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Risks Associated with Litigating or Settling Pharmaceutical Patent Matters
Published online by Cambridge University Press: 20 January 2017
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References
1 For a comprehensive legal analysis of the differences between Europe and the U.S. on this issue, see M. Clancy, D. Geradin, and A. Lazerow, “Reverse-Payment Patent Settlements in the Pharmaceutical Industry: An Analysis of U.S. and EU Competition Law,” SSRN Working Paper, October 27, 2013 (revised January 3, 2014), available at http://ssrn.com/abstract=2345851.
2 M. Clancy, D. Geradin, and A. Lazerow, “Reverse-Payment Patent Settlements in the Pharmaceutical Industry: An Analysis of U.S. and EU Competition Law,” SSRN Working Paper, October 27, 2013 (revised January 3, 2014), available at http://ssrn.com/abstract=2345851.
3 For an example of economic literature addressing settlement in intellectual property disputes, see Meurer, M., “The Settlement of Patent Litigation,” RAND Journal of Economics, Vol. 20, Spring 1989, pp. 77–91.CrossRefGoogle Scholar
4 NPV, most simply described, measures “a project's net contribution to wealth.” (See Brealey, R. and Myers, S., Principles of Corporate Finance, Fourth Edition, McGraw-Hill, Inc., 1991, p. G7.Google Scholar) It is a form of financial analysis that restates all expected positive and negative annual cash flows over the life-span of an investment in present dollars, and sums these present values. Future values are expressed as present values through the use of a discount rate, which allows both the time value of money and the risks associated with the cash flows to be incorporated in the analysis.
5 Applying this approach in assessing an actual settlement with a reverse payment, use forecasts of sales, costs, and share for the patented product prepared at the research based company for senior management under the assumption that the patent is valid. If several forecasts are available, select the forecast prepared around the data of the settlement.
6 Supplementary data may be from public sources.
7 All cash flows are stated as 2013 present values using a discount rate used by the research based company in constructing financial analyses for making business decisions.
8 By risk neutral, I mean that a party is not concerned about the distribution of potential outcomes, but only their expected value. Thus, a risk neutral individual is indifferent between the following two possibilities: i) receiving either $10 or $0 with an equal probability, or ii) receiving $5.
9 The NPV of winning the appeal, $3.0 billion, * 66.7 percent + the NPV of losing the appeal, $1.5 billion, * 33.3 percent, equals the value of settling, $2.5 billion.
10 See “Nature of Patent and Patent Rights,” U.S. Patent and Trademark Office, http://www.uspto.gov/web/offices/pac/doc/general/nature.html.
11 These five products are in the class of products called Tumor Necrosis Factor inhibitors.
12 “Medicines in Development for Arthritis,” Pharmaceutical Research and Manufacturers of America, April 8, 2013, available at http://www.phrma.org/research/medicines-development-arthritis.
13 Lumpectomy, partial or segmental mastectomy, total or simple mastectomy, modified radical mastectomy, and radical or Halsted radical mastectomy are different types of breast cancer surgical procedures.
14 “Nearly 1,000 Medicines in Development to Help Patients in Their Fight against Cancer,” Pharmaceutical Research and Manufacturers of America, May 31, 2012, available at http://www.phrma.org/media/releases/nearly-1000-medicines-development-help-patients-their-fight-against-cancer.
15 Therapeutic competition exists for other health problems such as hypertension, allergies, infections, benign prostatic hyperplasia, erectile dysfunction, and osteoporosis. This list is not exhaustive.
16 IMS is a commercial data service. IMS data are collected from the pharmacy. The pharmacist may report the price paid by the consumer or the list price, thereby capturing some, but not necessarily all, of the level of discounting occurring at the pharmacy level. These data do not capture additional discounts patients may be receiving through their managed care or health maintenance organization.