The US is a more favourable environment for drug innovation than Europe, according to the latest annual life sciences research by IP specialist law firm Marks & Clerk LLP. It believes that there is growing concern among pharmaceutical companies over regulatory trends in Europe; particularly in relation to the European Commission's probe into anti-competitive practices within the sector. By contrast, it believes that lasting capital will be attracted back to the US market, as optimism emerges over President Obama's healthcare reform.

However, respondents to the IP Review and CPA Global State of the IP Industry Survey 2010 said that they believed the US healthcare reform bill (formally known as The Health Care and Education Reconciliation Act 2010)would undermine current patent practices by allowing generic drug manufacturers a quicker route to market. As one respondent from a major drug company commented in the 2010 survey: 'By opening a pathway for the approval of generic biologics in the US, the rate of generic activity will increase significantly, resulting in the need to evaluate patent landscapes and establish litigation strategies in an uncertain environment.'

Download the full survey results

Respondents to the State of the IP Industry Survey 2010 also emphasised the confusion facing the pharmaceutical and biotech industries following the US Supreme Court's ruling in KSR v Teleflex; in particular, its implications on the meaning of 'obviousness' in patent validity claims. Here, respondents argued that it was becoming difficult for them to 'obtain useful claims on biotechnology inventions', which in turn was having a 'significant impact on their patenting, prosecution and litigation strategies.'

On the edge of a patent cliff?

As if that wasn't already enough to worry about, respondents from the pharmaceutical sector also referenced the 'looming patent cliff' that was just around the corner for many of their most successful blockbuster drugs. This supports the findings of Marks & Clerk's research, which predicts that patent life extensions (known as supplementary protection certificates (or SPCs) in Europe) will continue to grow in importance as companies seek to squeeze the most out of their revenue streams before the patent rights supporting their major drugs expire.

Both the research by Marks & Clerk and the responses to the State of the IP Industry Survey 2010 indicate that this would likely result in some 'major behavioural changes' in the pharmaceutical industry in the next five years. As one survey respondent commented, more generally: 'The pace of business and the pace of patent process are moving in opposite directions. Patents may become impotent as a tool of business value, which will undermine incentives to innovate.'

The question is: what can the pharmaceutical industry do about it? Push for legislative change, appears to be the main answer. But, until that comes through, companies will need to rely on what legal support exists, says Marks & Clerk's Gareth Williams. 'In this environment, patent term extensions represent the industry's greatest chance to buy itself some vital time while it redirects its energies to rebuilding drug development pipelines,' he explains, 'even though the flaws and limitations of the system for patent term extensions are now becoming apparent.'

However, extensions will only postpone the inevitable for so long. It is only a matter of time until innovator companies start to look to the fledgling biotechnology sector in earnest to lay the foundations of the drug development pipelines of the future. The question for pharmaceutical companies is: What role will patent portfolios play in this – and what can they do now to put themselves in a strong position for the future?