Hatch-Waxman and Paragraph IV

The Drug Price Competition and Patent Term Restoration Act of 1984, more commonly known as the Hatch-Waxman Act (hereafter known as the “Act”), encourages production of generic bioequivalents to increase domestic healthcare access, while maintaining economic incentives for innovators to advance healthcare. The Act also provides a 30-month stay, a safe harbor period for brand manufacturers to unreservedly pursue patent litigation against generics that file an Abbreviated New Drug Application (“ANDA”) certified by Paragraph IV (“ANDA PIV” or Paragraph IV), as well as an 180-day exclusivity period for non-incumbent investors that are first to file (“FTF”) an ANDA PIV.

However, an unintended consequence of the Act has been the surge, since the mid-2000s, of Paragraph IV filings such that it is emerging as the de facto standard. The extensive usage of Paragraph IV filings has increased business and legal costs, while driving down market exclusivity periods (“MEPs”) for brand and generics (we substitute the 180-day exclusivity jargon with its fundament definition of MEP), with unsympathetic market- and price-erosion rates post-loss of exclusivity (“LOE”). Ultimately, the decrease in financial returns have lowered the incentive to innovate, while forcing the hands of non-incumbent investors, in that they are more compelled to file ANDAs on the basis of strategic opportunity, as opposed to patent validity.

Regardless of whether you are an innovator, nonincumbent bioequivalent, or both, the key to financial success is directly correlated to origination and maintenance of MEP and mitigation of LOE erosion. LOE is convincingly dictated by the tolerance of risk, strategic timing, and premeditated partnerships, as well as increasingly complex calculus of tactical intellectual property exercises. Although these variables have created a unparalleled platform of non-synergistic financial and operational transactions industry participants can rest assured that innovative solutions exist to the this dynamic and ever-changing arena.

Industry challenges and economic trends

Declining MEPs and post-LOE erosion correlated to Paragraph IV pressures have altered the competitive environment of the life sciences industry. For brand manufacturers, patent protection no longer defines MEPs or LOE for their innovative products. Notwithstanding its waning probability of emerging victorious in patent litigation, a brand’s MEP is defined by minimum standards of market protection or data exclusivity, the utility of the 30-month stay, any settlement terms, and generic FDA approval rates. Conversely, generics manufacturers face unfavorable market metrics, including the emerging extinction of sole 180-day MEPs and diminishing market share and price-realization rates, especially post-LOE.

These challenges have forced all manufacturers to rethink competitive strategies and tactics, leading to new trends in the industry.

These industry trends include:

• The forced hand. A trend of non-synergistic or seemingly contrived financial transactions have taken place in the market. While mergers and acquisitions, as well as licensing deals, may offer a short term financial lift, they may lack the commercial momentum and fortitude to drive long-term value in this economic-competitive climate.
• Suffocating markets. Generics manufacturers are enduring extensive competition from various established and new entrants who wish to leverage the current ANDA PIV standards and asymmetrical risk that is clearly present in potential patent litigation, resulting in intense price and market share erosion, as well as shared FTF positions.
• Patent marathons. There has been an increase in patents per small molecule product, rationalized as distinguishing from the obvious, prior art, and the need for freedom to operate. Regardless of the underlying calculus, the overall filings have increased substantially, which affects genuine innovative patent pursuits.
• Anxious advocates. Although a 30-month stay should subdue market unrest, due to the exponential increase in PIV filings and at-risk launch possibilities, the courts have become inundated with patent disputes and indirect stakeholders have become eccentrically focused on price-fluctuation.
• Punishing reconciliation. The asymmetric risk within Paragraph-IV derived patent litigation has created a trend to settle IP disputes at the 11th hour. These settlements have come under great scrutiny from federal and state regulatory bodies, as well as consumers.
• Extending exclusivity. Manufacturers are heading towards uncharacteristic innovation that allows for extended MEP and mitigation of share- and price-erosion, as well as opportunities that are outside of the Act’s reach.

Our solution

Deloitte life sciences professionals are, first and foremost, receptive and understand your unique or cyclical needs, and work in a proactive, as opposed to reactive manner, to assess the risk and reward equation to every decision you face. We integrate industry experience, strategic insights, economic and financial expertise, and marry that with litigation knowledge to deliver innovative, best-in-class services to help multinational pharmaceutical and biotechnology companies to respond quickly to ever-changing and fragile competitive situations and economic concerns.

Our industry professionals speak the languages of commercial life sciences participants, whether it be business development directors, financial officers, or legal practitioners, thus bridging the gap and allowing us to deliver seamless solutions across all related stakeholders.

Regardless of your innovative or non-incumbent intent, we work with you to proactively:

• Originate and Maximize Exclusivity
• Maximize Pre- and Post-Exclusivity Revenue
• Evaluate Risk and Financial Thresholds
• Identify Economic-Competitive Outcomes
• Increase Overall Life-Cycle Proficiency

We offer further details below and explain the rationale for engaging our services.

