Resident Scholar John  E. Calfee

On Aug. 15, the U.S. Patent and Trademark Office dealt Pfizer (NYSE:PFE) a multi-billion-dollar blow. It upheld an earlier court ruling that had rejected Pfizer's bid to extend patent protection for its blockbuster statin, Lipitor, until June 2011. The ruling might yet be reversed. But for now, Pfizer's PFE patent is set to expire in March 2010. Generic drug maker Ranbaxy, the patent challenger, can then sell its cheaper version of Lipitor. Based on Pfizer's annual U.S. Lipitor sales of $8 billion, at stake is about $10 billion in revenue if Pfizer can't get the 15 extra months of exclusivity.

The stakes are always high in such cases, says John E. Calfee, a scholar at the American Enterprise Institute, a Washington, D.C.-based think tank that gets part of its funding from the drug industry. Calfee, who also does some consulting work for pharma firms and co-authored the forthcoming book, Biotechnology and the Patent System: Balancing Innovation and Property Rights, says those stakes can be more than just the dollar value of lost sales. He spoke with IBD.

IBD: What are those additional stakes when a brand-name blockbuster loses patent protection?

Calfee: Patent life is 20 years after the patent is granted, but it can take eight to 10 years before a drug gets Food and Drug Administration approval. Many of the best drugs have useful lives that extend well beyond the typical 10 or 12 years of patent life remaining after the drug comes to market. Lipitor was approved in December 1996. If its patent holds no longer than 2010, Pfizer will have had 14 years of patent-protected sales. That's pretty good. But some of the most important research on this drug has been done in just the past few years. In the case of Lipitor and other drugs, manufacturers look at the results of their first clinical trials and see that if they ran more clinical trials on different groups of people, they could find the drug has a benefit for those other people too. But they're not going to run clinical trials to find out if a drug has new benefits only to see the generics capture all those sales. Profits would disappear. In one drug after another you can see that, as they get close to the end of the patent life, the research on that molecule just dries up.

IBD: Would no one look for new uses for off-patent drugs?

Calfee: Clinical trials are expensive. You have to recruit thousands of patients at hundreds of different medical centers in many countries. They usually run from one to five years. They can cost hundreds of millions of dollars. Generic manufacturers are not going to pick that up. It would be left to the National Institutes of Health or non-profit foundations. And they can't run much research like that on their budgets. So it is generally true that the large, breakthrough, clinical trials are infrequently run by anyone other than the manufacturer of a drug still under patent. To some extent, research is driven by marketing.

IBD: What's at stake from the public health perspective?

Calfee: There are three parts to the stakes pharmaceutical firms have in maintaining a patent. First is the revenue. Second is the motivation to continue researching those drugs for new uses. Third is promotion. Take statin drugs, including Lipitor. Despite their big sales numbers, they're vastly under-used.
I believe that Lipitor promotion has had a big impact on the total uptake of the statin drugs. Promotion prepares the patient for a talk with the doctor. There are millions of men and women in the U.S. alone who ought to be on a statin but are not. Promotion is an important tool for getting these drugs to the people who would benefit from them. When the patent expires, the promotion for that brand expires. When the Lipitor patent expires, we'll lose not only further research into Lipitor but also the promotion of Lipitor. Promotion of Lipitor has the effect of promoting all statins--not just for Pfizer but for all makers.

IBD: So name-brand drug ads perform a public service?

Calfee: There's no doubt that's a big part of it. That's especially true with a drug like a statin where most of the benefits would go to patients who aren't even seeing a doctor and who aren't worrying about cholesterol levels. These are typically men in their 40s and 50s. It's well-established that for any brand, any particular molecule, when the patent expires the promotion ceases.

IBD: Would you suggest that drug makers should get longer patents?

Calfee: The core issue of reasonable patent length for new molecules is important. Economists don't have a good answer to the question of how long a patent should be. In some cases, a 10-year patent life might be reasonable. In others, society would be better off if a patent went on for 20 years because there's so much valuable research yet to be done.

John E. Calfee is a resident scholar at AEI.