Bipartisan Agreement That Drug Prices Are a Problem (and Patents are Complicated) Could Mean Changes for Pharma

By Eileen McDermott
May 8, 2019

“Sooner or later, the American people are going to demand [change], and if you don’t make some concrete suggestions that are helpful so we can both prosper, then we’re going to end up with price controls. That’s just a fact.” – Senator John Neeley Kennedy (R-LA)

During a hearing of the Senate Committee on the Judiciary on Tuesday titled, “Intellectual Property and the Price of Prescription Drugs: Balancing Innovation and Competition,” senators heard from five witnesses about proposals to lower drug prices for Americans and what role the patent system plays in the high cost of prescription drugs. The witnesses included two professors, a patient advocate, the Director of South Carolina’s Department of Health and Human Services, and the Executive Vice President and General Counsel of the Pharmaceutical Research and Manufacturers of America (PhRMA). The hearing is one of several so far this term on the topic.

Illustrating the Problem

The following statistics were thrown out over the course of the hearing to underscore the gravity of the situation:

  • A 2019 study found that the cost of prescription drugs was $1,016 per capita in the United States—double the average of comparable countries—and that brand names accounted for only 10% of prescriptions filled in the country, but 77% of all drug spending. (Feinstein D-CA)
  • It takes an average of 10-15 years and $2.6 billion to bring a pharmaceutical product to market. The industry spent $90 billion in 2016 alone—six times the average of other manufacturing industries, and yet there is no guarantee of success. 90% of products don’t make it to market. (PhRMA)
  • For the top 12 drugs in America, drug companies filed an average of 125 patent applications, averaging 38 years of market exclusivity—nearly double the guaranteed term. (Blumenthal D-CT)
  • Eli Lilly’s insulin drug, Humalog, costs $339 a dose in the United States and $39 a dose in Canada. (Durbin D-IL)
  • Since the creation of the Biologics Price Competition and Innovation Act of 2009, 19 biosimilars have been approved, but only 7 have made it to market. (Patients for Affordable Drugs)
  • Prior to the Hatch-Waxman Act, 19% of prescriptions were filled with generics; today, 90% are. (PhRMA)
  • Between 2012 and 2016, the price of branded drugs increased 110%. (Klobuchar D-MN)
  • According to the CDC, nearly half of all Americans have been prescribed a prescription drug in the past month. (Ernst R-IA)

The concerns about some of this data were bipartisan. One of the last senators to speak, John Neely Kennedy (R-LA), addressing PhRMA Executive Vice President and General Counsel James Stansel, said that the present situation makes the United States “look like a bunch of chumps” and urged him and his members to quickly come up with concrete solutions.

“Sooner or later, the U.S. Congress is going to act, and I don’t think your clients are going to like what we do. I’d ask you to step up to the plate and make some meaningful suggestions that are doable. We’re living in the real world here. I don’t want to go to price controls, I don’t believe in them, but the American people are being played for chumps, paying four times the cost of the same drug in another OECD [Organization for Economic Cooperation and Development] country. Sooner or later, the American people are going to demand [change], and if you don’t make some concrete suggestions that are helpful so we can both prosper, then we’re going to end up with price controls. That’s just a fact.”

David Mitchell of Patients for Affordable Drugs told the committee in his testimony that he has an incurable blood cancer for which he receives an infusion of drugs priced at $325,000 per year. While he acknowledged the importance of innovation to his chances for survival, he said that pharmaceutical companies are not being transparent about their R&D costs.

“Despite what drug companies tell us, the prices are not about innovation. Tax payers foot a huge part of the bill and independent analysis shows that drug companies spend more on ads and marketing than R&D. Why do they charge so much? Because they can…. Right now, the fundamental question drug companies want us to ask is what are we willing to pay to save a life? The answer is ‘anything,’ but that’s the wrong question. The question should be ‘what amount of money should they make on these drugs?’” 

