Pharma Profits on Patents over Patients

By Gabriel Levitt

In his State of the Union address last week, President Trump said reducing the cost of prescription drugs is one of his “greatest priorities.” Actions speak louder than words, however, and to date Trump has done nothing to move forward on this priority. If Trump really means to lower drug prices, then his administration and Congress need to address pharmaceutical companies’ ubiquitous patent gaming.  This patent abuse prevents generic drug competition and keeps prices higher.

For example, brand drug companies block access by generic drug companies to the pharmaceutical samples needed to create a lower-cost generic. The CREATES Act, a bill with support from the Left and Right, would force the brand drug companies to appropriately share such samples. If CREATES becomes law, generic drug companies could sue their branded counterparts to get the samples needed to launch a generic and force brand drug companies to pay damages – deterring them from blocking competition

While important, passing The CREATES Act would only close one of many loopholes that pharmaceutical companies use to exploit the Drug Price Competition and Patent Term Restoration Act, informally known as the Hatch-Waxman Act. Hatch-Waxman struck a delicate balance between making the production of generic drugs easier and encouraging continued drug research and innovation. The compromise? The law granted pharmaceutical companies a patent and a government-approved monopoly on drugs they innovated while developing a clear process for generic drugs to enter the market once the patents expired. Pharmaceutical companies, therefore, had a financial incentive to invest in risky research, while consumers knew they would eventually get access to cheaper prescription drugs.

In the thirty years since it passed, Hatch-Waxman has been effective in increasing generic drug options and bringing costs down for patients. Prior to the law, just 35% of name-brand drugs had a generic equivalent; today, 90% of all U.S. prescriptions are filled with a generic. In 2017, the Food & Drug Administration approved a record-high 1,027 generic drugs. All told, the Association for Accessible Medicines estimates that generic drugs saved Americans $253 billion in health care costs in 2016.

Unfortunately, pharmaceutical companies have found loopholes in the current law that allow them to use other devious schemes to extend patents, undermining the spirit of Hatch-Waxman and denying Americans the cheaper generics they need.

Pediatric Exclusivity Provision

The 1997 Pediatric Exclusivity Provision encourages pharmaceutical companies to invest more in pediatric research by extending their patents for conducting clinical trials with children. Unfortunately, many companies have abused this provision. Secretary Alex Azar’s former employer, Eli Lilly, tested Cialis on children with a rare disease called Duchenne muscular dystrophy to extend its patent. Likewise, Pfizer tested its erectile-dysfunction drug Viagra on children with heart and lung diseases. In both cases, the drugs were ineffective (in fact, the FDA issued a warning in 2012 that Viagra should not be prescribed to children with pulmonary hypertension because of its potential to cause death), but their patents were extended.

Hide from legitimate patent challenges

A company can do what Allergan recently did and transfer its patent to a Native American tribe. The drugmaker paid the Saint Regis Mohawk Tribe $13.75 million to use the tribe’s sovereign immunity to dismiss a patent challenge. The profit margins on these patents are so high that it is still profitable for Allergan to pay another $15 million per year to the tribe to “lease” the patent back from them.

“Citizen Petition Process

The “citizen petition” mechanism is designed to allow Americans to file requests to delay regulations for the benefit of public health, but instead, drug companies, file these petitions to get the FDA to postpone approval of a new, lower-cost generic. Today, 92% of all petitions are coming from branded drug manufacturers, which limits competition on their patented products for another 150 days.

Pay-to-Delay

The most common way for drug companies to keep generics from hitting the market is “pay-to-delay.” It’s a simple concept: a company with a branded product will pay generic companies not to create a more affordable version. These agreements are illegal in virtually every other developed country in the world. The Federal Trade Commission estimates that these agreements cost consumers around $3.5 billion annually.

The spirit of Hatch-Waxman was to find the right balance between encouraging pharmaceutical innovation and the creation of lower-cost generic drugs. Taxpayers already pay for much of the fundamental research used to develop these drugs through agencies like the National Institute for Health and public universities. They’re also paying significantly more for prescription drugs than any other country in the world. The patent system is only part of the problem, but closing the loopholes that drug companies use to keep generics off of the market would help make lower cost drugs more readily available to US patients.

Gabriel Levitt is the founder of Prescription Justice, a not-for-profit organization of doctors, lawyers, public health advocates and companies dedicated to lowering drug prices in the US. He is an Advisory Board member to the Business Initiative for Health Policy.

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