J Kyle Bass
May 22, 2015
J Kyle Bass @ Hayman Capital Management, L.P.
Managing Partner & Founder, Hayman Capital Management L.P.

How a cheap generic pain reliever and a cheap generic acid inhibitor are combined to become an expensive prescription drug

Earlier today, Coalition for Affordable Drugs VII LLC (“CFAD”) filed a request for Inter Partes Review of U.S. Patent No. 6,926,907 listed in the Food and Drug Administration’s Orange Book for the drug Vimovo, which is owned by Horizon Pharma plc (“Horizon”).

This patent should have never been issued, and it allows Horizon to exploit the patent system to prevent cheaper generic drugs from entering the marketplace, which, in turn, drives up prices for consumers and taxpayers. Vimovo is a poster child for this type of abuse of the U.S. patent and healthcare systems—and the ‘907 patent is tailor-made for the inter partes review procedures Congress established to permit efficient challenges of weak patents that should not have been issued in the first place.

The facts are hard to believe: Vimovo is a drug that merely combines a generic pain reliever with a generic acid inhibitor—but it costs 66 times more than its component parts based solely on the fact that a single patent examiner issued (in error) the ‘907 patent. In an apparent recognition of the weakness of their own product, Horizon has created and developed a program that tries to prevent pharmacies from providing patients the two generic components of Vimovo at a small fraction of the cost.

Vimovo’s Active Pharmaceutical Ingredients (“APIs”) Are Not New and Vimovo Should Not Be Patented

Vimovo is a type of drug commonly referred to as a “combination therapy” – a drug that combines two or more APIs. Both of Vimovo’s APIs, naproxen (e.g. Aleve®) and esomeprazole magnesium (e.g. Nexium®), are available separately and CHEAPLY as generic over-the-counter (“OTC”) drugs.

Naproxen was first developed in 1968 as a non-steroidal anti-inflammatory drug (“NSAID”). NSAID drugs, including aspirin, ibuprofen, acetaminophen and naproxen, are intended to treat pain, inflammation, and fever (but, as everyone knows, they tend to create excess stomach acid).

Esomeprazole magnesium has been known since 1987 as an acid inhibitor, a group of agents that reduce gastric acid secretion and gastric acidity.

For decades, doctors have recommended that patients take OTC gastric acid neutralizers like Maalox® along with NSAIDs. Since at least 1986, NSAIDs have been combined with acid inhibitors in a single tablet.

In other words, by combing two drugs that have been known for decades and are no longer patentable, Horizon stands to maintain a monopoly over the obvious combination of two cheap and safe OTC products. This result is unfair to consumers and against the spirit of the Patent Act, which was designed to protect authentic scientific breakthroughs. Today, Vimovo’s patents enable a monopoly that may cost consumers over $160,000,000 per year.

Combination Therapies Turn Into Ridiculous Patents

Combination therapy has been used in several drugs, including: cough and cold medication, antibiotic therapy, asthma treatments, and many other OTC drugs. The APIs of these drugs were originally approved by the FDA as single drugs and were prescribed concurrently. Many of the patents related to these APIs long-ago expired and generic drugs entered the market.

Some drug companies have sought new ways to obtain patents related to these APIs by combining certain ingredients into a single dosage form. This is akin to a chef pretending they invented an entirely new dish by presenting their very own macaroni & cheese as a pre-mixed “creation” as opposed to a separate box of macaroni and a separate bag of cheese sauce. The result is still pasta with cheese, despite the trumped up rhetoric from the chef. But while the chef’s puffery is harmless, the equally absurd combination pharma patents have serious consequences for consumers. Such patented combination drug products are significantly more expensive for patients compared to taking each component separately. Through the marketing of a patented combination drug product, drug companies can increase their revenue exponentially by steering consumers away from known, tested, safe, and affordable drugs.

Companies like Horizon promote their branded drugs, such as Vimovo, to physicians with the hope they prescribe them to patients and disregard the fact that the same, simple, safe, and approved APIs may be purchased separately by patients at a tiny fraction of the cost of the patented combined therapy. Horizon has developed what appears to be unscrupulous sales tactics to convince physicians to prescribe—and pharmacists to dispense—Vimovo. Horizon acknowledged this strategy earlier this year:

"Another key part of our commercial strategy is to encourage physicians to have their patients agree to fill prescriptions through our Prescriptions-Made-Easy (“PME”) [mail-order] specialty pharmacy program . . . . [P]rescriptions filled through our PME program are . . . less likely to be subject to the efforts of traditional pharmacies to switch a physician’s intended prescription of our products to a generic or over the counter brand.” [1]

Vimovo’s Recent Commercial History:

November 19, 2013:     Horizon announced acquisition of Vimovo from AstraZeneca for $35 million

January 1, 2014:               The first day Horizon sold Vimovo, Horizon increased the list price for 60 Vimovo tablets from $137.60 (or $2.29 per tablet) to $959.04 (or $15.98 per tablet), a 597% increase . (“Pharmaceutical Companies Buy Rivals’ Drugs, Then Jack Up the Prices,” The Wall Street Journal, Apr. 26, 2015)

August 15, 2014:             Horizon increased the list price for Vimovo by 9.9%

September 12, 2014:     Horizon increased the list price for Vimovo by 17.2%

January 1, 2015:               Horizon increased the list price for Vimovo by 35.8%

February 27, 2015:         Horizon announced sales of Vimovo totaled $163 million in fiscal 2014 ( 465% more than the purchase price a little more than one year ago )

Cost of Vimovo Versus Active Drugs Bought Separately

Vimovo cannot be purchased without a prescription from a licensed physician. The irony, however, is that the two APIs of Vimovo can be purchased without a prescription at a fraction of the cost of Vimovo. The following table illustrates the estimated cost of Vimovo versus the cost of purchasing the two APIs separately. The table is based on prices of all three drug products found at a Walmart in Raleigh, North Carolina on May 18, 2015:

For the same APIs, the unwary public would pay 66 times more for Vimovo. Despite this enormous pricing disparity, Horizon has announced that it may affect “further price increases for [Vimovo] in 2015 and future periods in response to future market conditions.” [2]

It is hard to believe that this sort of antiquated abuse of the patent and healthcare system exists today. This sort of patent abuse and anticompetitive corporate behavior undermine the integrity of the majority of legitimate patents, hurts true innovators, drives up Medicare costs and drives up costs for consumers. Thankfully, Congress created a specific mechanism to halt such abuse by creating a procedure to have three administrative law judges review weak patents that issued based on a single patent examiner’s decision. Using this procedure, today CFAD petitioned the Patent Trial & Appeal Board to take another look at Horizon’s ‘907 patent covering Vimovo.

_________________________

1 Horizon Pharma plc 2014 Irish Statutory Accounts,” Horizon Pharma Public Limited Company, Apr. 9, 2015
2 Ibid.
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