Should The Knight Foundation Be Paying For Startups To Put Up Paywalls?

Eli Lilly's Reliance On Patents May Be Its Downfall

from the it's-a-crutch dept

Thu, Oct 7th 2010 10:34pm — Mike Masnick

Copycense points us to a NY Times piece about how pharmaceutical giant Eli Lilly is facing some tough times ahead. Why? Because the patents on the drugs that make up most of its revenue are all set to expire soon, and their pipeline of newly patented drugs is pretty far behind. Of course, what this highlights is the folly of relying on patents as your business model. The patents become a crutch, and you're unable to build a real business doing anything other than coming up with new patentable drugs. It takes the focus away from building a real business around making people healthy, to one that's focused on coming up with stuff we can sell that can be patented.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: patents, pharmaceuticals
Companies: eli lilly

38 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

Lawrence D'Oliveiro, 7 Oct 2010 @ 10:42pm

Unusual
Haven’t previous surveys shown that most pharmaceutical companies themselves haven’t rated patents as being particularly crucial to their own success?

if Eli Lilly didn’t get that particular memo, it’s its own fault.
[ link to this | view in thread ]
Utkarsh Upadhyay, 7 Oct 2010 @ 11:36pm

Reality is catching up
... with Sci-Fi: http://www.nature.com/nature/journal/v466/n7307/full/466788a.html
I wonder where the next cure will come from.
~
musically_ut
[ link to this | view in thread ]
bob, 8 Oct 2010 @ 12:09am

Medicine Man
If you recall the movie, if it's natural it can't be patented so you have to figure a way to make it from lab sources. Look at the fancy niacin and fish oil pills that have recently come out.
Or the change of propellant to albuterol inhalers that kept them from dropping in cost.
The whole primary pharmacy industry has based it's model on patents, why do you they fight so hard to extend patents.
[ link to this | view in thread ]
fogbugzd (profile), 8 Oct 2010 @ 12:18am

Priority
Upton Sinclair said "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" That is precisely what happened here.

If Eli Lilly wanted to have a good stable of patents beyond the next year or two, they would have had to invest in research ten or twelve years ago. The top executives who set priorities for the company back then had to decide whether to spend money on marketing or on research. Those executives probably had bonus systems set up to reward short-term profits, and that is what putting money into marketing would generate.

The top executives knew that in ten years they would either be retired or would have moved to another company. Research to develop new drugs is expensive and would take money from marketing; it was probably very easy for them to convince themselves that new patents were not important.

You could argue that putting money into getting more drug patents would only extend the problem of relying on patents. But if they had pursued research they would at least have another decade of two of profitability. Large scale patent forms are unlikely, and even if reforms happen, I am sure that the pharmaceutical industry is going to protect its corner of the system.
[ link to this | view in thread ]
Michael Long (profile), 8 Oct 2010 @ 12:30am

Let me rewite that sentence, "Because the patents on the drugs that make up most of its revenue are all set to expire soon, and their pipeline of new drugs is pretty far behind."

Given the time it takes to develop and test a new drug, it's more than possible that their "pipeline" would be behind anyway.
[ link to this | view in thread ]
darryl, 8 Oct 2010 @ 12:48am

Not as tough as for any possible competition..
How is it any tougher for Eli than it is for anyone else, in fact its easier. Eli allready has the IP, they have the facilities to manufacture the drugs.

As well, no one else (yet) has that manufacturing ability, nor do they have the customer base. So even if the patents expire, that does not mean Eli as at any level of disadvantage than anyone else.

If fact, they have considerably MORE advantage, they are allready in the market, with a known name, and a secure market.

Also, only a small percent of drugs that have their patents expire are manufactured by generics.

Look it up, do some research, its only the MOST POPULAR drugs that are taken up by the generics, They do not touch the less popular drugs, the ones that dont make enough profit.

That, and the fact that the generic companies cannot change the original drug in ANY WAY, they therefore do NO DEVELOPMENT on the drug, as they do not have the size or ability to do FDA approvals.

So by law they cannot modify, change or do differently the drug that was previously patented.

And only a small percent of exprired drug patents are taken up by other companies.. VERY SMALL PERCENT.

There is also a delay, usually about 1 year between the patent expiring and generic companies taking advantage of that.

Do some research Mike,, again, im quoting from reports that you provided to me, and all of us about patented drugs and the drug and generic drug industries.

Seems you dont read your own material, if you did, or if you do you would know these basic facts and would include those facts in your article.

