Patents in the Crosshairs During House Drug Pricing Debate

By Joseph Allen
February 6, 2019

“While cursory nods were made to the importance of encouraging innovation, the witnesses discussed how patent exclusivity, thickets, and evergreening drove up drug prices while promoting the greater use of Patent Trial and Appeal Board reviews against drug patents.”

The opening salvo in what promises to be one of the hottest debates in the new Congress was fired January 29 during a day-long hearing in the House Committee on Oversight and Reform—how to lower the price of prescription drugs. And it didn’t take long to make it clear that patents are right in the middle of the scrum.

https://depositphotos.com/6822004/stock-illustration-crosshair.htmlBig Ideas

To get a perspective on what’s afoot, consider “All of Congress’s ideas to reduce prescription drug prices, explained,” a summary of what’s under consideration. It lists the seven pending proposed reforms ranked from realistic to “purely aspirational.” In the latter category is: “Rip up our patent system and start from scratch.” In this context, that means putting the government—not industry—in charge of developing drugs.

The role of patents was a prominent part of the House hearing. While cursory nods were made to the importance of encouraging innovation, the witnesses discussed how patent exclusivity, thickets, and evergreening drove up prices while promoting the greater use of Patent Trial and Appeal Board (PTAB) reviews against drug patents. The Committee was assured that curtailing patents wouldn’t harm innovation because the National Institutes of Health (NIH) is such an important funder of life science R&D.

No one on the Committee seemed concerned that not a single witness had ever developed a drug or even made an invention. The only person in that category came many hours into the hearing, when Rep. Thomas Massie (R-KY), an inventor who’d raised venture funding to launch a successful company, finally got his turn to speak. He advised the Committee that their first obligation should be to “do no harm.”  He then read the language in Article I, Section 8 of the Constitution establishing the patent system into the record. It didn’t seem to make a lasting impression.

Rep. Bob Gibbs (R-OH) later pointed out that the U.S. performs by far the most life science R&D in the world and that those countries often lauded for their government-controlled health care systems lag far behind us in drug development. But such points were swimming against the tide.

A Missed Opportunity

One striking moment occurred more than seven hours into the hearing during this exchange between newly elected Rep. Alexandria Ocasio-Cortez (D-NY) and Dr. Aaron Kesselheim from the Harvard Medical School:

Rep. Ocasio-Cortez: Would it be correct Dr. Kesselheim, to characterize the NIH money that is being used in development and research as an early investment?

Dr. Kesselheim: Yes.

Rep. Ocasio-Cortez: So, the public is acting as an early investor in the production of these drugs. Is the public receiving any sort of direct return on that investment from the highly profitable drugs that are developed from that research?

Dr. Kesselheim: No, in most cases there is—when those products are eventually handed off to a for-profit company, there aren’t licensing deals that bring money back into the coffers of the NIH. That usually doesn’t happen.

Rep. Ocasio-Cortez: So, the public is acting as early investor, putting in tons of money in the development of drugs that then become privatized, and then they receive no return on the investment that they have made.

Dr. Kesselheim: Right.

Just for fun, let’s imagine another way that question could have been answered.

Hypothetical Alternative Response: Thank you; that’s an excellent question because determining how to maximize the taxpayer’s return on investment from the billions of dollars spent annually on NIH-funded R&D gets to the core of the issue. Increasing the commercialization of NIH-funded research was one of the principal reasons why Congress enacted the Bayh-Dole Act, which injected the incentives of patent ownership into the system. Prior to that, the Comptroller General found that not a single NIH-funded invention had been developed into a new drug when the government destroyed the incentives of patent ownership by taking inventions away from their creating organizations to make them readily available to any and all.

In order to address your question, we must first understand that there are two streams of NIH-funded research:  intramural, which supports the work of the scientists and researchers at the NIH, and extramural research, which goes primarily to research universities and other nonprofit institutions.

Between 2011 and 2018, NIH, the Food and Drug Administration and the Centers for Disease Control received approximately $995 million dollars in royalties from licensing their discoveries. The vast majority of these funds were generated by NIH patent licensing.

