be importing efavirenz from Ranbaxy of Gurgaon, India, which makes both active pharmaceutical ingredients and finished drugs. Federal officials recently conducted a search of Ranbaxy's New Jersey office, and the firm insisted that the action "came as a surprise."

According to Reuters, a public relations agency said, "from my understanding, it was the U.S. Food and Drug Administration" that conducted the search, but FDA spokeswoman Catherine McDermott declined to confirm or deny the statement and referred members of the media to the Department of Justice. FDA has little authority to conduct such searches and relies heavily on federal and state prosecutors to undertake such actions.

According to the U.S. Department of State, Thailand enjoys a $12 billion annual trade surplus with the U.S. and is among the nations receiving aid for HIV under PEPFAR, a U.S. program designed to provide $15 billion over five years for treatment and prevention of AIDS. Merck announced Feb. 15 that it will offer the Thai government a price cut of almost 50%, from a break-even price of about 1,300 baht (the Thai currency) to about 700 baht for a month's worth of medication, a move Merck said it could make thanks to greater manufacturing efficiencies and fluctuations in exchange rates.

Thailand apparently gave Merck no warning of its intent to license Sustiva prior to its announcement.

However, Thailand's proposal to make use of compulsory licensing to import Plavix (clopidogrel) has many more critics, some of whom allege that the military coup currently in power will use the savings to boost military spending. Another concern at this point is that Thailand's actions will open a floodgate of questionable IP licensing.

Seeking ‘right balance’

WHO Director General Margaret Chan said shortly after Thailand's announcement that it would license Kaletra that she wanted to "underline that we have to find a right balance for compulsory licensing," remarking further that "[w]e can't be naive about this. There is no perfect solution for accessing drugs in both quality and quantity."

However, Chan backpedaled in mid-February, stating that she regretted her comments, insisting that those remarks "should not be taken as a criticism of the decision of the Royal Thai government to issue compulsory licenses, which is entirely the prerogative of the government and fully in line with the TRIPS agreement."

Mainland China is problematic for patent holders as well, but the courts there have upheld existing patents somewhat more consistently of late as the world's most populous nation works its way into the good graces of other WTO members.

A recent report appearing at www.chinaview.cn, the web site for the state news agency Xinhua, indicated that authorities in China have closed down a counterfeit Viagra production located beneath a building in east Beijing. Beijing's police department seized nearly 2,000 tablets, which were said to be worth the equivalent of more than $300,000, after receiving reports of noises coming from the plant.In January 2006, Chinese authorities traced cases of counterfeit Viagra pills in Shaoxing, Zhejiang province, involving approximately 280,000 fake Viagra pills valued over 238 million yuan, or $30 million.

Pfizer knock-offs knocked off

This past December, Pfizer (New York) picked up a vital legal victory in a Beijing court, which ordered a pair of Chinese companies to knock off making Viagra knock-offs and pay Pfizer for the excursions. The court decreed that Beijing Health New Concept Pharmacy cease sales and that Lianhuan Pharmaceutical (Jiangsu) must stop production and compensate Pfizer with the sum 300,000 yuan, equivalent to slightly more than $38,000. Pfizer established its patent for Viagra in China in 2003.

Makers of patented healthcare products face IP problems in the Western Hemisphere as well. According to a Jan. 8 press release, the Office of the U.S. Trade Representative has bumped Chile up from its watch list to its elevated watch list due to findings that the South American nation has not complied with the terms of a U.S.-Chile Free Trade Agreement.

According to the statement, Chile "has relied inappropriately on undisclosed test and other data submitted in connection with the approval of innovative drug products in order to approve generic versions."

The commitment of the Chilean government to "the vigorous enforcement and prosecution of intellectual property theft of copyrighted goods appears to have diminished significantly." U.S. Trade Ambassador Susan Schwab said that Chile has benefited from the trade agreement and as a result, "our expectations for Chile's respect for intellectual property rights are quite high," although she declined to state what actions her office would take, other than "working with Chile" with an eye toward "improving its IPR [intellectual property rights] track record."

India a player too

Not to be left out, India may end up participating in the IP free-for-all as well. In January, The Guardian, a London daily paper, reported that two university professors have advanced the idea of making minor changes to a pharmaceutical and calling it a new drug, a proposition that could be readily applied to devices and diagnostics.

Sunil Shaunak, professor of infectious diseases at Imperial College (London), labeled the idea "ethical pharmaceuticals," promising to use the idea to generate a treatment for hepatitis C. However, the article stated that the unnamed drug company in India that will sponsor the clinical trials and Imperial College “will hold the patent on the hepatitis C drug," purportedly to "prevent anybody attempting to block its development."

It is difficult to say whether WHO will allow further expansion of the compulsory licensing mechanism. The Intergovernmental Working Group on Public health, Innovation and Intellectual Property (IGWG) is the WHO panel charged with crafting further agreements on IP rights, including trademarks and copyrights.

The basic premise of the working group's current efforts is that IP rights should be modified to take into account the prevalence of "diseases that disproportionately affect developing countries," seemingly a broadening of the current thinking on compulsory licensing.

However, the most recent meeting, which took place in mid-February, bogged down in questions of jurisdiction as the U.S. delegation offered a proposal to deal with enforcement issues despite the argument that enforcement issues are the province of WIPO.

Some members do not believe that "there would be any real IP movement until there is progress in talks on agriculture," according to a report by Intellectual Property Watch, found on its web site, www.ip-watch.org.

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