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Some Solutions

Judiciary Committee Chair, Lindsey Graham (R-SC), opened the hearing by summing up the problem they faced in a question: essentially, how do we make sure that America continues to be the most innovative place on the planet and avoid killing the “goose that laid the golden egg,” without having a system that drives up cost for the consumer? Graham said he expects the committee will move on legislation related to patents and prescription drug pricing this year, and there seemed to be broad agreement on at least one bill currently under consideration—the CREATES Act of 2019, which has been floating around Congress since 2016.

In the words of one of the witnesses, Rutgers Law School Professor Michael Carrier, the CREATES Act would “require brand [pharmaceutical] companies to provide samples to [generic] companies that request them. And if they do not provide sufficient quantities on ‘commercially reasonable, market-based terms,’ the product developer could, in addition to obtaining the sample, receive attorneys’ fees and other damages. In other words, the brand game of denying samples to block entry would be over.”

Stansel—the only industry representative on the panel—was not opposed outright to this solution. “We support the overall intent,” Stansel said. “Reference product sponsors should not withhold samples with the intent of delaying generic entry.” But in the organization’s written submission, Stansel noted that PhRMA “hope[s] to see changes that preserve the role of FDA in access decisions for products with Risk Evaluation and Mitigation Strategy (REMS) with Elements to Assure Safe Use (ETASU) and ensure the bill achieves its objectives without incentivizing frivolous litigation.”

Other pending bills that were discussed throughout the hearing include:

Getting to the Root of the Pricing Problem

The topic Mitchell raised regarding the prevalence of drug advertising in the United States was addressed several times over the course of the hearing. Senator Dick Durbin (D-IL) asked Stansel how many countries in the world allow pharmaceutical companies to advertise to consumers—the answer is two (the United States and New Zealand). Feinstein had earlier in the hearing asked the panel why technology hasn’t been utilized to allow patients access up front to information about drug pricing, and Durbin told Stansel he didn’t feel his answer to Feinstein was very good. Stansel had directed Feinstein to the Medicare system, where patients can access a website for drug pricing information. Durbin added that the average American sees nine [pharmaceutical] ads per day and held up an ad for Humira, which is currently the most heavily advertised drug on the market. The cost of Humira is $5,500 a month.

Stansel and others noted that the ultimate price to patients will vary widely, so advertising the list price would be misleading.

Senator Josh Hawley (R-MO) focused on the discrepancy between the prices of identical drugs in the United States versus other countries. Hawley gave the examples of “a commonly prescribed blood thinner” that in Missouri costs 500% more than the same drug does in Versailles, France, and a “common nerve and muscle treatment” that in Missouri is 200% more than the exact drug costs in Canada. “When we issue patents, we agree to pay monopoly prices in exchange for greater amounts of innovation, but Americans pay 78% of the profits for these drugs [and] others benefit from that,” Hawley said.

Stansel supported Hawley’s argument and urged the senators to address the problem by enforcing existing Free Trade Agreements (FTAs). “There’s a lot of free riding that goes on across the world,” Stansel said, pointing to a 2004 Department of Commerce study that said, without price controls, revenues that could be used for R&D could be significantly higher.

Hawley told Stansel that he and Senator Tim Scott (R-SC) have proposed a bill that would keep pharmaceutical companies from charging Americans more for a drug than they charge in other countries and asked if Stansel would support that. “That’s not the right approach,” Stansel said. “It’s often not a negotiation with these other countries. It’s a take it or leave it situation.”

It’s Complicated

Panelists touted the legislative solutions mentioned above as ways to address what were identified as the key problems: “patent thickets,” pay-to-delay settlements, and sham citizen petitions. Several panelists and senators noted that drugs like Humira have many patents on them and questioned the need. Stansel; Professor David S. Olson, an Associate Professor at Boston College Law School; and Senator Thom Tillis each attempted to dispel the notion that multiple patents on the same product can extend the life of the original patent. “A common misconception is that new patents or exclusivities that are obtained extend the life of the existing patents; this is not true,” Stansel said. “Once the period of protection on the original product expires, a generic version can be approved without having to go through the same clinical trials the innovator did.”

