The cost of pharmaceuticals are expensive; however, only a small portion of those medicines are disproportionately driving prices. In fact, 90 percent of the medicines sold in America today account for only 17.5 percent of total drug costs, while the other 10 percent represent the vast majority of pharmaceutical spending. This is because the first group is generic or biosimilar medicines, while the second includes name brand medicines without generic competition. When running well the pharmaceutical industry balances the innovation brand names bring with the lower prices from competition.
In some cases, this lack of competition is by design. Companies are given a specific time frame of exclusivity for new medicines which covers research costs and incentivizes new drugs. But this period is intended to end so other companies can enter the marketplace and introduce competition. This is how generics are so much less expensive.
In order to keep track of which drugs and medical devices can and can’t have generic alternatives, pharmaceutical companies list patent information for their products in the Food and Drug Administration’s (FDA) “Orange Book.” In some cases hundreds of separate patents are filed for a single product expiring on different dates.
However, the FDA does not conduct an independent evaluation of the patent claims made by pharmaceutical companies in the Orange Book. Generic drug manufacturers are left to challenge various name brand patent claims through a complex and often lengthy court process.
Any challenge to a patent claim must also be provided to the name brand pharmaceutical manufacturer in question. This company can immediately contest the process which will create a 30-month period where the FDA cannot approve the generic version for market, regardless of how problematic the challenged patent may be.
This gives name brand pharmaceuticals the incentive to add a variety of dubious patent claims to their products, which could gain at least another 30 months of monopoly profits. This is made easier by the FDA not even making a cursory check of the patent claims being listed. Because of the ease, many “sham patents” get filed for the sole purpose of delaying and driving up the cost of generic and biosimilar manufacturers bringing a product to market.
Excessive numbers of patents is a practice so common it has been nicknamed “patent thickets,” and a recent bill was unanimously passed by the Senate to address it; however, it has not yet had movement in the House of Representatives.
Patent thickets raise the cost and risk of producing generics while also delaying their introduction to the market. The legal expenses of fighting illegitimate claims puts upward pressure on generic drug prices. Even when the generic producer does win, or runs out the clock, many patients have been bearing the costs of increased prices.
The Federal Trade Commission (FTC) has recently turned its attention to this problem and is initiating disputes on some patent claims in the Orange Book, though this process has no teeth. It only requires a company to review its own patent, in which it makes its own determination. Although the FTC has done this for over 300 medical device patents, this has been the extent of their actions.
Keeping control of patent abuse and exclusivity is not a new problem for the FDA. It has previously had issues with companies behaving similarly such as delaying improvements in a medicine to extend their patents or using the Orphan Drug Program to extend their period of exclusive sales instead of for developing cures for rare diseases.
Our system attempts to balance research incentives with exclusivity in the short-term and prices through competition in the long-term. Intellectual property protections are essential to incentivize the development of new medicines, but this must be countered with eventual competition to lower prices. Currently this system appears to be skewed and should be evaluated so consumers can reap the benefits both of innovation and price competition.
Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.