“Too many Americans simply cannot afford lifesaving medicines.” ((Chairman Nadler Statement for the Markup of H.R. 2375, The Preserve Access to Affordable Generics and Biosimilars Act, (Apr. 30, 2019), https://judiciary.house.gov/news/press-releases/chairman-nadler-statement-markup-hr-2375-preserve-access-affordable-generics-and.)) Consequently, “[s]ome patients delay essential care, cut their pills in half, or skip drug treatment altogether, all because of unaffordable drug prices, and their health suffers as a result.” ((Id.; see also Howard LeWine, Millions of Adults Skip Medications Due to Their High Cost, Harvard Health Blog, Harvard Health Publishing, (Jan. 30, 2015, 3:59 PM), https://www.health.harvard.edu/blog/millions-skip-medications-due-to-their-high-cost-201501307673; cf. Jane Brody, The Cost of Not Taking Your Medicine, New York Times, (Apr. 17, 2017), https://www.nytimes.com/2017/04/17/well/the-cost-of-not-taking-your-medicine.html (noting that nonadherence is a huge issue, but cost is only one reason, not the sole reason, of patient nonadherence to prescribed medication.).)) All of us will most likely need to take prescription drugs sometime in our lives, if not already. But, our collective health is at times, ostensibly, being bargained away by drug companies so they can maximize their profits. This state of affairs should startle all of us – it poses a huge burden on society.
The pharmaceutical drug industry is big and growing – the US alone spent $485 billion in 2018. ((Global pharma spending will hit $1.5 trillion in 2023, says IQVIA, Pharmaceutical Commerce, (Jan. 29, 2019), https://pharmaceuticalcommerce.com/business-and-finance/global-pharma-spending-will-hit-1-5-trillion-in-2023-says-iqvia/.)) That’s why we call it ‘Big Pharma’. New medications cost a lot to develop – hundreds of millions to billions of dollars – and it takes years to research, conduct clinical trials, and then finally navigate the regulatory hurdles for new drug approval. ((See Humphrey P. Rang & Raymond G. Hill, Drug discovery and development: facts and figures in Drug Discovery & Development: Technology in Transition, 322 fig. 22.1 (Raymond G. Hill & Humphrey P. Rang eds., 2d ed. 2013); Matthew Herper, The Cost Of Creating A New Drug Now $5 Billion, Pushing Big Pharma To Change, Forbes, (Aug. 11, 2013, 11:10 AM), https://www.forbes.com/sites/matthewherper/2013/08/11/how-the-staggering-cost-of-inventing-new-drugs-is-shaping-the-future-of-medicine/ #144a70613c33.)) Therefore, it is not surprising that new branded and patented drugs, for which no generic version is yet available, are expensive and consumers pay a lot for them. Pharmaceutical drugs are generally inelastic goods, meaning that price has very limited effect on demand, because our health (and in many cases life or death situations) means we are immune to considering costs of obtaining the drugs we need. ((Emily Cox, Why Financial Incentive Aren’t Enough to Move the Needle on Compliance, American Health & Drug Benefits, Jan. 2009, at 12, http://www.ahdbonline.com/issues/2009/january-2009-vol-2-no-1/272-article-272.))
Overall, we, as a society, want to encourage innovation through our intellectual property law. We do so through the patent system by allowing monopolistic exclusivity within the market for a drug for certain periods of time. Otherwise – the reasoning goes – no manufacturers would develop new drugs because the economic realities would be such that they could never recoup their costs. Furthermore, branded drug prices drop precipitously once they go off patent and generic options enter the market and there is an inverse relationship between the number of manufacturers and drug price – meaning the more drug manufacturers that produce generic options, the cheaper the drug. ((Gerard T. Vondeling, Qi Cao, Maarten J. Postma & Mark H. Rozenbaum, The Impact of Patent Expiry on Drug Prices: A Systemic Literature Review, 16(5) Appl. Health Econ. & Health Policy 653 (2018), https://www.nber.org/digest/sep14/w20016.html; Ernst R. Berndt, Richard Mortimer, Ashoke Bhattacharjya, Andrew Parece & Edward Tuttle, Authorized Generic Drugs, Price Competition and Consumers’ Welfare, 26(3) Health Aff. 790, (2007); Steven N. Wiggins & Robert Maness, Price Competition in Pharmaceuticals: The Case of Anti-infectives, 42(2) Econ. Inq. 247 (2004).)) However, there is an equally strong competing public interest to foster competition in the market place, by introducing generics in order to lower costs and enable greater access to drugs. This reasoning was one of the main impetuses for Congress to enact the Hatch-Waxman Act, which established the modern system of generic drug regulation in the United States.