Congress had considered a “recoupment” provision to the government in the original Bayh-Dole bill for extramural research, but ultimately rejected it on the advice of the federal agencies, which felt that the paperwork involved would be more trouble than it was worth. Ultimately, Congress decided that the best ROI for taxpayers was to get promising inventions off the agency shelves and into the marketplace where they could benefit the public. Using that standard, the system worked exceedingly well.

While no drugs were developed under the previous patent policies, since Bayh-Dole’s enactment more than 200 drugs and vaccines are protecting public health worldwide. As you heard earlier today, many of the most successful drugs arise from inventions made with government support.

However, unlike the inference that drug developers are unfairly profiting from publicly-supported research, we need to understand that most NIH supported inventions are at a very early stage—more like ideas than products. NIH officials have estimated that for every one dollar in NIH-funded research, private developers spend $100 in commercialization efforts. Even then, the odds against any particular drug being successful are staggering. Unlike in the public sector, when these drugs fail after years of effort and hundreds of millions—or even billions—of private sector dollars being invested, companies fold and people lose their jobs. The patent system is absolutely crucial for any entrepreneur to justify taking this risk.

Under our patent-driven system, the U.S. is far and away the greatest developer of new drugs. We are also the only country where small companies play a critical role in taking new therapies to market. Seventy percent of university inventions are licensed to small companies with over 11,000 startups formed since 1995. Every day of the year, more than two new companies are created and more than two new products are introduced into our economy based on academic inventions. Most of this impact is in the life sciences.

Regarding economic impact, an authoritative study found that academic patent licensing contributed up to $1.18 trillion to the U.S. economy between 1996- 2013, while supporting up to 3,824,000 good paying jobs. Again, much of this impact is in the life sciences.

It should also be recognized that one of the reasons why NIH receives such strong bipartisan support for their annual budget request is because we are so effective in taking promising discoveries arising from their research and, through partnerships with the private sector, transforming them into new products protecting public health. Otherwise, NIH would just be funding interesting scientific papers.

Parsing Pricing

There was much discussion during the hearing on the actual costs of drug development. The focus was on how much R&D went into making a single drug with one witness observing that this is a sunk cost which couldn’t justify later price increases. A new article provides a  much different perspective on the problem. The small number of highly successful drugs not only must recoup their own costs but also pay for of all those that fail. And the numbers are pretty grim.

The top 11 drug companies had about one new drug approved after spending an average of $6 billion annually on research. Here’s how the author summarizes the fate of the new drugs introduced between 2013 and 2017:

  • Of the 217 drugs, only 6 have reached cumulative global sales of over $6 billion. (2.8%)

  • Only 48 even reached cumulative sales of over $1 billion in this period. (22.1%)
  • Only 24 had “blockbuster” sales of over $1 billion in the year 2017. (11%)

The conclusion:

So, we have a problem. Not only do most of the drugs we put into the pipelines not make it to market, those that do are not even paying for their own R&D programmes, never mind the R&D for the failures around them.

That’s a much difference picture than was painted for the Committee.

Unintended Consequences

Finally, here’s another perspective that wasn’t considered. An article in Endpoints News summarizes a new study on expected trends in biopharma for the next five  years. It includes this intriguing observation:

But R&D won’t be dominated entirely by Big Pharma.

Instead, the new report says up-and -coming smaller biotechs—defined as those with less than $500 million in revenue or R&D budgets under $200 million a year—have seen their percentage of R&D activity jump from 60% to 72% over the past 10 years. That’s led to 68 new drugs over the last 5 years, up from 47 from this group over the 5 years before that.

The next 5 years? Look for these smaller companies to produce more than a third of the new drugs approved, with a greater likelihood that they’ll undertake the marketing without a pharma partner.

It’s a pretty good bet that these small companies rely on strong patent protection to raise desperately needed venture funding and to protect themselves in the marketplace. Many of them are likely to be university spin-out companies formed around NIH-funded research. Before Congress charges off into the Brave New World where patents are weakened and compulsory licensing encouraged, we might want to find out what these companies think. Most likely, it will be a much different story than the one presented last week.

Image Source: Deposit Photos
Vector ID: 6822004
Copyright: i3alda 

 

The Author

Joseph Allen

Joseph Allen is a Featured Contributor on IPWatchdog.com, and a 30-year veteran of national efforts to foster public/private sector commercialization partnerships, and author of numerous articles on technology management for national publications.

