Merck’s monopoly on a blockbuster diabetes drug that has generated about $50 billion in global sales seemed like it might be coming to an end over the past couple years.
The pharmaceutical giant’s key U.S. intellectual property on the active ingredient in Januvia was set to expire in early 2023, and rivals started gearing up to launch low-cost copies — an outcome that would almost certainly drive down the drug’s price and offer consumers more choices.
But, as happens so often in the pharmaceutical industry, the owner of the brand-name drug was able to stave off the competition with the help of a secondary patent. That additional legal protection helped Merck prevail in a high-stakes court fight last year. Separately, the company has reached 26 settlement agreements with generic manufacturers that have sought to market their own versions of Januvia and Janumet, another Merck drug that uses the same key ingredient.
As a result, Merck, the biggest employer in Montgomery County, has told investors it expects to maintain U.S. market exclusivity on Januvia until about May 2026, even as regulators in Europe and China have approved less-expensive copies known as generic drugs. That three years of extra protection for Merck could mean an additional $3.5 billion in U.S. revenue, according to one estimate. Research shows a drug’s price can drop as much as 20% when the first generic hits the market — and as much as 85% after multiple alternatives are approved.
Januvia is now in the spotlight as President Joe Biden ‘s administration seeks to reduce prescription drug costs for people over 65 and others with disabilities by directing Medicare to negotiate prices for select medications that lack generic or biosimilar competition. The diabetes pill is set to be among the first 10 drugs subject to government-negotiated prices starting in 2026.
Merck and other pharmaceutical companies are now asking federal courts to strike down the program, authorized under last year’s Inflation Reduction Act, alleging that it violates the U.S. Constitution. Merck accuses the government of interfering in free market enterprise and warns that the law will devastate innovation by making risky research and development less attractive to investors.
Critics say the drugmaker’s moves to block rivals from introducing generic alternatives show how the industry has exploited the intellectual property system to stifle competition and keep prices high. Some critics described Medicare price negotiation as a good first step but say they want Congress to do more to rein in what they call patent gaming.
“The patent system has become a bit of a Frankenstein. It’s doing its own thing, and I don’t think it’s benefiting society the way it was intended in the past,” said Tahir Amin, a former intellectual property lawyer and founder of the nonprofit Initiative for Medicines, Access, and Knowledge.
“The law typically is behind what’s happening in the business field,” he said. “But in this case, I think from a scientific point of view in terms of how science is practiced, the law is 30, 40 years behind.”
Generics drive down sales
Defenders of the intellectual property system — which is designed to promote writings and discoveries of the human mind by providing legal rights to inventors — say it drives investment and fuels discovery of new applications of existing drugs.
Merck’s experience with Januvia and Janumet in international markets shows why brand-name drugmakers want to protect their patents. After regulators overseas approved generic versions of the drugs last year, worldwide combined sales of Januvia and Janumet declined from $3.6 billion to $2.6 billion, or 28%, in the first nine months of 2023.
That primarily reflected “the ongoing impact of the loss of exclusivity in most markets in Europe and the Asia Pacific region, as well as in Canada,” the company said in a filing with the Securities and Exchange Commission.
Merck noted in a statement that patent rights and regulations vary from country to country. “Merck will seek to protect and defend its patents where appropriate,” the company said. Merck described Januvia as “an important advance for adults with Type 2 diabetes” and added that innovations like sitagliptin, the drug’s active ingredient, “contribute to a broad ecosystem allowing companies like ours to continue investing in research and development.”
The list price for an annual supply of Januvia in the U.S. last year was $6,346, according to data compiled by Protect Our Care, an advocacy group that supports efforts to regulate drug prices. It cost 82% less in Canada and 66% less in France. The industry has argued such comparisons are misleading because U.S. list prices don’t include discounts drugmakers provide to insurers. Research has found U.S. brand prices are often higher even after factoring in discounts.
Meanwhile the debate over patents in Washington isn’t going away. The Biden administration in December warned pharmaceutical companies that the government may cancel patent protections for certain high-priced drugs developed in part with taxpayer money and allow rivals to make cheaper versions. An industry trade group said such an unprecedented move would mark “yet another loss for American patients who rely on public-private sector collaboration to advance new treatments and cures.”