There is a delicate balance between protecting property rights to incentivize innovation and safeguarding revenue streams for manufacturers, on one hand, and promoting a competitive market to lower costs for end consumers – patients – who need medication in order to optimize our society’s health policy goals, such as a healthier population, on the other. Inevitably, these competing priorities lead to instances where the economic incentives in our system encourage manufacturers to attempt to extend patent protection and the exclusive monopolies on certain drugs through “product life cycle management” or “evergreening” strategies that ultimately harm us, the people who need drugs. ((Yaniv Heled, Liza Vertinsky & Cass Brewer, Why Healthcare Companies Should Be(come) Benefit Corporations, 60 B.C. L. Rev. 73, 102 (2019).))
This paradigm of exclusivity, permitted monopoly, and the procedures of the regulatory agencies administering it have facilitated a range of these economically motivated practices. “The legal and economic literature is replete with accounts of such competition-limiting practices.” ((Id.)) Some notable examples include: reverse payment patent settlement agreements, commonly referred to as “pay-for-delay” agreements, product hopping, “racializing” products, abuse of the FDA’s Citizens Petition procedure, and stonewalling or refusal to sell drug samples to generic companies for bioequivalence studies. ((Id. at 102-3 nn.137-40; Jonathan Kahn, Race-ing Patents/Patenting Race: An Emerging Political Geography of Intellectual Property in Biotechnology, 92 Iowa L. Rev. 353 (2007); Jonathan Kahn, Patenting race, 24Nature Biotechnology1349 (2006) (racializing patents).))
“Despite significant controversy surrounding the purpose and legitimacy of these practices, there is little dispute that they delay and sometimes prevent competition in drug markets.” ((Heled et al. at 102; see also Gregory H. Jones et al., Strategies That Delay or Prevent the Timely Availability of Affordable Generic Drugs in the United States, 127 Blood 11 (2016),http://www.bloodjounal.org/content/bloodjounal/127/11/1398.full.pdf.)) The end result of a more limited and less competitive market is increased revenue for drug companies and leads to prolonged restrictions in patient access to drugs. These competition-limiting practices decrease patient access to pharmaceutical drugs. This inevitably leads to worse health outcomes for patients in the form of increased morbidity and mortality. Simultaneously, this increases drug company profits.
These practices may, but not always, cross the line into anticompetitive practices. And most of these practices are not vetted in the court of public opinion to the same extent as other pharmaceutical drug pricing scandals have. Two of the most egregious recent examples that have garnered considerable attention in the media in the last few years have been Martin Shkreli (“Pharma bro”) and Mylan’s EpiPen price gouging scandal. ((See generally, Dan Mangan, ‘Pharma bro’ Martin Shkreli moved from federal prison after claim he was running drug company with banned cellphone, CNBC, (Apr. 24, 2019, 3:03 PM), https://www.cnbc.com/2019/04/24/pharma-bro-martin-shkreli-moved-from-prison-after-rule-breaking.html; Kimberly Leonard, Mylan’s CEO Hit Over Multi-Million Dollar Salary Amid EpiPen Price Controversy, U.S. News, (Sept. 21, 2016, 5:43 PM), https://www.usnews.com/news/articles/2016-09-21/mylan-head-defends-epipen-price-gouging-in-capitol-hearing.)) Martin Shkreli was the CEO of Turing Pharmaceuticals (now Phoenixus AG) in 2015. Turing is the sole manufacturer of the life-saving drug Daraprim, which is used to treat toxoplasmosis, a parasitic infection that is life-threatening for those with compromised immune systems, such as AIDS patients, as well as babies born to women who became infected during pregnancy. While Martin Shkreli was CEO of Turing, Daraprim’s price spiked over 5,000% from $13.50 a tablet to $750. ((Andrew Pollack, Drug Goes From $13.50 a Tablet to $750, Overnight, CNBC, (Sept. 21, 2015, 4:47 PM), https://www.cnbc.com/2015/09/21/drug-goes-from-1350-a-tablet-to-750-overnight.html.)) Martin Shkreli is currently serving a 7-year sentence in federal prison for fraud (unrelated to the Daraprim price spike). Overall, Martin Shkreli became synonymous with the negative public perception of the pharmaceutical industry being greedy and unscrupulous. As the embodiment and personification of this perception, he became known as “Pharma Bro” in most mass media.