The FACT you omit those commonly known facts, shows you dont want to portray the truth, or even provide any balance.

For you its all black and white, godly or evil..

So the patent system is working exactly how it is intended to do, how everyone who understands patents expects and see's all the time.

But you complain about it, and try to show it as somehow bad that the patent system is working exactly as planned. It gave Eli the time to profit from its inventions, and after that time, Eli knows and everyone else knows that once the patent expires they no longer have a unique right to that development.

But that does not mean they have to give up their market share, their manufacturing and distribution network, and continue to compete in the market.

And if a generic company does decide to manufacture the drugs, it will only be for the most popular, they still have to compete with the name brand, and the original developer.

And it will probably take the generic company a year or more before they even enter the market.

IF THEY DO SO AT ALL.. for most drugs (except the big money spinners) they DO NOT BOTHER WITH THEM EVER.....

Its how the system is supposed to work, its how the system DOES work. And its a great example of the patent system working perfectly as it should..

But its never good enough for you Mike, your knee just has to jerk, whenever you hear those key magic words like patents, drugs and so on..

If you had a reputation, this would damage it.. if you had one.. its the usual Mikes strawman, and bending of the facts, with uninformed opinion.
[ link to this | view in thread ]
NAMELESS.ONE, 8 Oct 2010 @ 1:14am

and then you get a longer recession
and then you get a longer recession, and people are beginning to question all these long term patents and copyrights in first place, as to there non benefit to society
[ link to this | view in thread ]
fogbugzd (profile), 8 Oct 2010 @ 1:19am

Re: Not as tough as for any possible competition..
No matter how you try to rationalize it, Eli is going to be facing competition for some of its drugs. Looking through rose colored glasses isn't going to solve their problems. That is what got them into the situation they will be facing in a year or two.

It is true that not all drugs with expired patents get generics. The problem for Eli is that the most popular drugs and the ones with insanely high profit margins are the ones that are most likely to get generic competition. If a drug is unlikely to get a generic equivalent, then the chances are pretty good that it isn't a profit center for Eli.

You are deluding yourself if you think there are not other drug companies out there with distribution networks and manufacturing facilities. There are plenty of companies that do this; they are set up to pick up generic drugs using facilities they already have and they can dump them into their established distribution networks. Gearing up the manufacturing process is the hardest part, but they have biochemical engineers who are very good at doing just that. They usually wait until they are sure the patent doesn't get extended, and they get ready to go.

The bottom line is what we see in the market when other major (and some minor) drugs go generic. The price of the name brand drops, and the demand for the name brand also drops. Maybe by some miracle one of Eli's major profit drugs will escape this fate, but Eli has a lot of very profitable drugs that it will be losing monopoly control over. It might not put them under, but I am very glad I don't own any Eli stock.
[ link to this | view in thread ]
Mike Masnick (profile), 8 Oct 2010 @ 1:45am

Re: Not as tough as for any possible competition..
Heh. Darryl, incredible. Once again, you make my point for me, and then berate me, even though you're saying the same thing as I've said for years:

How is it any tougher for Eli than it is for anyone else, in fact its easier. Eli allready has the IP, they have the facilities to manufacture the drugs. As well, no one else (yet) has that manufacturing ability, nor do they have the customer base. So even if the patents expire, that does not mean Eli as at any level of disadvantage than anyone else. If fact, they have considerably MORE advantage, they are allready in the market, with a known name, and a secure market.

Yup. I've argued the same thing for years. You're agreeing with me. It also shows why patent protection really isn't that important for drugmakers, and they make a mistake thinking it's so valuable.

That's my point. I'm glad we agree.

Do some research Mike,, again, im quoting from reports that you provided to me, and all of us about patented drugs and the drug and generic drug industries.

Right. We agree. Why the attack?

But you complain about it, and try to show it as somehow bad that the patent system is working exactly as planned. It gave Eli the time to profit from its inventions, and after that time, Eli knows and everyone else knows that once the patent expires they no longer have a unique right to that development. But that does not mean they have to give up their market share, their manufacturing and distribution network, and continue to compete in the market.

Again, we agree. The problem is that *competing* isn't what the big pharmas like to do. They consider off-patent drugs to be a problem.

But I'm glad, Darryl, that you're finally willing to admit that you don't need patents to compete, and that the first mover advantage and things like distribution and manufacturing can be vastly more important.