Patent ‘evergreening’
To bring a new drug to market, companies say they invest billions of dollars in research and development, including clinical trials during which they must demonstrate safety and efficacy.
U.S. intellectual property law is designed to encourage such innovation by offering inventors exclusive rights — in the form of patents and other regulatory approvals — to make and sell a product for a period of time. Patents come with 20 years of protection after the filing of an application. Drugmakers try to establish their legal rights well before they apply for regulatory approval, so by the time a new drug comes to market, it typically has 12 years left of exclusivity before facing generic competition.
But instead of promoting the robust development of new medicines, drugmakers often obtain new patents to recycle existing drugs and extend their monopoly, research has found — a practice critics refer to as evergreening.
A 2018 study of all drugs on the market between 2005 and 2015 found that 78% of medicines associated with new patents were “not new drugs, but existing ones.”
“Patents are supposed to last a limited period of time, so companies have a limited period to try to earn a handsome reward on their inventions. After that, competitors should be able to enter the market and drive prices down to competitive levels. That’s not what’s happening in the pharmaceutical industry,” said Robin Feldman, the study’s author and a law professor at University of California College of the Law, San Francisco.
“Instead,” Feldman said, “companies have become adept at piling lots of different kinds of protections onto existing drugs.”
This can be a big revenue driver. Illinois-based pharmaceutical company AbbVie gained seven years of intellectual property protection on arthritis drug Humira after the 2016 expiration of its earliest patent, during which time it raised the price and made $114 billion in sales.
Other experts counter that these “secondary” or “follow-on” patents can bring great benefits to consumers. For example, the original formulation of Lumigan — a drug used to treat glaucoma — as approved by the FDA came with significant side effects that often led patients to stop using it, sometimes leading to blindness.
Patent protections encouraged the drugmaker to develop a better formulation that substantially reduced those side effects, according to a 2018 paper by Christopher M. Holman, a law professor at the University of Missouri-Kansas City School of Law, and colleagues. Such innovation “should be promoted by patents,” not discouraged, they wrote.
‘Brand of the year’
Merck began its hunt for a new diabetes drug in the early 2000s.
The company filed a patent in 2002 for several chemical compounds known as dipeptidyl peptidase-IV (“DPP-4″) inhibitors. One of those compounds, sitagliptin, became the active ingredient in Januvia when the Food and Drug Administration in 2006 approved the pill to treat type 2 diabetes — the first drug in its therapeutic class to win regulatory approval.
The disease occurs when the body can’t properly use insulin produced by the pancreas, leading to high blood sugar. It affects more than 460 million people worldwide.
By inhibiting production of the DPP-4 enzyme, sitagliptin increases levels of hormones that trigger the release of insulin while also reducing production of glucose by the liver. In addition to offering a new way of treating diabetes, the drug came with fewer reported side effects such as weight gain.
Merck also obtained approval for Janumet, a pill that combines Januvia with a generic blood-sugar control medication called metformin. The drugs were a big hit. By 2012, Merck’s diabetes pills had become the highest-selling product franchise in company history, according to Pharmaceutical Executive, which dubbed Januvia “brand of the year.”
Legal fight over generics
Given the drug’s success, it’s no surprise other companies wanted to compete for market share.
Among them was Mylan Pharmaceuticals, which in 2019 filed a petition with the U.S. Patent and Trademark Office seeking to invalidate a secondary patent Merck had secured covering a phosphate salt form of Januvia and Janumet. Drugmakers often try to combine basic compounds, such as sitagliptin, with an acid or base to form salts, whose properties may be better suited for manufacturing.
Identifying the active ingredient “is an important starting point, but a great deal of additional research and testing might be required to arrive at a formulation that provides a safe and effective drug,” said Holman, the University of Missouri-Kansas City law professor.
Merck filed the later patent in 2004, and it was that phosphate salt form of the drug that was approved by the FDA. The patent was ultimately issued in 2008. It doesn’t expire until March 2027 in conjunction with an additional regulatory exclusivity — giving Merck another four years of intellectual property protection beyond the expiration of its original patent.
Mylan, seeking approval for generic versions of the products, argued that Merck’s later invention produced “nothing more than obvious variants” of the first one and was “designed to prolong Merck’s monopoly.”