Similarly, Mylan is the sole producer of the epinephrine auto-injector EpiPen, which is used to treat anaphylaxis – severe allergic reactions. EpiPens can treat a variety of allergies and a common example is children with peanut allergies. Mylan has a near monopoly on the auto-injector market, especially in schools, thanks in part to the National Association of State Boards of Education (NASBE). In 2012, the NASBE led a campaign that encouraged states to require schools to purchase life-saving medical devices. ((Jayne O’Donnell, Family matters: EpiPen had high-level help getting into schools, USA Today, (Sept. 20, 2016, 12:46 PM), https://www.usatoday.com/story/news/politics/2016/09/20/family-matters-epipens-had-help-getting-schools-manchin-bresch/90435218/.)) Mylan increased the price of EpiPens from about $100 in 2007 to $608 in 2016, precipitating the price gouging controversy and led to a hearing before the House Oversight Committee. ((Leonard, supra note 11.)) Additionally, there were strong concerns regarding nepotism and conflicts of interest: the CEO of Mylan is Heather Bresch, Bresch’s father is Sen. Joe Manchin (D-W.Va.), and her mother, Gayle Manchin, was the chair of the NASBE during the association’s campaign to require schools to stock life-saving medical devices. ((See generally, O’Donnell, supra note 13.))
A more recent development in the saga of pharmaceutical companies acting questionably is Allergan’s attempts to shield patents for one of its products, Restasis, a dry-eye drug, from Inter Partes Review (IPR) by the Patent Trial and Appeal Board (PTAB). ((Robert Pear, Indian Tribe Joins Big Pharma at the Supreme Court, Defending a Lucrative Deal, New York Times (Jan. 26, 2019) https://www.nytimes.com/2019/01/26/us/politics/allergan-eye-drops-indian-tribe.html.)) PTAB is created by statute and is charged with rendering decisions on: appeals from adverse examiner decisions, post-issuance challenges to patents, and interferences. IPR is a trial proceeding before the PTAB instituted by a third-party against a patent holder challenging the patentability of one or more claims in a patent only on the basis of prior art consisting of patents or printed publications. Allergan essentially sold its Restasis patents to the St. Regis Mohawk Tribe and simultaneously entered into a patent licensing agreement with the Tribe in exchange for an up-front lump sum up as well as royalties paid quarterly. The aim was to skirt the IPR by the PTAB through the Tribe asserting sovereign immunity. ((Elana Williams, Tribal Sovereign Immunity as a Defense in Overcoming IPR Challenges of Brand Name Pharmaceutical Patent Validity at PTAB – Effects on the Industry, 18 J. Tech. L. & Policy 40 (2017).)) The tribe moved to dismiss the pending IPR proceedings, arguing that tribal sovereign immunity protected those patents from challenge before the PTAB. The PTAB ultimately dismissed the Tribe’s motion to terminate the IPR. Allergan appealed and the Federal Circuit held that sovereign immunity does not extend to IPR. ((Katrina Grace Geddes, Sovereign Immunity for Rent: How the Commodification of Tribal Sovereign Immunity Reflects the Failures of the U.S. Patent System, 29 Fordham Intell. Prop. Media & Ent. L.J. 767 (2019).)) Finally, the Supreme Court denied Allergan’s petition for writ of certiorari. ((Gregory Castanias & Jihong Lou, Supreme Court Denies Cert on Tribal Sovereign Immunity Question, JDSUPRA, (May 13, 2019), https://www.jdsupra.com/legalnews/supreme-court-denies-cert-on-tribal-28692/; see also Saint Regis Mohawk Tribe v. Mylan Pharm. Inc., 896 F.3d 1322, 1326 (Fed. Cir. 2018), cert. denied, No. 18-899, 2019 WL 1590253 (U.S. Apr. 15, 2019). ))
This novel arrangement could be viewed as an opportunistic and predatory practice. ((See Geddes, supra (arguing it was ‘exploitation’ and suggesting strategies to deter such transactions from recurring in the future))). It could also be viewed as a mutually beneficial relationship. ((See Daniel C. Kennedy, Strange Bedfellows: Native American Tribes, Big Pharma, and the Legitimacy of Their Alliance, 68 Duke L.J. 1433 (2019).)) There is no consensus yet as to which is correct. Regardless, this arrangement was a creative attempt by a pharmaceutical company to circumvent patent IPR and protect its exclusive patent rights against potential generic competitors.