Deloitte difference

Strategy development

In the current, challenging Paragraph IV-influenced life sciences environment, an overall portfolio development and optimization strategy that accounts for the short- and long-term economic trade-offs of your financial decisions is vital. A key component of a well-developed product strategy is the understanding of the full potential of your resources and applying financial, economic, and legal lenses when evaluating all commercial decisions.

Our experts, with varied academic and professional backgrounds, coordinate with manufacturing, commercial, business development, financial, and legal stakeholders to help identify and bridge any fissures that have created barriers to success in the past. We effectively leverage and create efficiency in your resources by assisting in developing and delivering successful, executive-level business cases that proactively advance your overall portfolio strategy in a timely manner.

Economic modeling and forecasting

Deloitte provides seasoned industry and technical specialists who can perform economic modeling and forecasting throughout all stages of lifecycle management to deliver innovative solutions to complex problems. Whether working with brand or generics firms, our skilled practitioners and data driven, granular analyses can help identify your options, understand their economic trade-offs, and arrive at more informed decisions.

Our services include:

• Today’s and tomorrow’s market. We help you assess the speculative value of existing product portfolio and current footprint in today’s market landscape, while identifying gaps that may suggest future opportunities to conquer tomorrow’s market landscape.
  We identify both organic and inorganic methods of growth as it relates to your revenue goals and debate the trade-offs. We understand the need to efficiently balance the number of dealings required to reach revenue goals to avoid unnecessary transaction premiums.
• Light at the end of the pipeline. Our team can assist in the earliest stages of product development, during clinical trials or preliminary ANDA selections, to help assess your pipeline’s value. We evaluate regulatory challenges, measure a proposed product’s market potential, and construct legal and economic scenarios to quantify the impact on your current and future product portfolio as it relates to today’s and tomorrow’s market landscape.
• Evaluation of revenue. Our team can help determine a currently commercialized or pipeline product’s market value by evaluating LOE outcome, price elasticity, market share allocations, and cost metrics, such as supply chain considerations. We go beyond archetypal evaluations by applying granular consumer demand studies — taking into account epidemiological prevalence and incidence influences, policy concerns, the risk of innovation superseding demand, and other relevant factors that may affect your desired financial outcomes.
• Balancing exclusivity and eviction. Our professionals are equipped with an arsenal of economic, financial, and legal experience. We provide the power of empirical data and analyses, mirrored with subjective intellectual property evaluations, to understand your specific LOE concerns and provide related risk-adjusted economic and competitive outcomes.
• Reevaluate the wheel. Whether your challenges stem from emergent issues or are a reaction to forced hands, we are able to assist in the development of more calculated decisions and probability of economic outcomes utilizing high-throughput analytics and applied data mining. We have applied our unique analyses to reinvigorate everything from synchronizing portfolio management and supply chain efforts to minimize carrying costs to the reduction of economic surplus in patent litigation settlements.

Dispute and litigation consulting

Life sciences companies face increasingly complex litigation, disputes and regulatory scrutiny. To prevail in this environment requires the talents and capabilities of experienced professionals who can help you resolve existing disputes, as well as help you proactively avoid future litigation, disputes, and regulatory scrutiny. Our experts can help provide clarity to legal advisors by assessing risk and damages exposure and performing financial and economic analyses to evaluate and quantify the comparative trade-offs of different dispute resolution strategies.

Our professionals can provide:

• Quantify risk. We help you assess and interpret boundaries and risk tolerances for litigation and settlement by developing scenarios based on a range of analysis techniques, including evaluating likelihood of success, the strengths and weaknesses counterparty’s position, aspiration settlement values and timing, regulatory scrutiny and reputational impacts.
• Litigation life-cycle valuations. Our experts can evaluate economic impacts across all stages of litigation, dispute, and regulatory scrutiny. We apply our proprietary models and tools to compute probabilities under different litigation and settlement scenarios, while also applying proactive measures and remedies to avoid and manage potential regulatory scrutiny, respectively.
• Grounding the ivory tower. Our professionals are experienced in delivering expert testimony during all stages of the litigation life-cycle, while concurrently working in the daily grind of solving consulting conundrums. We can communicate complex technical concepts such as IP and consumer valuations and the economic rationality of settlements, so that our testimony is understood by all ranges of audience.
  Most importantly, we bridge the gap between the necessary academic pedigree required to drive credibility and the practical life sciences knowledge necessary to assess realistic evaluations or recommendations.

Our capabilities are complemented by the resources of Deloitte LLP, a United States-based professional services firm employing over 45,000 professionals, and the global reach of Deloitte Touche Tohmatsu Limited member firms and their affiliates that employ over 180,000 professionals worldwide. Our life sciences experts collaborate with financial advisory, consulting, tax, and audit colleagues in the United States and globally to deliver to clients the full spectrum of capabilities in one voice as one integrated solution.

Contacts

Yogesh Bahl
Partner, National Life Sciences Industry Leader
Deloitte Financial Advisory Services LLP
+1 212 436 6942
ybahl@deloitte.com