For example, the first patent described phosphoric acid as one of several “pharmaceutically acceptable” salts of sitagliptin. The later-expiring patent covered one such particular salt form — specifically, sitagliptin dihydrogen phosphate.
Merck argued the discovery ran counter to expectations in the academic literature and showed inventiveness.
The U.S. Patent and Trademark Office ruled in favor of Merck, and a federal appeals court in Washington, D.C. affirmed that decision last year.
Separately, after a bench trial, a federal judge in West Virginia last year ruled that Mylan’s products would infringe on Merck’s patents, and that Mylan failed to prove those patents were invalid. Mylan, now known as Viatris, initially appealed, but the parties announced a settlement earlier this year.
The Initiative for Medicines, Access, and Knowledge (I-MAK), the nonprofit watchdog group cofounded by Amin, argues that different salt forms of a drug shouldn’t be eligible for new patents because they are obvious and their crystalline forms are “inherent in the compound” and therefore “inevitably lacking in novelty.”
What’s more, long-standing FDA guidance advises drugmakers how to monitor and control different crystalline forms of a drug. “This stuff is routine,” Amin said.
But because courts have consistently held these forms to be inventive, I-MAK says Congress should pass a law explicitly stating they are obvious and, therefore, unpatentable.
Others note that in instances like the Merck-Mylan dispute — where the primary patent has expired, but a secondary one claims a salt form of the drug — a generic manufacturer could make its own version of the drug with another salt. If rivals can’t find another effective salt, that might just prove the value of the secondary patent, according to experts like Holman.
Merck, in its statement, said continuing to innovate after filing a primary patent directed to a drug’s active ingredient allows the company “to enhance the benefits and convenience of treatments for patients.”
‘The drug companies have gotten smarter’
Merck’s settlement with Mylan was one of 26 such agreements over Januvia and Janumet that Merck has reached with generic manufacturers.
The terms of the agreements aren’t public, though they must be filed with federal antitrust regulators. Merck declined to disclose the terms of the settlements, beyond reiterating that they allow generics to come to market in 2026, a year before the company’s salt patent expires.
The pharmaceutical industry has faced scrutiny in the past for instances in which brand-name manufacturers have paid generic rivals to delay entry to the market — a practice critics have called “pay for delay.”
Experts say the industry has adapted amid pushback from antitrust regulators.
Michael A. Carrier, an antitrust expert at Rutgers-Camden Law School, said payment is a lot more nuanced than it used to be. He pointed to a case from the 1990s in which the manufacturer of antibiotic Cipro paid a rival $398 million in cash to delay the generic.
“The drug companies have gotten smarter,” Carrier said, adding that sometimes the brand pays the generic for services such as promotion.
He added, “From an antitrust perspective, a settlement without payment is fine because the brand is excluding the generic based on the strength of its patent.”
Merck may have strengthened its hand in legal negotiations by winning approval for a total of 26 patents on Januvia, with the latest one expiring in 2038, according to data compiled by I-MAK. Such patent “thickets” erect more barriers to entry for generic manufacturers, experts say.
While Merck has fended off generics, other companies have developed their own brand-name drugs in the same therapeutic class of DPP-IV inhibitors that Merck pioneered. For example, German drugmaker Boehringer Ingelheim generated $862 million in U.S. sales last year from its medication Tradjenta, according to ATI Advisory, a consultancy. Merck reported $1.2 billion in U.S. sales of Januvia last year.
However, competition among different brands doesn’t tend to reduce prices as much as generic drugs do.
Citing “competitive pressures,” Merck said in a securities filing that it “anticipates pricing and volume declines for Januvia and Janumet in the U.S. for the remainder of 2023 and thereafter.”
Januvia may face limited impact from Medicare price negotiations, which are set to kick in the same year generics are expected to reach the market. But Merck has said it anticipates other drugs, including its top seller — cancer treatment Keytruda, which accounted for 35% of Merck’s total revenues last year — will be selected for regulation in the coming years.
And the clock is ticking on the company’s intellectual property. The patent on Keytruda’s active ingredient is set to expire in 2028, but Merck is hoping to head that off by developing a new formulation that can be injected under the skin.
That could result in a new patent — and 20 years of legal protection.
