How Do Patents Impact Drug Prices?
Written by Michael Nega
INTRODUCTION
Many people in today’s world rely on prescription drugs to live. According to reports by the Center for Disease Control (“CDC”) from 2015 to 2018, 48.6% of people in the United States have used at least one prescription drug in the past thirty days. [1] These reports also found that U.S. doctors have prescribed 860.4 million drugs during patient visits within this period. [2] The three most frequently prescribed therapeutic classes of drugs are analgesics, antihyperlipidemic agents, and antidepressants. [3]
Patients spend considerable amounts of money to purchase these drugs because they help patients survive or live easier lives. According to the CDC, patients spent about 10.9% of all their total healthcare spending on prescription drugs in 2018. [4] “On a per capita basis, inflation-adjusted retail prescription drug spending in the U.S. increased from $90 in 1960 to $1,025 in 2017” because of the dramatic increase of prescription drug prices. [5] Branded drugs, which are among the most used, have increased in price by 57% since 2014. [6]
The U.S. has some of the highest prescription drug prices in the world. [7] In analyzing data for all prescription drugs available in the U.S. and comparison countries, the data from one academic study showed that “U.S. prices for drugs in 2018 were 256 percent of those in the 32 OECD comparison countries combined.” [8] This growth in prices has come at a time when people have been using prescription drugs the most. This article will discuss three topics: (1) what process pharmaceutical companies must go through to get a drug to market; (2) what caused the increase in drug prices; and (3) what consumers can do to save money on their prescription drugs in the United States.
I. WHAT IS THE PROCESS PHARMACEUTICAL COMPANIES MUST GO THROUGH TO GET A DRUG ON THE MARKET?
Before looking at what affects drug prices, it would be helpful to understand the process pharmaceutical companies must go through to get prescription drugs on to the market. Pharmaceutical companies that seek FDA approval to sell a new prescription drug must complete a five-step process: (1)discovery/concept, (2) preclinical research, (3) clinical research, (4) FDA review, and (5) FDA post-market safety monitoring. [9]
First, a pharmaceutical company must conduct laboratory tests. During these tests, they first run trials on animals and then move to human trials to determine if the drug is safe. [10] After testing the drug, the company sends the FDA the results in an application. [11] The application includes all the data about the drug, including, inter alia, what it is made of, how it performed during testing, the label, and the risks associated with the drug. [12] Upon receiving the application, FDA physicians and scientists review the research to determine if the information in the application is accurate. [13] The scientists must evaluate the potential benefits and known risks of the drug to ensure it is safe to put on the market. [14]
It is estimated that about 90% of drugs in clinical trials fail. [15] Many drug candidates never advance to the approval stage for a variety of reasons, ranging from the drugs not adequately treating the condition they are meant to target to causing side effects that are too strong. [16] As one can see, there are many hoops to jump through to even get a drug onto the market, and most of these drugs cannot make it through these hoops.
However, the focus of this article is to determine how patents impact drug prices. Before most of the FDA approval process takes place, a pharmaceutical company will obtain a patent on its drug to protect itsresearch. Patent terms are set by statute. The current term of a new patent is twenty years from the date on which the application for the patent was filed in the United States. [17] Patent information, or disclosure information regarding the drug, is required to be submitted with all new drug applications at the time of submission of the application. [18]
II. WHAT HAS CAUSED THIS INCREASE IN DRUG PRICES?
While prescription drug prices have dramatically increased for a myriad of reasons, two of them are particularly important: (1) the increase in initial investments and time to make drugs and (2) patents.
A. Increase in Investment and Time to Make Prescription Drugs
Before going through the FDA approval process, pharmaceutical companies must first create a new drug. Developing new drugs involves substantial expenditures on research and development. [19] “On average it takes about ten years for a new medicine to complete the journey from initial discovery to the marketplace, with clinical trials alone taking six to seven years on average. The average cost to research and develop each successful drug is estimated to be 2.6 billion dollars.” [20]
Spending on research and development has increased in the past decade. In 2019, the pharmaceutical industry spent $83 billion dollars on research and development which is about ten times what the industry spent in the 1980s. [21] With a failure rate of upwards of 90%, pharmaceutical companies have increased the price of drugs so they can recuperate their massive investments. [22]
However, some have questioned whether research and development costs truly impact drug prices to such a great extent. Scholars have conducted studies that found no correlation between research and development spending and the increase in drug prices. [23] Nevertheless, as research and development costs have gone up, so too have the prices of drugs.