Joe served as a Professional Staff Member on the U.S. Senate Judiciary Committee with former Senator Birch Bayh (D-IN), and was instrumental in working behind the scenes to ensure passage of the historic Bayh-Dole Act. He is our resident Bayh-Dole expert, and will write frequently about Bayh-Dole and issues surrounding the commercialization of university research.

In 2008, Joe founded Allen & Associates, through which he offers consulting services assisting clients in technology transfer issues, including developing effective communication strategies with national policy makers.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 28 Comments comments.

  1. Ternary February 6, 2019 5:59 pm

    The problems are caused by the high prices of drugs and the chicanery of the industry to keep fleecing consumers and a complete lack of transparency. The fact that pharma is able to sell at much lower price in other countries (while still making a decent profit), really doesn’t help.

    Not admitting to these issues by pharma, entice consumer advocates trying to hit pharma where it hurts.

  2. Lost In Norway February 7, 2019 5:21 am

    There is a problem in pharma. No matter how the rules are set up, pharma is going to make money. Medical conditions = money to be made. They are going to make as much money as possible in each and every country they operate in. Any argument that doesn’t recognize that fact, it just strange. I have always found the “oh poor us, we are barely getting by” a bit tough to swallow.

    That being said, buring the patent system is not going to fix it. The current patent system for pharma is a delicate balance. I get worried when a bunch of people who don’t understand it are trying to fix it. It is like giving a bunch of chips a bunch of Uzis.

  3. Cathleen Rocco February 7, 2019 5:23 am

    “The Committee was assured that curtailing patents wouldn’t harm innovation because the National Institutes of Health (NIH) is such an important funder of life science R&D.”

    If only this were true! I am convinced it would go much further towards bringing prices down than undermining the patent system – which increases uncertainty, and therefore risk, and is therefore likely have the opposite effect. It would at least remove one of the rationales pharma relies on to justify the high prices they charge. Greater uncertainty is likely to have an adverse effect on innovation because it makes it harder for new and small biotech companies to find funding, and decreases the likelihood that large companies will do work that isn’t just incremental.

  4. Eric Berend February 7, 2019 5:59 am

    Yet again, the Inventors are mere ghosts, banished from the funeral of the Constitutional prerogative. Perhaps, someone can ask Rep. Ocasio-Cortez how good the innovation record is of the socialist regimes and economies the political systems of which, she so ardently espouses.

    No doubt, a disingenuous, evasive non-sequitur, will follow, replete with Orwellian double-speak. This woman acts like she understands “public” investment ONLY when it would seem to support an argument for tearing the system down: yet, quite deliberately obviates any such application to what investment it takes of a GENIUS Inventors’ life, to produce even ONE invention.

    Ever the sentimentalist champion of the imaginary sans-culottes of the USA: however, the so-called “solution” of her and her political ilk? ‘Bolshevism-lite’, where private property confiscation, scapegoating of ‘kulaks’ and the rule of the socialist mob, are to be the hallmarks of their Brave New World – in a special ‘woke’>/i> version “just for America”.

    Let the socialist mob replicate my own inventive works, and those of other Inventors’ genius labors. My inventions will die with me, and never be revealed to those who harbor such manifest contempt and treachery against me and Inventors in general – all, for the sake of their naive, ignorant, banal, craven emotional impulses of resentment and malcontent malevolence, directed by others’ illicit influences – and, all in direct contravention of the time-tested public interest benefit manifested in the U.S. Constitutional patent bargain over some 200+ years.

    ‘The people’ can wait to benefit from these improvements in their lives – for years, decades or generations later; if at all – just so you IP pirates and socialists can preen your specious moral superiority complex. How egalitarian of you all, shoving your zealous Marxist political religion down everyone else’s throat in America, today – precisely so as to eliminate all motivations for participation of America’s proven innovators, its Inventors.

