It’s Broke, Now Fix It: Patent Protection and Regulatory Capture in the Pharmaceutical Industry
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For all its faults, the pharmaceutical industry remains one area in which the United States remains a competitive world leader. But without drastic changes in the way the FDA regulates the industry, this advantage may not last.

Back in the early 1980s I worked for one of the major airlines, a company you have probably heard of, even though it hasn’t flown in over a decade. This was shortly after President Jimmy Carter had deregulated the airline industry. My employer, a pioneer in commercial flight, had grown accustomed to doing business in a certain way and lacked the foresight and skill to adapt to the new environment. Prior to deregulation, airlines needed to have lots of lawyers, whose main job it was to lobby the federal government to get and keep valuable landing slots at major airports. Once you had those, you could count on a steady stream of profits, since the Civil Aeronautics Board limited competition on most routes, thus ensuring high load factors, and also set fares the airlines were allowed to charge. Overnight, things changed 180 degrees, and airlines had to pay attention to things like customer service and efficiency. My employer failed to make the cut.

We may be seeing the opposite phenomenon in the pharmaceutical industry. According to a recent report by KPMG, industry returns on R&D spending have fallen from 18% in 1990 to 10% in 2010, and growth in R&D spending has slowed from an average 10% annual rate from 1999 to 2006 to only 1% annual rate since 2007. Pharmaceutical companies may be turning to lawyers and the regulators to make up the difference.

Colchicine is a drug commonly used to treat gout. The plant source of colchicine, the autumn crocus (Colchicum autumnale), was used by the ancient Egyptians to treat rheumatism and swelling, and colchicum extract has been identified as a treatment for gout in medical manuscripts dating back 2,000 years. Ben Franklin, a famous gout sufferer, brought colchicum back to America from his stint as U.S. envoy to France. French chemists in the early 19th century isolated and purified the active ingredient in colchicum and named it colchicine, which became the standard treatment for gout.

As a drug predating the FDA, colchicine was prescribed in the United States for many years without ever receiving formal FDA approval for the drug itself or for prescribing information, dosage recommendations, or drug interaction warnings. But in 2006, the FDA launched its Unapproved Drugs Initiative, to establish, through randomized clinical trials, scientific foundations for drugs that had long been in use but whose safety and efficacy had never been established.

Enter URL Pharma, a small, 60-year-old manufacturer of generic pharmaceuticals, based in Philadelphia, which had flirted with bankruptcy several times in its history before being acquired by a private equity group in 2007. Starting in 2007, URL reportedly spent $100 million (of which $45 went to the FDA for the licensing application) to carry out clinical trials leading up to its filing of a new drug application, which was approved in 2009 and which gave URL a three-year exclusive marketing agreement to its new branded oral colchicine preparation Colcrys for treatment of acute gout attacks, and seven-year exclusivity for treatment of Familial Mediterranean Fever (FMF), a rare disease which colchicine is also used to treat.

URL immediately raised the price of its drug from the average 9 cents a pill for generic colchicine to $4.85 a pill for its new formulation, and began suing existing manufacturers of colchicine for patent infringement, backed up by the FDA, which also began issuing directives to these companies to cease manufacturing within 45 days and interstate shipments within 90 days.

Now enter Takeda America Holdings, the U.S. subsidiary of Japan’s oldest and largest pharmaceutical company, which is among the 15 largest in the world, with global revenues of $17.2 billion in 2011. Takeda America in April 2012 agreed to acquire URL for an upfront payment of $800 million and future performance-based payments. According to Takeda’s own statements, Colcrys accounted for $430 million of URL’s total 2011 sales of $600 million, with strong growth projected for 2012. This represented stunning growth in the colchicine market. According to IMS Health, a drug data firm, in 2008 there were 3.5 million prescriptions written in the U.S. for colchicine, representing $6.8 million in sales. The ink was hardly dry on Takeda’s agreement to buy URL when, in September 2012 it agreed to sell the generics business of URL – everything but the Colcrys part of the business – to Sun Pharmaceuticals of Mumbai, for an undisclosed price.

Why did Takeda pay so much to buy URL only a few months before its exclusive rights to market colchicine expired? And why, if the exclusive arrangement has expired, does Colcrys remain the only colchicine available in the U.S.?

A look at the FDA’s Orange Book of approved drug products tells us: in addition to three years of exclusivity, URL obtained patent protection on Colcrys until February 2029, covering not only treatment of acute gout flare-ups and FMF, but also prophylaxis of gout. It is in the prophylaxis that the real money is to be made. Gout sufferers may have one or two flare-ups a year, requiring medication for a week or so each time. But if, say, even 10% of the estimated eight million gout sufferers can become chronic users, taking one pill a day to prevent flare-ups of their disease – and the only competing drug on the market, allopurinol, involves complicated dosing and can produce dangerous and sometimes fatal side effects – the payout could be huge: around $1.5 billion in annual revenues and $100 million in net annual profits for Takeda over the next 17 years, or around 10 to 15 percent of the parent company’s projected totals over that period. As an investment, the return is astronomical. According to its financial summary, Takeda spends about 20% of its net sales on R&D. But its $800 million investment in URL represents only around 3% of its expected sales from Colcrys between now and 2029.

The FDA’s Unapproved Drug Program serves a useful purpose, even in the case of colchicine. Over the years there had been reports of serious and even fatal drug interactions, and other nasty side effects from the treatment. Until URL carried out its trials, standard dosing was much higher, also with unpleasant effects (the package insert used to counsel patients to administer the medication at two-hour intervals until they felt too sick from nausea and diarrhea to take any more).  So, although in the course of two centuries of use physicians had pretty well figured out what worked and what did not with colchicine, there was a clear case for the FDA to sponsor trials and establish more scientific protocols, as it has done with a number of drugs. But that is no excuse for letting drug companies and their lawyers hijack the process.

If the estimate for the cost of the clinical trials is more or less correct, the FDA could easily have paid $55 million or so to sponsor trials and keep the drug generic and cheap. Instead, with the license the FDA program gave to URL and, now, Takeda, to increase the price of colchicine by 50 times, it could end up costing American taxpayers, insurers, and patients more than $30 billion by the time Takeda’s patent protection runs out. In addition, it tells companies in the pharmaceutical industry (an industry in which the United States is still a world leader) that they can make a much better return investing in lawyers than in scientists and laboratories. That is probably not a message we want to send.

Posted 06-16-2013 11:33 PM by Charles Krakoff