B. The Impact of Patents on Drug Prices
Patent law gives inventors the right to exclude others from using and benefitting from their invention for a specified period. “During patent exclusivity, prices of products are typically set higher that permit patent holders to realize greater profits that would be achievable in a competitive marketplace.”[24] Pharmaceutical patents are typically “composition of matter” patents that cover specific molecules or combinations of molecules. [25] Many of the patents that pharmaceutical companies obtain cover either the tangible item (i.e., the composition of matter itself) or specific production processes to make the said composition. [26] “During the span of the patent, no other entity is allowed to sell a generic version of the drug, which keeps competition and lower prices at bay.” [27]
When the patent system was first developed, its goal was to encourage innovation by giving certain protections to inventions. However, today’s pharmaceutical companies no longer operate primarily to innovate new medication but to monopolize existing ones. [28] It is estimated that about 80% of new patent applications are not for new medicines. [29] About 70% of the most popular drugs on the market have had an additional patent filed for them or have had their existing patent terms extended to further monopolize the market for that drug. [30] “An analysis of the ten best-selling drugs of 2019 found that, on average, these drugs held more than 69 patents with 37.5 years of patent protection, well past the 20 years of patent life intended by Congress. Furthermore, the prices for these drugs increased 71% over the previous five years.” [31]
There have been many such successful attempts to, as some proponents of patent reform might conclude, misuse the patent system to block or delay drug price competition. For example, AbbVie is a pharmaceutical company that has gamed the current patent system to extend coverage on existing drugs.AbbVie filed about 225 patents for their drug Humira, and these patents have generated roughly $19 billion dollars in healthcare costs to consumers due to restrictions on creating generic versions of the drug. [32]
When patents expire, more affordable generic drugs can enter the market. The first generic competitor’s product is typically offered at a 20% to 30% discount of the price charged for the branded product. [33] With that much of a discount, pharmaceutical companies are highly incentivized to prevent their patents from expiring.
With less competition, pharmaceutical companies know they can charge higher prices for their drugs. Pharmaceutical companies are immensely profitable compared to other types of companies. [34] With the ability to severely limit competition for a drug by extending the time of their patent protection, they can and have increased the price of their drugs. Pharmaceutical companies might be inclined to take more advantage of extended patent terms and charge higher prices for those drugs that people rely on to improve their quality of life.
III. WHAT CAN CONSUMERS DO TO SAVE MONEY?
Consumers should buy generic drugs as often as they can. Generic drugs are often much cheaper than their brand-name counterparts. [35] Recently, there has been an influx of resources available to consumers which offer cheaper generic alternatives, such as Mark Cuban’s new website that sells generic drugs at a fraction of the price. [36] However, there are some drugs that do not come in generic forms and consumers will be forced to buy the brand name drugs.
CONCLUSION
Patents have had a massive impact on prescription drug prices. Although it is understandable that pharmaceutical companies might want to profit from their investment and recoup their initial research and development costs, they should recognize that people need these drugs to live. Pharmaceutical companies should not be permitted to charge whatever they want just because they know people’s lives depend on their drugs.
REFERENCES
[1] CDC, TABLE 39. PRESCRIPTION DRUG USE IN THE PAST 30 DAYS, BY SEX, RACE AND HISPANIC ORIGIN, AND AGE: UNITED STATES, SELECTED YEARS 1988-1994 THROUGH 2015-2018 (2019), https://www.cdc.gov/nchs/fastats/drug-use-therapeutic.htm [https://perma.cc/FFF4-U3ZY].
[2] Id.
[3] Id.
[4] Id.
[5] Rabah Kamal, Cynthia Cox & Daniel McDermott, What Are the Recent and Forecasted Trends in Prescription Drug Spending?, HEALTH SYS. TRACKER (Feb. 20, 2019), https://www.healthsystemtracker.org/chart-collection/recent-forecasted-trends-prescription-drug-spending/ [https://perma.cc/LY5G-JQU3].
[6] Id.