  5. Valuationguy February 7, 2019 8:53 am

    Eric,
    The bigger problem is that to few POLITICIANS actually have any work history of PRODUCING ANYTHING….except hot air….and OC is exhibit #1 for this. They consider production to be taking from one person (i.e. stealing masked as taxation)….and granted it to another “more worthy” person (in their minds) in exchange for vote support (i.e. bribery/corruption).

    Socialism was/is designed to be VERY appealing to Politicians because it institutionalizes the corruption even more than pure capital lobbying does….turning them in agents of PULL.

    Who is John Galt?

  6. American Cowboy February 7, 2019 10:14 am

    My understanding is that many of the most egregious price rises are on drugs for which there is no current patent protection. Instead, the incumbent producer has a monopoly or near monopoly because competitors must pass muster with the FDA before they can compete, and that takes an enormous investment of its own, discouraging competition.

    The high prices are caused by regulation, not patents.

  7. BP February 7, 2019 11:13 am

    The US is a socialist country in many ways. However, large government owned/run business enterprises are not part of the US model. Rather, we have large privately owned/run enterprises (global monopolies and the like) that are intimately linked to the government (“one with”) and that direct the government (they are “people”). As the patent system plays a role in antitrust, which is a threat to the partnership between those enterprises and the government, it must be destroyed. The most telling is that “the partnership” views the Constitution as providing for promoting “the progress of science and useful arts” by destroying/denying patent rights. It’s a logical next step from the mythological construct of the “patent troll”.

  8. St. John Mountbatten February 7, 2019 2:49 pm

    @1 “[P]harma is able to sell at much lower price in other countries… while still making a decent profit…”

    With respect, how do you purport to know this? Where do you find data indicating what sort of profit Pharma companies are making in each jurisdiction? How do you know whether those profits are “decent” (what does that word even mean here)?

    I strongly suspect that you are making things up. I would be gratified to see you prove me wrong by citing chapter and verse to back up your assertions.

    @2 “[P]harma is going to… make as much money as possible in each and every country they operate in.”

    Well, yes, every for-profit enterprise is going to make as much money as it can. As it happens, in non-US jurisdiction that “as much as it can” = “not very much.” All of the large market non-US jurisdictions have price caps of one sort or another. If the U.S. wants to achieve drug prices comparable to (e.g.) Canada, the U.S. has the sovereign right to institute the same sort of prices caps. N.B., this tried-&-proven “solution” to the “problem” of pharma prices has nothing to do with patent rights. I agree with the OP author that Congress seems ever to look at patents when thinking about pharma prices, but Congress’ focus there is probably wide of the mark.

    In any event, there is good reason for everyone (U.S. and ex-U.S. alike) to be glad that the U.S. does not have statutory pharma price caps. If the U.S. were to institute such a scheme, worldwide pharma innovation would fall just as quickly as U.S. pharma prices.

    @6 “[H]igh prices are caused by regulation, not patents.”

    This is more true than not. Reform to the FDA would have much more effect on drug prices than reform of the patent system. However, the effect on drug innovation would be essentially the same regardless from which direction one brings the reform.

    High U.S. drug prices are the fuel to the engine of worldwide pharma innovation. Anything that lowers U.S. drug prices will depress the pace of innovation. U.S. drug consumers can rationally say “we would rather have less innovation in exchange for lower prices,” but they should understand that trade-off up front.

  9. andrew keirns February 7, 2019 3:34 pm

    There is absolutely no way AOC would have comprehended the hypothetical answer – none.

  10. EG February 7, 2019 4:37 pm

    Hey Joe,

    The questioning by AOC of Dr. Aaron Kesselheim is typical of how ignorant she is of many things in the “real world.” How patents work is just one example of that ignorance.

  11. Anon February 8, 2019 2:55 pm

    St. John,

    With your statement if “High U.S. drug prices are the fuel to the engine of worldwide pharma innovation.” you contradict your call for evidence and make an admission against interests to which you had clamored for that evidence.

    You can’t have it both ways.

    And personally, “enjoying” the privilege for footing the bill so that Big Pharma can get some profits elsewhere is the type of “forced altruism” that does not sit well with me.

  12. Ternary February 8, 2019 6:04 pm

    SJM
    My opening sentence is “The problems are caused by the high prices of drugs…” Of course, if you disagree with that, then here is no reason for a discussion at all. So, I assume that you agree with the statement that high prices of drugs pose a problem.

