Congressional Patent Reform Threatens Medical Innovation

This week, executives from biotech companies around the country will be on Capitol Hill with an urgent message for lawmakers: a relatively new provision in patent law has the potential to cripple their ability to develop new cures and treatments that can alleviate suffering and save lives.

Inter Partes Review — or IPR — is a well-intentioned process instituted by Congress in the America Invents Act of 2011, designed to offer a quicker alternative to the district court system in resolving patent disputes. It was created to curb the growing number of frivolous lawsuits seen primarily in the tech sector — so-called “patent trolls.” But this attempted solution for one sector’s problem has created dangerous, unintended consequences in other sectors, by undermining valid patents that support innovation in diverse industries–from manufacturing, to consumer products, to biotechnology. Patent reform legislation currently moving through Congress needs to address this serious issue.

Patents provide confidence to companies and investors to fund research for new innovations. This is particularly true in biotechnology, where developing better, more effective medicines takes 10–15 years and $1-$2 billion per drug on average. Attracting the capital needed to finance the years of research to bring a new medicine to market requires investors to have a level of protection that only a patent can provide. If patent integrity is undermined, there will be less investment, which will hurt medical innovation and reduce the numbers of new therapies over time.

It’s also important to understand that there already is a thoughtfully conceived process instituted by Congress over thirty years ago, which adjudicates patent disputes for FDA-approved medicines in district court. This system, known as Hatch-Waxman, strikes an effective balance that allows generic companies to deliver lower cost drugs to patients, while still incentivizing innovator companies to invest in groundbreaking new medications. In fact, since Hatch-Waxman (H-W), inexpensive generic drugs have steadily increased to the point where there are now generic versions of about 90% of prescription medications on the market today. At the same time, the Hatch-Waxman patent adjudication system has allowed an explosion of new, innovative medicines to be developed and come to market where we all can benefit from them.

Now, however, the IPR system has inadvertently created a parallel track to challenge biopharmaceutical patents, but one with lower standards that conflict with those of Hatch-Waxman. In the IPR system, the tables are turned on patent holders: whereas patents were presumed valid in the H-W process, in IPR, there is no presumption at all — despite the lengthy process to secure patents in the first place. Thus, biotech finds itself in a system in which patents are not worth much more than the paper they are printed on, since no one knows what the ultimate rules will be for assessing validity. Who will invest in the treatments of tomorrow with the specter of IPRs looming, magnifying the uncertainty of any potential return on investment?

Perhaps most important to realize is that Congress created the IPR system specifically to address the problem of patent trolls, not to compromise biopharmaceutical development; yet that is precisely an unintended consequence of the IPR system.

Further underscoring the unintended consequences of IPR, hedge funds have now seized on this new system to manipulate the shares of public biotechnology companies, which the hedge funds sell short in advance of filing IPRs against their patents, hoping to profit by damaging these businesses and driving their share prices down. One hedge fund has even cynically called itself “The Coalition for Affordable Drugs,” attempting to claim that it is “working in the public interest,” by overturning patents and allowing generic drugs to come to market. However, nothing could be further from the truth. Make no mistake, this is a hedge fund — it has no capacity to make or deliver generic drugs. It profits by driving down the share price of companies, hurting shareholders and distracting management from its work in developing new therapies. And it’s able to do so because of the much lower standard that the IPR system has imposed, in conflict with the Hatch-Waxman system that was already working well and did not require fixing.

Hedge funds have now filed over 30 IPRs against biotechnology company patents. In one case, that of Acorda Therapeutics’ patents on a novel medicine that helps people with multiple sclerosis walk better, the Patent Office ruled against the hedge fund’s initial IPR filings, but the hedge fund refiled IPRs on the same patents a week later. This highlights another destructive feature of the IPR system: anyone can file at any time, whether a generic company or a random individual, and there is no limit to the number of IPRs that a given entity can file, so that companies literally can never be certain that they have cleared the IPR hurdle. In another notorious example, a hedge fund filed an IPR against a patent on a drug made by Allergan, even though that patent had already been upheld as valid under Hatch-Waxman in court and on appeal; the hedge fund noted that the lower standards of IPR gave it a chance of winning this time.

Thus, the IPR turns the serious business of medical innovation and entrepreneurial risk-taking into a casino. What investor would put hundreds of millions of dollars at risk in such a situation? For this reason, about 20 major life science Venture Capital firms, representing over $60 billion in investments, have written to Congress asking that biopharma patents continue to be adjudicated in Hatch-Waxman and be exempt from the unintended consequences of the IPR. Likewise, over 100 patient advocacy groups have sent a letter asking the same.

Congress is currently considering patent reform legislation, providing an opportunity to modify the IPR system. We urge Congress to do so, for the sake of biomedical innovation and the need that all of us have for the vital medical advances it provides.