Olson said that he agreed that “we could go too far and have unintended consequences.”

“It could be difficult to distinguish ‘patent thicketing’ versus incremental innovation. If a thicketing definition is decided here, that could be applied in other areas, like high tech. All patent owners are going to use patents to their advantage to maximize profits, and the traditional counterweight has been competition, so I think narrowly focused legislation that facilitates competition from generics is most beneficial.”

Senator Thom Tillis (R-NC), Chairman of the Senate’s IP Subcommittee, served as one of the few voices of concern about striking the right balance.

“Sometimes we tend to overreach when we all want to do something, so it’s important to figure out how we get it right. I think it would be helpful to have a hearing on the value chain, from the research all the way to taking the medicine so we have a better understanding of all the distortions in the system. If we only come to the industry and say lower your pricing, that’s a blunt force approach. There is no question there are abuses, but my concern is we sweep up people who are doing it right. How can we be more focused and measured in the actions we take? One thing we have to understand is cost of providing a drug in the U.S. will almost certainly always be higher here because of standards. A lot of people want to take the easy way out and say let’s look at a certain price point and decide on that. I think we’ll see innovation dry up overnight if we do that.”

While senators like Feinstein and Mazie Hirono (D-HI) acknowledged that the issues at hand were “complicated,” the resounding consensus was that something needs to be done, soon. Senator Chris Coons (D-DE), Ranking Member of the Senate IP Subcommittee, shared Tillis’ concerns about overreach, but urged the pharmaceutical industry to come up with solutions fast.

“The industry needs to come forward with real solutions and condemn some of the practices we’ve been talking about. As someone who’s also a big believer in the patent system, I don’t want to take rash actions [that will affect] other areas where patents are critical. There’s a reason our system is the gold standard. We have to make sure we’re being careful about how we try to reduce costs without putting at risk the next generation of innovation, whether in 5G or pharmaceuticals.”

When Good Intentions Backfire

At the International Intellectual Property Commercialization Council event on the Hill earlier this week, Colman Ragan, Vice President & General Counsel, North America IP Litigation at Teva Pharmaceuticals, responded to a question posed by Bob Stoll about Congress’ focus on drug pricing. Ragan said he worries about an “underlying current that, at least in biopharma, patents are bad,” and that the haste to action could backfire.

“I worry that, accidentally, you’ll have the opposite effect on drug prices; that you’ll drive them up, especially if people can’t settle cases, or you mess with the mechanisms of the Hatch-Waxman Act. I worry about the situation where we tell people you can’t get a patent after your first one, so don’t innovate anymore. I don’t think it will help drug pricing. We have a robust system in the courts. Drug pricing is a really hot issue right now, but patents aren’t necessarily the thing that drives drug prices, and if we attack patents in pharmaceuticals, we might end up really hurting innovation over the next four to five years.”

The debate will no doubt continue.

The Author

Eileen McDermott

Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at several publications and industry organizations. She has acted as editorial consultant for the International Trademark Association (INTA), chiefly overseeing the editorial process for the Association’s twice-monthly newsletter, the INTA Bulletin. Eileen has also served as a freelance editor for the World Intellectual Property Organization (WIPO); as senior consulting editor for the Intellectual Property Owners Association (IPO) from 2015 to 2017; as Managing Editor and Editor-in-Chief at INTA from 2013 to 2016; and was Americas Editor for Managing Intellectual Property magazine from 2007 to 2013.

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 12 Comments comments.