    Your challenge to “[P]harma is able to sell at much lower price in other countries… while still making a decent profit…” is a legitimate one. This discussion on drug pricing and its relationship with R&D and pricing elsewhere has been conducted several times on IPWatchdog. A while back, I did some extensive searches on the subject, because the disparate pricing issue automatically raises the question: “why would a company sell its product in a foreign market if it cannot make a profit?” Unfortunately, there is little public data out on profitability of drugs per geographical market. However, the European market is a significant export market for US Pharma. Also, Eurepean pharma companies are profitable. Furthermore, I found no evidence that pharma companies continued selling in a market that was not profitable. I did find that companies would not sell in a regulated market where regulated pricing was too low. I concluded and still conclude that pharma only or predominantly sells in those markets at a profit.

    Let me turn to you, SJM, and request to provide data (if exist) that shows that a pharma company continues selling product in a market at a loss.

    What is “decent profit?” Decent is often in the eye of the beholder. To me, it is the opposite of indecent. Indecent profits are profits that allow a company to buy back billion dollars worth of shares, while whining about the need for high profits to fund R&D.

    Furthermore, high pricing for generic drugs and off-patent drugs, a significant issue in the drug pricing issue, has nothing or very little to do with R&D and no reasonable explanation has been provided so far. Furthermore, no rational model exist for differentiating between $75,000 for a treatment or $40,000. So when the consumer says “high” the industry says “higher.” That seems all there is to it.

  13. St. John Mountbatten February 10, 2019 3:54 pm

    @12 “Unfortunately, there is little public data out on profitability of drugs per geographical market.”

    As I thought. I gather that we both agree that the comments in #1 are just uninformed scuttlebutt. One cannot offer response to a point that is not even really made, so I suppose that there is nothing more to be said on the subject.

  14. St. John Mountbatten February 10, 2019 4:02 pm

    @12 “Let me turn to you, SJM, and request to provide data (if exist) that shows that a pharma company continues selling product in a market at a loss.”

    Not only do pharma companies frequently distribute product at an unprofitable price, they even give the product away for free (cannot get less profitable than free).

    https://philanthropynewsdigest.org/news/pfizer-to-donate-135-million-doses-of-anti-blindness-drug

    Believe it or not, the folks who run pharma companies are all human beings, and some are even morally decent human beings. Some are jerks, to be sure, but most are not.

  15. Anon February 11, 2019 8:14 am

    St John,

    You seek to dismiss WAY too quickly, when the very things that you DO admit, serve as evidence of the things that you are trying to sweep under the rug.

    I agree with you that Pharma WILL enter markets (geographically) that impair their overall profits.

    But like any ‘rational’ business, they do NOT do so without a business (read that as bottom line profit) motive.

    There is no surprise to see Big Pharma attempt to artificially contrain secondary market effects of the very things that they choose to put into the stream of commerce IN those very same markets that they choose to enter at reduced profit levels.

    There can be no doubt (taking your own admissions) that the captured effect for US consumers is the forced altruism through OUR footing the bill for being “the world’s” innovation engine.

    Patent law being a Sovereign-centric law needs to make sure that the Sovereign is the beneficiary, and when a non-Sovereign, merely juristic person over plays the system to the detriment of the Sovereign, then a critical eye SHOULD view what is going on (rather than as you would have it, turn a blind eye).

    My (personal) forced altruism so that Big Pharma can ‘be’ in a geographic market that cannot sustain itself on its own only means that the desicions of Foreign Sovereigns to cap prices effectively moves the high burden for profit to me and mine.

    If you have been around the blog for any appreciable amount of time, you would be able to tell that no one is more “pro-patent” than I, and I certainly do not begrudge anyone (even juristic anyones) from being able to enjoy the ‘spark of interest’ that accompanies (Sovereign-centric) patent rights. But the story of Big Pharma goes beyond — well beyond — that.

  16. Xtian February 12, 2019 12:21 pm

    Consider this: Pharma makes big investment in new drug costing $2B in R&D over 7 years. The drug is trans-formative in that it is more than a “me too” drug that is already on the market. KOLs and insurance payers value the drug. Pharma first will seek approval in the US. Determine the ROI given their patent position, regulatory exclusivity, and pricing based on the compound.

