Can pharma make money without patents? Should it have to?
Zachary Silbersher
How do drug companies make money? The answer is through monopolies. The monopolies are not typically antitrust violations because they are state-sanctioned monopolies. First, when a new pharmaceutical drug is licensed by the FDA, that drug typically receives a select number of years to sell without competition. For instance, a new molecule, otherwise known as a New Chemical Entity, may receive five years of “exclusivity” to sell free from generic competition. A new formulation typically receives three years.
When those exclusivity periods expire, drug companies typically take recourse to their second state-sanctioned monopolies, namely, patents. Patents are essentially a contract between the patent-holder and the public that, in exchange for publicly disclosing the invention, the patent-holder can receive a roughly 20-year monopoly to sell that invention without competition.
Congress has taken notice that patents are often abused by pharmaceutical companies to artificially extend their drug monopolies. Senator Elizabeth Warren recently asked the Patent Office what it can do to blunt Merck’s use of its patents to extend its monopoly for cancer blockbuster Keytruda®. Senator Bernard Sanders recently wrote to the Department of Health & Human Services to point out that Biogen’s Alzheimer’s drug Leqembi is going to impose a significant burden on Medicare’s finances. He asked whether the Department will use its powers to “break the patent monopoly on exorbitantly priced prescription drugs.”
More recently, Senator Sanders has also posed the question, what if pharma had to make money without relying upon patents? Soon he may get an answer to that question. The U.S. Senate Committee on Health, Education, Labor & Pensions (HELP) authorized amendments to the S. 2333, the Pandemic and All-Hazards Preparedness and Response Act (PAHPARA), which is the reauthorization bill to extend the Pandemic and All-Hazards Preparedness Act (PAHPA).
The amendments direct HHS to study alternative economic models for the pharmaceutical business that essentially divorces research and development costs from drug prices by taking away the state-sanctioned monopolies such as exclusivity periods and patents. For instance, that might involve rewarding drug companies with prizes for certain research and development milestones or the government paying drug companies directly for successful R&D.
Some pundits have already argued against this initiative. IPWatchdog has argued that, “[c]laims that drug prices can be reduced by delinking drug development from traditional R&D-to-commercialization pathways have been debunked in the past.” The same articled cited to PhRMA, which has argued that, “[a] winner-takes-all prize fails to recognize the role IP has played in incentivizing and protecting innovation since America’s inception.”
Are there problems with patents? Yes. Are there problems with the manner with which patents and pharmaceuticals mix in our economy to the detriment of consumers? Yes. This blog has devoted numerous posts to myriad of ways that pharmaceutical companies take advantage of the patent system to further juice their state-sanctioned monopolies.
For instance, patent thickets unnecessarily delay entry of lower-cost medications. Pharmaceutical companies engaging in piecemeal litigation with patents acquired long after FDA approval also delay entry of lower-cost medications. Pharmaceutical companies patenting ridiculous claims divorced from real R&D also also delay entry of lower-cost medications. Pharmaceutical companies patenting FDA mandates or FDA suggestions to conduct a study also delay entry of lower-cost medications. Pharmaceutical companies exploiting to skimpy disclosures to rob other companies of the benefits of their R&D reward the wrong actors. The list goes on.
In short, there are undoubtedly problems with the system for patenting pharmaceutical drugs. But does that warrant tossing out patents altogether? Sometimes a general dearth of patent literacy encourages proposals that want to dispense with the system altogether rather than exploring fixes. Even though there are problems with the current system, there are in many cases solutions too. Many of the problems identified above with pharma’s use of patents often delineate potential fixes. Those fixes are worth exploring. The fixes, in fact, may be easier to implement than forcing an entire industry to recalibrate the ways that it makes money.
Patents have been around for long time. The system is, in some ways, old and creaky, and in other ways, new and efficient. It is often susceptible to pressure from new types of technologies that were never conceived of when the rules were written. Regardless of the outcome of Sentator Sanders’ study, drug consumers could benefit greatly from small fixes to the patent system. Those are also worth exploring. Some have been discussed in past posts, and other will be discussed in more depth in future posts.