In response, the Preserving Access to Cost Effective Drugs Act was introduced in the Senate and provides “that a patent owner may not assert sovereign immunity as a defense in certain actions before the United States Patent and Trademark Office, and for other purposes.” ((Preserving Access to Cost Effective Drugs Act, S. 440, 116th Cong. (2019), https://www.congress.gov/bill/116th-congress/senate-bill/440/text. )) While this particular creative attempt failed, there will surely be new and even more creative attempts to extend patent protection through evergreening strategies or other legal maneuvering. In the end, while such tactics benefit pharmaceutical companies, and possibly others as well, like the St. Regis Tribe with Allergan or a generic manufacturer on the other side of the table in a “pay-for-delay” settlement agreement, invariably, those who are harmed the most are the general public – patients and consumers – who can’t afford to pay for the drugs that they desperately need.
Basically, “[w]e don’t have a good model for pricing pharmaceuticals in this country and, as a result, we keep spending a lot more money… We avoid thinking about it, or avoid dealing with it, and as a result things get more problematic.” ((Shefali Luthra, ‘Pharma Bro’ Shkreli Is in Prison, But Daraprim’s Price Is Still High, Kaiser Health News, (May 4, 2018), (quoting W. Nicholson Price), https://khn.org/news/for-shame-pharma-bro-shkreli-is-in-prison-but-daraprims-price-is-still-high/.)) Even if consumers do not end up having to pay out of pocket, the overall expense is still the same – the source of payment is just shifted from the patient to either their insurance, or the Federal Government through Medicare or Medicaid. ((Id.)) High pharmaceutical drug costs is a salient issue that is being intensified by drug companies employing evergreening practices. How can we maintain incentives in the marketplace to foster development while still ensuring patient access to affordable drugs?
A proposed pathway for accomplishing the goal of tackling high drug prices is through a two-pronged attack, including: greater access to generics and biosimilars and stronger antitrust enforcement. Essentially, providing a carrot and a stick. The carrot portion to incentivize and foster development would be attained through expedited FDA review for generics and biosimilars. This expedited review would reduce costs for drug manufacturers bringing their products to market and would also lower the hurdles to competition. As mentioned, drug prices drop precipitously once generics become available on the market and generics tend to be much cheaper than the original branded product. ((See Berndt et al. supra; Vondeling et al. supra; Wiggins et al. supra note 6.)) Drug prices also tend to be further reduced when there are multiple manufacturers with generic options on the market. Furthermore, there is a direct correlation between the number of manufacturers of a particular drug and the price increase. An illustration of this phenomenon is in the “Pharma Bro” example where there were no competitors for the drug Daraprim, which allowed the price gouging practice to go unchecked, if not for media outrage. ((Shefali Luthra, ‘Pharma Bro’ Shkreli Is In Prison, But Daraprim’s Price Is Still High, Kaiser Health News, (May 4, 2018), https://khn.org/news/for-shame-pharma-bro-shkreli-is-in-prison-but-daraprims-price-is-still-high/, (however the price of Daraprim is still high).))