    At are near US approval, Pharma says to itself, “well the hard work is done, what will it take to now get approval in EU?” They run the ROI (absent the initial R&D costs, but factoring the EU clinical trial costs) and determine its worth seeking EU approval. Rinse and repeat as we move through different markets, e.g., EU, JP, CA, KR….once you get the the tertiary markets, the analysis is more altruistic than income generating.

    I think Pharma countries would be hard-pressed to first launch in these tertiary markets. It is only because of the US and Big 5 Eu markets that drugs get launched in the tertiary markets if at all.

  17. Anon February 12, 2019 3:04 pm

    Xtian,

    There are several factual faults in your attempt to provide such a multi-date filing strategy.

    There are also several financial faults in your attempt to portray just how the financial calculus would be undertaken.

    Given these, I cannot ascertain the point that you were trying to make.

  18. xtian February 13, 2019 1:41 pm

    Anon – please point out the factual faults and the financial faults. I will be more than happy to provide more context so that you can appreciate the reality of pharma.

    Point is – Pharma enters those tertiary markets because “why not” all the work has already been done, why not just maximize the value of the asset. I dare you to find a drug ithat was developed specifically for those tertiary markets and has positive ROI in those markets.

  19. Anon February 13, 2019 5:18 pm

    Factual faults have to do with your proposed delayed timing for patent applications in different countries (as your post indicates, you can delay from one to the next over a span of years and that is simply not correct).

    Financial faults have to do with the running of ROI’s – you err in your statement of what may or may not be included.

    I already “appreciate the reality of pharma,” thank you.

  20. Anon February 13, 2019 5:22 pm

    Additionally, your final point is rather a strawman.

    No One has put forth an argument that a tertiary market was ever aimed for in a specifically developed drug. You alone created that argument in order to knock it down.

    My “appreciation” of pharma is in fact more real in life and how they operate in making me as a US citizen subsidize their global strategy and BOTH enter foreign markets at a reduced (even negative) profit margin, hyper-inflating the margin extracted domestically, AND seek to control any “adverse” side effects of their own decision to put product into the stream of commerce IN those foreign markets.

    And yes, “appreciation” deserves to be in quotes.

  21. Greg DeLassus February 13, 2019 6:41 pm

    @18, Xtian, George Bernard Shaw once observed that he had “learned long ago, never to wrestle with a pig. You get dirty, and besides, the pig likes it.” There is wisdom in that observation.

  22. Anon February 17, 2019 12:51 pm

    In the “pigsty” of patent law, Mr. DeLassus has created for himself the unenviable reputation of one who refuses to engage on the merits of any discussion for which, he does not want to see anything but his own pre-existing viewpoint.

    George Bernard Shaw may have another word for such an intellectual coward.

  23. xtian February 19, 2019 12:08 pm

    Anon @19. Forgive me if I gave you the impression that I meant a staggered patent filing ex-US. Of course that is not possible. For clarity, (although I didn’t think I ever said “patent” in my post) the staggered filing is a regulatory filing. E.g., First NDA in US. Then, centralized EU approval. Next Canada and JP.

    And it seems we are more in agreement that our posts might appear. I agree that the US market subsidizes ex-US drugs. I just don’t know what we as practitioners can do about it.

  24. Greg DeLassus February 19, 2019 1:55 pm

    @23 “[T]he US market subsidizes ex-US drugs. I just don’t know what we as practitioners can do about it.”

    Exactly right. The subsidy is real, but it is largely a function of U.S. tax law and statutory provisions of Medicare part D. Patent law has very little to do with it, so there is not much that patent practitioners can do to change it (even if we wanted to).

  25. Ternary February 20, 2019 5:15 pm

    The question is not if “big pharma” does charity. They do, also in the US. The issue is if big pharma operates their “business” or if you want “their normal business” as in Europe at a loss. They don’t. Not US Pharma, not European Pharma and not Japanese Pharma. There is just no evidence for that. Their “charity” has a business purpose. The price below which an acceptable profit is not made is called a “reservation price.” There has been some study into “reservation pricing” and it seems that in general drug prices in Europe are above “reservation pricing,” see https://www.healthaffairs.org/do/10.1377/hblog20170727.061220/full/

    Because there is this price differential, some claim that the US is “subsidizing” European pricing. The reasoning on this appears to be that R&D is calculated into the price as a percentage. Prices in Europe are lower. Hence, it is argued: the USA subsidizes European drugs.