It's an important step for you to recognize those things. I've been saying it for years, and usually you attack me for claiming that. Funny.

Its how the system is supposed to work, its how the system DOES work. And its a great example of the patent system working perfectly as it should..

I never said the patent system wasn't working in this case. I said -- as many experts in the article point out -- that Eli Lilly may not be well positioned to compete without the patents, and my argument was that this pulls back the curtain and shows why Eli Lilly was relying too much on those patents.

If you had a reputation, this would damage it.. if you had one.. its the usual Mikes strawman, and bending of the facts, with uninformed opinion.

Yes, I agree, Darryl. The fact that you finally agree with me on something could damage my reputation. I expect it won't happen again.
[ link to this | view in thread ]
Anonymous Coward, 8 Oct 2010 @ 2:14am

Indeed the article said the company has a much higher research-to-revenue ratio when compare to others in the industry, just that the investment doesn't pay off yet.
[ link to this | view in thread ]
CharlieM (profile), 8 Oct 2010 @ 3:40am

Re: Medicine Man
Or the change of propellant to albuterol inhalers that kept them from dropping in cost

You really can't blame that one on the pharmaceutical companies, apparently, the US Government forced the change of the propellant, as it was an ozone depleting substance (WTF?!)... As an asthmatic (w/out insurance) I was pretty pissed off, my inhaler when from $6 to $80 for a while.

Not sure if what I read was accurate, but apparently there were several companies scrambling to get the FDA testing and safety trials completed in time. I imagine it cost them quite a bit of money - and in that sense, I can understand their desire to make some $$.

Of course, I am still pissed
[ link to this | view in thread ]
abc gum, 8 Oct 2010 @ 5:32am

Seems Eli has a drug problem.
[ link to this | view in thread ]
Anonymous Coward, 8 Oct 2010 @ 6:07am

Re: Re: Medicine Man
Why don't just use nitrogen as a propellant, is an inert gas, you already have to breath it so is not poisonous and it is cheap.
[ link to this | view in thread ]
R. Miles (profile), 8 Oct 2010 @ 6:21am

It goes farther than the company.
As one who resides in the state of Indiana, the failure of the company could be significant, especially since much of Indiana's business legislation was pushed by the company.

It's pretty scary to think Indianapolis relies on this business so heavily, I fear it's "failure" will ultimately come down to us taxpayers "bailing them out" all the while businesses abusing our "tax break" system leave once the break expires.

Of course, the good news is we could finally have a chance to do some spring cleaning and remove politicians who favor the major funding from Eli Lilly.

Sadly, those who'd be hired to push the brooms no longer exist.

Years ago, Indiana's plan was to be the "biomedical research capital of the world". Now, it looks as though Indiana's more farmland than buildings.

By the way, remember how Senator Bayh (IN) was a backer of COICA? Yeah, don't think this isn't a coincidence.

Let them fail from their own stupidity.
[ link to this | view in thread ]
Hephaestus (profile), 8 Oct 2010 @ 7:21am

Re: Re: Re: Medicine Man
I was thinking helium ... not only would it be inert but it would be very cute... I'm on a horse
[ link to this | view in thread ]
staff, 8 Oct 2010 @ 7:42am

biased
"what this highlights is the folly of relying on patents as your business model"

How utterly witless you are. Plainly, it rather indicates the importance of patents. Obviously, if they spend billions in developing new drugs that benefit the public when after anyone can copy and compete with them without having to pay the development costs the infringers have a substantial advantage. You are so biased.
[ link to this | view in thread ]
rshs, 8 Oct 2010 @ 9:02am

Not news
This has been the climate of the drug industry for decades, if not scores, of years, since the invention of "patent medicine." It's all true. It's just not news.
[ link to this | view in thread ]
Anonymous Coward, 8 Oct 2010 @ 9:13am

Re: Reality is catching up
Spartans had a good solution for that - kill all the sick ones. That would be one dramatic "cure".
[ link to this | view in thread ]
Anonymous Coward, 8 Oct 2010 @ 9:14am

Re: biased
Obviously, if they spend billions in developing new drugs...

Yeah, lets ignore the fact that most of the important drugs came from publicly funded research either through grants, in universities or for army research.
[ link to this | view in thread ]
nasch (profile), 8 Oct 2010 @ 9:15am

Re: Re: Not as tough as for any possible competition..
Yes, I agree, Darryl. The fact that you finally agree with me on something could damage my reputation.