[7] ANDREW MULCAHY ET AL., INTERNATIONAL PRESCRIPTION DRUG COMPARISONS: CURRENT EMPIRICAL ESTIMATES AND COMPARISONS WITH PREVIOUS STUDIES (RAND Corp. 2021), https://aspe.hhs.gov/reports/international-prescription-drug-price-comparisons [https://perma.cc/5PYY-NEN9]
[8] Id.
[9] Emily Miller, FDA Approval Process, DRUG WATCH (Sept. 8, 2022), https://www.drugwatch.com/fda/approval-process/ [https://perma.cc/TLK5-KDKS].
[10] Id.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] Duxin Sun, 90% of Drugs Fail Clinical Trials – Here’s One Way Researchers Can Select Better Drug Candidates, THE CONVERSATION (Feb. 23, 2022), https://theconversation.com/90-of-drugs-fail-clinical-trials-heres-one-way-researchers-can-select-better-drug-candidates-174152 [https://perma.cc/U4PH-AFAD] (last visited Oct. 15, 2022).
[16] Id.
[17] FDA, Frequently Asked Questions on Patents and Exclusivity (Feb. 5, 2020), https://www.fda.gov/drugs/development-approval-process-drugs/frequently-asked-questions-patents-and-exclusivity [https://perma.cc/GDA3-QHRH] (last visited Oct. 15, 2022).
[18] Id.
[19] See PHRMA, 2020 PHRMA ANNUAL MEMBERSHIP SURVEY, https://tinyurl.com/ydh6p64t [https://perma.cc/RSV2-XJ8V]; see also PHRMA, 2019 PHRMA ANNUAL MEMBERSHIP SURVEY, https://tinyurl.com/ycvneve7 [https://perma.cc/6A3D-5QNG].
[20] PHRMA, BIOPHARMACEUTICAL RESEARCH & DEVELOPMENT: THE PROCESS BEHIND NEW MEDICINES (2015), http://phrma-docs.phrma.org/sites/default/files/pdf/rd_brochure_022307.pdf [https://perma.cc/AX2A-MCWX] (last visited Oct. 15, 2022).
[21] See PHRMA, 2020 PHRMA ANNUAL MEMBERSHIP SURVEY, https://tinyurl.com/ydh6p64t [https://perma.cc/RSV2-XJ8V]; see also PHRMA, 2019 PHRMA ANNUAL MEMBERSHIP SURVEY, https://tinyurl.com/ycvneve7 [https://perma.cc/6A3D-5QNG].
[22] Id.
[23] Grace Browne, Big Pharma Says Drug Prices Reflect R&D Cost. Researchers Call BS, WIRED (Oct. 13, 2022), https://www.wired.com/story/drug-research-pricing/ [https://perma.cc/F2R3-6N39] (last visited Oct. 15, 2022).
[24] NORMAN R. AUGUSTINE ET AL., MAKING MEDICINES AFFORABLE: A NATIONAL IMPERATIVE 73-124 (Nat’l Acad. Press 2017), https://www.ncbi.nlm.nih.gov/books/NBK493090/ [https://perma.cc/EG8P-AQG6].
[25] Veronica Salib, How Pharmaceutical Patents Contribute to Increased Drug Costs, PHARMANEWS INTEL. (Aug. 16, 2022), https://pharmanewsintel.com/features/how-pharmaceutical-patents-contribute-to-increased-drug-costs [https://perma.cc/J6WP-EDXZ] (last visited Oct. 15, 2022).
[26] Id.
[27] Id.
[28] Id.
[29] Id.
[30] Id.
[31] Id.
[32] Id.
[33] Kevin O’Connor, How Patents Play a Role in Drug Pricing, THE PHARMA LETTER (Jan. 19, 2018), https://www.thepharmaletter.com/article/how-patents-play-a-role-in-drug-pricing; [https://perma.cc/KN4D-QKAA] (last visited Oct. 15, 2022).
[34] Fred D. Ledley et al., Profitability of Large Pharmaceutical Companies Compared with Other Large Public Companies, 323 J. AM. MED. ASS’N 834 (2020), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7054843/ [https://perma.cc/TAM2-UMSP].
[35] FDA, Generic Drug Facts (Nov. 1, 2021), https://www.fda.gov/drugs/generic-drugs/generic-drug-facts [https://perma.cc/ZX6X-6L4A].
[36] MARK CUBAN COSTPLUS DRUG COMPANY, https://costplusdrugs.com, [https://perma.cc/5FTY-H4JL].