    Free marketeers are always crowing about the positive influence of free market forces. However, it seems that when these forces are against their monopolistic tendencies, they open their arsenal of arguments such as “subsidy.” A subsidy provides support that allows pricing below a “market price.”

    European prices are market prices, and with exception of deliberate charity, there is no evidence that Big Pharma does not make a reasonable profit that enables continued R&D. The term “subsidy” is merely thrown in as an ideological argument to distort the discussion.

    As an independent inventor, I am all for allowing a profit on a patented invention. I am in a sector (computer implemented inventions) where market forces drive down prices almost continually. It remains puzzling how the USA is unable to let free market forces do its work in pharma. But then again, terms like “evergreening” which seems to pertain predominantly to pharma, indicates that the system is used against public interest.

    Furthermore, there is no proof that increased profits on European drug prices would lower prices in the USA or that they will do more R&D. Pharma will merely say that their profits in Europe has now reached a desirable parity with US prices, and they will gladly pocket their profits.

    See also: https://www.scientificamerican.com/article/how-the-u-s-pays-3-times-more-for-drugs/. It is unclear to many, why pharma increases drug prices in the USA above inflation rates. As an inventor I have a simple explanation: because they can!

  26. Greg DeLassus February 24, 2019 12:37 am

    “[T]here is no proof that increased profits on European drug prices would lower prices in the USA or that they will do more R&D… [P]harma increases drug prices in the USA above inflation rates… because they can!”

    Too true, although I suspect that a regrettable many *think* (based on the talk of U.S. “subsidy”) that there is some scenario in which higher ex-US prices would lead to lower U.S. prices. The U.S. prices reflect the amount of money that a rich country like the U.S. is willing to pay. The (e.g.) EP prices reflect the amount of money that EU is willing to pay. If the EU were to become willing to pay more, then the industry would take that money, but U.S. prices would not move a millimeter in response.

    If the U.S. wants EU-level prices, then the U.S. should do like the EU—price caps. If the U.S. were to institute the same sort of statutory price caps that the EU has in place, the U.S. would get the same prices as the EU. Simple as that.

    There is no free lunch, however. Profits from the U.S. market fund the machinery that moves new drugs from scientist’s bench to patient’s bedside. If such profits go down, the machinery will (all other things being equal) move more sluggishly.

  27. Xtian February 25, 2019 10:00 am

    @Ternary 25 “European prices are market prices” This is absolutely NOT true. NICE accounts for pricing in EU. NICE is not a market force. It is a governing body. (See also Canada’s pricing standards and yet another example of government setting pharma prices, not market forces)

    See this article for context:
    https://pharmaphorum.com/views-and-analysis/pas-free-pricing-uk-nice-nhs-england/

  28. Greg DeLassus February 25, 2019 12:33 pm

    @27 “[The assertion that ‘]European prices are market prices’… is absolutely NOT true. NICE accounts for pricing in EU. NICE is not a market force. It is a governing body. (See also Canada’s pricing standards and yet another example of government setting pharma prices, not market forces)”

    I think that #27 and #25 are talking past each other. When #25 uses the term “market price,” the phrase conveys “any price above the manufacturer’s reservation price.” When #27 uses the term “market price,” the phrase conveys “a price set by negotiation between a willing buyer and willing seller.”

    I agree that #27’s use the of the term is a more natural use of the term “market price.” Still and all, there is not really a substantive disagree as to the logical content of the positions being advanced in #25 and #27. The disagreement—such as it is—is just a matter of word choice.

    Pfizer (e.g.) sells product in the EU because Pfizer prefers to make a sale at the NICE price than to make no sale at all in the EU. In some (strained) sense, then, the NICE price is a sort of market price, because it reflects the end-point of a negotiation between Pfizer and a sort-of pan-European buyer’s union.