LOL, zing!!
[ link to this | view in thread ]
Anonymous Coward, 8 Oct 2010 @ 9:20am

Re: Re: Not as tough as for any possible competition..
One thing I don't get, Mike. What is your solution for Pharma? Is it Connect with Fans, or give them Reason to Buy?
[ link to this | view in thread ]
Anonymous Coward, 8 Oct 2010 @ 9:25am

Re: Re: biased
No, they are not. The idea might come from public research, but that about it. The stuff you find in every drug store comes from years of very expensive and very privately sponsored research.

In fact I dare you to find ANY single drug that was found AND developed in academical drug. I am intentionally leaving out the manufacturing step.
[ link to this | view in thread ]
Anonymous Coward, 8 Oct 2010 @ 9:28am

Re: Reality is catching up
The article is a total garbage, by the way.
[ link to this | view in thread ]
Anonymous Coward, 8 Oct 2010 @ 10:26am

Anyone that states that Lilly has been focused on marketing and not on R&D is just a flat out idiot.

Lilly isn't the only one who has a bad pipeline, in fact, they all pretty much have a bad pipeline
[ link to this | view in thread ]
Anonymous Coward, 8 Oct 2010 @ 10:36am

Re: Re: Re: biased
In fact I dare you to find ANY single drug that was found AND developed in academical drug.

Sneaky wording. You ignored the part where money for the development came from federal funding. Sooo... Xalatan.
[ link to this | view in thread ]
Mike Masnick (profile), 8 Oct 2010 @ 10:38am

Re: Re: Re: Not as tough as for any possible competition..
One thing I don't get, Mike. What is your solution for Pharma? Is it Connect with Fans, or give them Reason to Buy?

When have I ever suggested one without the other?

No, I suggest basic economics. Think about the value of drugs that make you healthy, and think about the scarcities they allow. You'd be amazed at what creative (and money making) solutions you can find for healthcare when you stop thinking of drugs as expensive and limited, and start thinking about them as cheap and abundant. If more people were healthier for longer... how could you make money on that?
[ link to this | view in thread ]
Anonymous Coward, 8 Oct 2010 @ 11:06am

Value of drugs that make yo healthy? And those would be? I have heard of happy pills, but no healthy pills.

If you are concerned about health and making people healthier, I have the perfect answer for you. Its cheap (pretty much free) and will eliminate our healthcare financial problem.

All you have to do is get everyone to stop smoking and lose weight. A non smoking slim population will take care of all our financial healthcare problems. Got a pill for that?
[ link to this | view in thread ]
Prophet Isaiah, 8 Oct 2010 @ 11:54am

Tha Lord hath the first
I am appalled at the arrogance of mankind. I rebuke Satan in perpetuating the folly that mankind is wise and the source of improvement.

God granted himself Patent No. 1, covering all that exists in our physical world, and all life as we know it, over 13,000 years ago. Prior Art.

Nothing patented by man is original...God made it possible for you to find it.

So saith Isaiah the Prophet
[ link to this | view in thread ]
nasch (profile), 8 Oct 2010 @ 2:36pm

Re:
So they have a bad pipeline... because they've been focusing so much on R&D?
[ link to this | view in thread ]
Anonymous Coward, 8 Oct 2010 @ 5:05pm

Re: Re: Re: Re: biased
So, if here everything is so rosy, how come that Dr. Camras isn't selling his Latanoprost for cheap? Don't you think you're missing some important point there?
[ link to this | view in thread ]
Anonymous Coward, 8 Oct 2010 @ 5:15pm

Re: Re: Re: Re: Not as tough as for any possible competition..
There are tons of cheap and abundant drugs all over the world. And somehow, people who can afford it, prefer to buy scarce and expensive US drugs.
Jokes aside, I was a subject of that situation myself, bought some "generic drug" in Bolivia for the fraction of the price I'd pay here. You know what happened? It just didn't work. And I guess I was lucky I wasn't poisoned.
So, to the point, a tremendous part of the drug (even generic) price is due to extremely stringent controls and regulations of drug manufacturing in US.
As for the new drugs... the option you suggested will kill the innovation outright, unless the government will take over the burden of development from scratch. Risks are already way to high, and if you haven't heard, pharma has shed already 20% of their workforce... So... abandon hope for anything new in the future. It's not a cell phone, or music, it's too risky to treat people.
[ link to this | view in thread ]
Mike Masnick (profile), 8 Oct 2010 @ 6:10pm

Re: Re: Re: Re: Re: Not as tough as for any possible competition..
As for the new drugs... the option you suggested will kill the innovation outright, unless the government will take over the burden of development from scratch. Risks are already way to high, and if you haven't heard, pharma has shed already 20% of their workforce... So... abandon hope for anything new in the future. It's not a cell phone, or music, it's too risky to treat people.

