Health Care and Intellectual Property: The Orphan Drug Act

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Brief note on the abuse of Orphan Drug programs in creating monopolies

CPT has been highly critical of the exclusive marketing provisions in the US and the proposed EU orphan drug acts. Pharmaceutical companies now obtain 20 year patents for inventions, and investments in clinical trials and other research required for drug registration are protected under the WTO/TRIPS (Section 7, Article 39.3) and national statutes. In the United States protection for unfair commercial use of clinical trial tests is five years plus a 30 month extension if even a weak patent dispute is raised. In the European Union, protection is six to ten years. The amount of protection for health registration data is itself controversial, and often abused (see the page on paciltaxel for an example of an abuse that involves a life saving government invention).

The market exclusivity provisions of the Orphan Drug Act raise the question, are these provisions redundant? And if not, what exactly are governments being asked to protect?

It is important to understand that companies with claims of invention can receive patent protection, and companies that spend money on clinical trials, even without invention, receive exclusive rights to rely upon research results for several years.

The marketing exclusivity provisions of the Orphan Drug Act do not protect true Orphan Drugs, which no one wants to market because the are unprofitable. Market exclusivity is meaningless for unprofitable drugs. They do not reward invention, which is rewarded by patent. They do not reward investment, which is protected by statutues on unfair commercial use of health registration data. What do they reward?

The Orphan Drug Act is used to privatize something that is in the public domain, such an invention paid for by tax dollars, or a patent that has expired. It is particularly important to a company when they have done the least to deserve the benefit. Companies use the Orphan Drug Act to stop other companies from investing in clinical research, or from bringing new innovative products to market. Orphan Drug exclusivity is broader than patent protection, for a given indication.

Companies that obtain orphan drug designations in the United States use the exclusivity provisions to build a wall around an invention in the public domain, by obtaining patents on various manufacturing methods, treatment regimes or minor improvements in the product, in order to create barriers against entry by competitors. For example, Amgen used its Orphan Drug status to build a wall of manufacturing patents around EPO, which was in the public domain, and Bristol-Myers Squibb used Orphan Status to keep a competitor from submitting its own clinical research on the use of Paclitaxel for Kaposi's sarcoma.

The Orphan Drug Act has been written so that a very wide range of drugs quality as Orphans, including, for example, all AIDS medicines in the United States, plus countless other severe illnesses. It is not surprising that many new drugs are "orphan drugs" under current statutory definitions, particularly given deep federal subsidies, such as the 50 percent tax credit for expenditures on clinical trials. And any measure that makes the pharmaceutical industry more profitable and provides greater subsidies will attract private sector investment, at least in some research projects. However, it is a very blunt instrument that is often wasteful, costly to consumers and taxpayers, and sometimes counter productive (by discouraging investments by rivals once markets become legally exclusive).

Lobbying on Orphan Drug Legislation is funded by the pharmaceutical and biotech industry, with significant and often enthusiastic assistance from patients groups, many of which receive a wide variety of financial benefits from industry groups, and which typically represent consumers whose expenses are paid for by third parties, such as taxpayers or employers who pay insurance premiums. The result are legislative programs that make sense only if money is isn't scarce.

What is needed are more targeted incentives to conduct essential medical research, with greater public accountability.

James Love
January 5, 1999

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