Profiting from a new discovery is key to American inventiveness – so much so that the concept of protecting an invention is set out in the Constitution. The powers granted to Congress include authorizing patents “to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”
Patents give people and companies who invent new products the exclusive right to sell those products for a limited time, allowing them to recover their research and development costs by making a profit without competition. By their nature they are not meant to last forever. Unfortunately for consumers there are creative loopholes, and some of these loopholes cost us dearly.
Patents on Pharmaceutical Drugs
When your doctor prescribes a brand name drug, chances are the pharmacist will dispense a lower-cost generic version of the same medication. Because generics are significantly less expensive than their brand-name counterparts, they account for 89 percent of all prescriptions dispensed in the U.S., but only 27 percent of drug costs.
When a generic version isn’t available, consumers have no choice but to purchase the brand-name drug, which is typically 80 – 85 percent more expensive. While there are legitimate reasons for the higher cost of new drugs, including the chance to recover the cost of inventing, patenting, and marketing them, there are sometimes anti-competitive forces at work as well.
It’s a Jungle Out There
“Patent thickets” is the term used to describe a common practice of drug manufacturers. They apply for numerous, often overlapping patents – sometimes hundreds of them – on what is essentially the same drug. By tweaking the formula, or packaging the drug into a tablet, caplet, soft capsule, liquid-gel capsule, or injectable pen, or delivering it in a variety of different strengths and dosages, the company can secure a different patent for each version, effectively extending the manufacturer’s monopoly on that drug for many decades.
One case in point: insulin. Although the basic formula most often used has been around for over 100 years, there is still no generic version available to U.S. consumers. Using the patent thicket strategy, the three top manufacturers of insulin – Lilly, Sanofi, and Novo Nordisk – have been able to exploit the patent process to their advantage. Together they control 99 percent of the insulin market.
The resulting lack of competition has allowed these manufacturers to increase the drug’s price to unaffordable levels in the last two decades. Since 1996, Lilly has increased the price of a 10-milliliter vial of insulin from $21 to $275. Sanofi has increased the price of its vials from $35 to $270 since 2001. And Novo Nordisk currently charges $289 per vial, up from just $40 in 2001.
These unchecked price increases have implications beyond cost. A recent poll showed that diabetics who struggle to afford their insulin are rationing the life-saving medication, cutting back on necessary medical care, and putting themselves at risk. In a letter sent to U.S. Food & Drug Administration Commissioner Dr. Scott Gottlieb, U.S. Senator Dick Durbin and three of his congressional colleagues cited “the skyrocketing cost of insulin” in a plea for the FDA to reconsider its approval policies in ways that might spur competition and allow lower-cost products to enter the U.S. market.
A Dubious Step Forward
As the practice of patent thickets begins to attract more scrutiny, drug companies have found more creative ways to keep the profits flowing. Just three days after Senator Durbin’s letter to the FDA was made public, Lilly announced a plan to release “an authorized generic” version of its insulin product at 50 percent of the cost of its brand-name version. Lilly says that it aims to “be a catalyst for positive change across the U.S. healthcare system” in authorizing a lower-cost insulin product, even though its higher-priced brand name version will still be available.
Which begs the question: Why would a manufacturer offer two versions of the same medication at widely varying prices? The answer: consumers may still find themselves forced to purchase brand-name medications when they visit their local pharmacy. The New York Times and ProPublica recently reported on a new tactic used by drug manufacturers. They offer insurance companies brand name drugs at reduced cost. In exchange, the insurance companies cover purchases of the brand name drug, but not the generic version.
It’s a very different marketplace outside of the U.S., where generics and over-the-counter versions of brand-name drugs are more readily available. For example, in October of last year, Europeans gained access to a generic version of a drug with more than $18 billion in global sales. For Americans, no such generic exists because the manufacturer has an arsenal of patent thickets ensuring a market stronghold on the drug in the U.S., estimated to last into the 2030s.
For frustrated U.S. consumers, there is hope on the horizon. Washington lawmakers from both sides of the aisle have turned their attention to proposing laws aimed at significantly lowering drug prices. Earlier this year, Democrats in Congress rolled out a package of bills that would allow the import of lower-cost drugs from Canada and other countries. Additionally, the proposed Prescription Drug Price Relief Act, a measure similar to a proposal put forth by the Trump administration, would require the federal government to pay median prices similar to those paid by other countries, reducing the cost of brand-name drugs by an estimated 43 percent.
When it comes to pushing back against ever-increasing drug costs, it appears that Republicans and Democrats may succeed in finding common ground.