Heh. Those who don't understand history are funny.
[ link to this | view in thread ]
Ronald J Riley (profile), 9 Oct 2010 @ 3:03pm

Re: Re: Not as tough as for any possible competition..
"Yes, I agree, Darryl. The fact that you finally agree with me on something could damage my reputation. I expect it won't happen again."

Mike, what damages your reputation is all the unadulterated drivel you spew about patents.

Eli Lilly is a very good example of what happens to successful large companies. They become complacent and short term gain oriented. As a rule large companies cannot produce significant inventions, significant invention happens in smaller companies.

Eli Lilly will either have to buy small upcoming companies and tighten their belts.

One thing which can be said for the pharmaceutical industry is that they generally acquire the inventions they need legitimately while tech, banking and insurance flat out try to steal.

Ronald J. Riley,

Speaking only on my own behalf.
President - www.PIAUSA.org - RJR at PIAUSA.org
Executive Director - www.InventorEd.org - RJR at InvEd.org
Senior Fellow - www.PatentPolicy.org
President - Alliance for American Innovation
Caretaker of Intellectual Property Creators on behalf of deceased founder Paul Heckel
Washington, DC
Direct (810) 597-0194 - (202) 318-1595 - 9 am to 8 pm EST.
[ link to this | view in thread ]
Ronald J Riley (profile), 9 Oct 2010 @ 3:08pm

Re: Re: Re: Re: Re: Re: Not as tough as for any possible competition..
"Heh. Those who don't understand history are funny."

Mike, now that you understand what your problem is I suggest that you further educate yourself before removing what little doubt remains.

Ronald J. Riley,

Speaking only on my own behalf.
President - www.PIAUSA.org - RJR at PIAUSA.org
Executive Director - www.InventorEd.org - RJR at InvEd.org
Senior Fellow - www.PatentPolicy.org
President - Alliance for American Innovation
Caretaker of Intellectual Property Creators on behalf of deceased founder Paul Heckel
Washington, DC
Direct (810) 597-0194 - (202) 318-1595 - 9 am to 8 pm EST.
[ link to this | view in thread ]
Anonymous Coward, 9 Oct 2010 @ 4:15pm

Ronald, you make a good point about large companies not being able to innovate. Lilly is not alone in facing a bad pipeline. When is the last time J&J brought a drug to market by themselves? Pfizer, Glaxo, etc.etc.etc.etc.

Even Amgen, once the darling of the world, fails. Most companies buy a small company for their drug or drugs, bring them to market and then have to go out and buy more companies.

It isn't for the lack of resources though, maybe that type of development requires an individual or small group of people that are willing to ignore everything else to solve that one problem. People who work weekends, nights, days and every waking second. People in a large corporation just won't do that.

I don't know why the big guys can't bring a good drug to market by themselves, to tell the truth no one else does either. Crowdsourcing isn't the answer (Lilly started that quite a long time ago) and no one else has the answer either.

Maybe all the easy drugs have been discovered. Putting a million monkeys in an R&D lab banging on microscopes doesn't work, maybe it takes that one individual. Individuals that wouldn't ever work for a large corporation but would rather toil in their basement, garage or other place.
[ link to this | view in thread ]
Matthew Stinar (profile), 17 Oct 2010 @ 8:08pm

Eli Lilly, you've been punk'd!
Eli Lilly could be part of a new TV show fashioned after Punk'd. It would portray large companies lured to failure by the sweet song of government granted monopolies much like ancient sailors shipwrecked by the call of sirens. The catch phrase would be, "You've been monopolied!" It might not catch on, but I would watch it.
[ link to this | view in thread ]
Jesse C. Anderson (profile), 24 Dec 2010 @ 4:28am

Re: Not as tough as for any possible competition..
A very good insight, with all this crying I though that they were going to fall off of the end of the world.
[ link to this | view in thread ]
Jesse C. Anderson (profile), 24 Dec 2010 @ 4:31am

Re: It goes farther than the company.
A very good point, maybe that why they take job oversea while we here don't have to many left.
[ link to this | view in thread ]