  1. Paul Morinville May 9, 2019 2:01 am

    If you want to lower the price of drugs, look to the FDA. This is where the bulk of the problem lies. They control the list of what drugs are allowed for payment by medicare/ Medicaid. The list prevents competition if a drug is under patent by not allowing competitors on the list. When a drug is close to the end of the patents term, the drug company simply replaces it with the same drug with a different patented coating or something thus preventing a competitor for the duration of the new patent. Some drugs have been prevented completion to join the list for 50 years. The problem is here, not in the patent system.

  2. Anon May 9, 2019 10:17 am

    Several of the points made in the comments to Rein’s “infomercial” are applicable here.

    The comments can be found at: https://www.ipwatchdog.com/2019/04/28/accelerating-generic-entry-proven-solution-problem-prescription-drug-pricing/id=108586/

  3. Steve L May 9, 2019 10:35 am

    Paul is on to something, in a way having FDA approval is a form of IP. One that is often more powerful than a patent, you combine the two and now you really have something to protect the monopoly. Seems like the other issue is agreements drug companies make with other drug companies to delay the time table for competitive products to come on the market. Would appreciate more discussion on that. Seems to me that practice is already against the law, (ie, restraint of trade, Robinson Packman, etc. )

  4. Richard A May 9, 2019 8:52 pm

    A recurring theme here is the need to avoid damaging the patent system in our efforts to reduce the cost of drugs. Okay, that makes sense, although it certainly didn’t stop Congress and the courts from weakening patent rights in order to deter the activities of patent-assertion entities. But more to the point, where is it written that patent rights must be identical across different industries and types of inventions? Shouldn’t we feel differently about the scope and duration of a statutory monopoly on a cancer drug than we do about one on a printer? If we are forced to adhere to a one-size-fits-all conception of patent protection, I fear it will be very difficult to craft a solution with unpredictable and unintended consequences.

  5. Anon May 10, 2019 11:20 am

    Check: “Page Moved”

    Gene, attempts to add a comment are receiving a “this page has moved” message.

  6. Anon May 10, 2019 2:10 pm

    Appears to be “content driven,” as attempts in different modes trigger the same response (while the ‘test’ above makes it through).

    It’s a bit odd, as I include no links and there are no apparent “George Carlin” words.

  7. Anon May 10, 2019 6:14 pm

    As the delays in posts appearing make the “self-help” remedy of posting partial elements of the blocked response difficult, I will none the less attempt to post and locate the “offending portion.”

    Apologies ahead of time for the multiple posts…

  8. Anon May 10, 2019 6:15 pm

    where is it written that patent rights must be identical across different industries and types of inventions?

    A decent enough question, Richard A.

  9. Anon May 10, 2019 6:15 pm

    The answer is that patent law deals with innovation and cannot know — a priori — just where or how that innovation may develop. To attempt to “customize” patent law to current or known specific industries is de facto a sub-optimization and a restraint against the unknowable way the future innovation may unfold.

  10. Anon May 10, 2019 6:20 pm

    My next paragraph appears to be the sticking point:

    paraphrased (extensively):

    practical aspect: NOT aligning with existing and established business model/industry concerns keeps free the ability of innovation to form NEW models and industries

  11. Anon May 10, 2019 6:20 pm

    No, the better approach is the larger “hands-off” and OPEN invitation approach.

    This approach also underlies the aspect that 101 was always meant to be a WIDE OPEN welcoming gate with low hurdles.

  12. xtian May 13, 2019 12:00 pm

    Is the issue here that the price of new innovative drugs is too expensive, or that the drugs that have gone generic (think blue pills, or blood thinners) are too expensive?

    I agree that open markets for generics should decrease prices. But sometimes the prices drop so much that it isn’t even practical for a generic company to make a generic!

    The “ever-greening” patents on drugs is totally misunderstood. Once the composition of matter (think chemical molecule) goes off patent, any pharma company (generic or otherwise) can get approval for the drug (either through an NDA or ANDA). The issue is that generic companies don’t want the burden that accompanies being the only maker (brand or generic) of a drug product.

    The insulin example is a red herring – I do not believe that form of insulin is on patent. So something else is at work.