The patent system is supposed to encourage innovation, but some drug manufacturers are using it to stifle it instead.
Drug development is a long and expensive process, even for drugs that never make it to market (and most don’t). For the products that do, patents give manufacturers a market monopoly for a certain number of years, ensuring no biosimilars or generics are sold. These monopolies are considered foundational to drug innovation, being extremely lucrative and designed to reward companies who risk resources developing new drugs.
There’s evidence, however, that some drug manufacturers game the system by extending these exclusive windows of profit. Over the last twenty years, a few common tactics have emerged.
One is patent thickets, which create a dense network of overlapping patents for one drug and crowd out the market. Without making any actual changes, manufacturers patent different parts of a drug at different times, extending the overall life of their intellectual property. For instance, Humira has more than 130 distinct patents and about 90 percent of them were filed after the drug was already on the market, serving as a huge monopolistic barrier to competition.
Another tactic is evergreening, a delay strategy that involves making minor modifications to some aspect of an existing drug, and then patenting those changes. The manufacturer’s timeframe of exclusive control is now extended well beyond the original patent window. This is a popular approach, with a recent paper finding that for all patents approved between 2005 and 2015, more than three quarters of them were for existing drugs.
Finally, product hopping is a tactic where manufacturers slightly alter a drug and then switch their consumer base to the new version before competitors have a chance to create a generic for the original version. Thankfully, the Federal Trade Commission (FTC) and courts have cracked down on this over the last few years, so the prevalence of future product hopping is uncertain.
While drug manufacturers reap the rewards with these strategies, significant costs crop up for patients.
The most obvious is actual health care costs. Taken together, these tactics heavily delay generic (or biosimilar) entry, forcing patients to use more expensive brand name drugs. This is huge, as generics have reduced health care costs by trillions over the past decade.
Taxpayers also pay. First and foremost, they foot the bill for government agencies to investigate drug manufacturer patent abuses. Second, their taxes partially subsidize drug development costs – with some conflicting, but far reaching, impacts. Coupled with some of the highest prices in the world for prescription medications, taxpayers don’t just “pay twice” for drugs, they pay three, four, or five times.
Meanwhile, the more hidden cost is lost innovation.
For one, patent gaming deters generic drug development. Even the biggest companies feel this, with Boehringer Ingelheim laying off staff after failing to bring a Humira generic to market due to Humira’s patent thicket.
Additionally, patent gaming contributes to a hostile environment for smaller biotech startups trying to enter the market. New companies face huge barriers when they’re starting out, and generic creation offers a way to generate revenue while they hope to develop the “next blockbuster.” Patent hurdles exacerbate those challenges, an unwelcome reality as biotech bankruptcies hit a 10-year peak last year.
Luckily, the government is increasingly aware of these issues and beginning to address them.
In the last year, the FTC challenged the validity of over 400 patents on weight loss drugs, inhalers, and other medical devices. The Food and Drug Administration and the United States Patent Office are also collaborating to streamline patent review and dispute processes.
Progress is slow though. The FTC’s patent challenges last year had limited success: Just 30% of challenges received legal responses, and only a handful of patents were removed. But the work is ramping up, and federal offices are laying the groundwork for stronger patent action in the future.
Legislatively, Congress is considering a law that would create stricter criteria for patent extensions that would result in deeper scrutiny of minor drug modifications. This would help federal agencies reduce patent gaming by denying patents that don’t offer the public meaningful innovation.
Congress could also increase payments for more cost-effective drugs to incentivize innovation. For instance, the funding emphasis could be placed on developing drugs that cure or prevent disease rather than indefinitely treat patients. Success here would save patients and insurers from having to pay the financial and medical costs of lifelong medication maintenance.
In short, the goal of future policy to tackle patent abuses should be to expand competition, increase the value of innovation, and lower drug costs. The government already has the tools to do those things. Encouraging innovation over profit-driven patent manipulation will lead to a more sustainable and equitable health care system.
Research for this piece was supported by Arnold Ventures.