Another proposed piece of legislation that has been introduced and is currently before the House Judiciary Committee review is the “Preserve Access to Affordable Generics and Biosimilars Act,” which would prohibit one type of evergreening strategy – reverse payment settlement agreements or ‘pay-for-delay’ settlement agreements. ((Preserve Access to Affordable Generics and Biosimilars Act, H.R. 2375, 116th Cong. (2019), https://www.congress.gov/bill/116th-congress/house-bill/2375/text.)) In general, the practice is one whereby patent holding manufacturers can pay generic companies to delay generic production and market entry, thereby artificially extending the financial benefits of the legal monopoly granted through patent protection. Such a framework would impose financial penalties on bad actors that continue to engage in this practice. ((Id.)) The benefits of this approach are that it enforces current antitrust law, is supported by Supreme Court precedent under FTC v. Actavis, and encourages greater competition in our free market economy. ((See FTC v. Actavis, Inc., 570 U.S. 136 (2013) (holding that the FTC can bring claims under antitrust principles against those who engage in “pay-for-delay” agreements).))
The most foreseeable and compelling counterargument is that drug manufacturers will just increase drug prices while drugs are still branded, off-setting the foreseen loss of profitability in later years due to quicker generic entry to the market. Such action would just exacerbate and lead to the very result that we want to avoid – higher drug costs. However, this is a question that is empirical in nature – one that can be tested in the real world, but only after such reforms have been introduced. But there are already pieces of legislation under review to stem this concern as well, such as the “Stop the Pharmaceutical Industry from Keeping drugs Expensive” or SPIKE Act, ((Stopping the Pharmaceutical Industry from Keeping drugs Expensive Act, 116th Cong. (2009), https://www.congress.gov/bill/116th-congress/house-bill/2069/text; see also Horsford, Reed Introduce SPIKE Act To Rein In Skyrocketing Prescription Drug Prices, (Apr. 3, 2019), https://horsford.house.gov/media/press-releases/horsford-reed-introduce-spike-act-rein-skyrocketing-prescription-drug-prices.)) Additionally, it is important to note that simply making generics available does not guarantee a price decrease. In fact, sometimes the price still goes up. According to a GAO study, “[m]ore than 300 of the 1,441 established generic drugs analyzed had at least one extraordinary price increase of 100 percent or more between first quarter 2010 and first quarter 2015.” ((United States Government Accountability Office, Generic Drugs Under Medicare: Part D Generic Drug Prices Declined Overall, but Some Had Extraordinary Price Increases, GAO-16-706, (Aug. 2016), https://www.gao.gov/assets/680/679022.pdf.)) However, this concern may be partly a function of single or limited number of generic manufacturers operating in the market, thereby granting a pseudo-monopoly as a sole-supplier. The GAO Report did note that the vast majority of the drugs that did experience an extraordinary price increase during the years of the analysis were rarely among the 100 most utilized established generic drugs. ((Id. at 18-19.)) Other negative consequences are yet to be determined.
Pharmaceutical industry practices should lessen the burden on American health instead of exacerbating its shortcomings. A potential response to combat exorbitant or increased drug prices is to coordinate efforts to increase competition in the industry in a few key ways: instituting incentives for greater competition by lowering hurdles to market entry through expedited FDA review for approval of generics and biosimilars, enforcing current anticompetitive practices by applying current case law in keeping with the SCOTUS ruling from Actavis, and enacting new legislation against anticompetitive practices, such as specifically prohibiting certain evergreening strategies like ‘pay-for-delay’ agreements and other tactics like Allergan’s attempt to shield their Restasis patents through Native American sovereign immunity. This will lead to greater competition. The result of greater competition is more affordable prescription drugs. Cheaper drugs mean greater patient access to medication. Expanded patient access will increase adherence, improving patient health in a meaningful way. Overall, this will all lead, hopefully, to better patient health outcomes and a healthier America.
Latest posts by J.M. Buccilli (see all)
- The Burden of Pharmaceutical “Evergreening” Strategies on American Health - November 10, 2019