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How Pharmaceutical Patents Contribute to Increased Drug Costs
Patents in the pharmaceutical industry contribute to increased drug costs and create barriers to healthcare accessibility.
In the United States, drug prices have soared in recent years. The pharmaceutical industry and medicine, in general, have been criticized for these rising drug costs. Beyond the associated financial burden, inflated medication costs also introduce and exacerbate barriers to care.
In fact, according to a study by the Kaiser Family Foundation, approximately 48% of all prescription drug costs increased between 2019 and 2020. Furthermore, a press release by the American Academy of Neurology stated that epilepsy drug costs have increased by 277%.
While this hike in pricing is not isolated to the US alone, price differences have been more considerable in the US. This is demonstrated in a comparison of insulin costs, with the average unit of insulin in the US costing $98.70 while in Canada, it is $12.
The reasoning behind the inflation of drug prices is multifaceted; however, a major contributing factor is access to drug patents and the inability of other companies to manufacture generic medications for the duration of the patent.
Intellectual Property
According to the Congressional Research Service, intellectual property (IP) rights “are typically justified as necessary to allow pharmaceutical manufacturers the ability to recoup substantial costs in research and development, including clinical trials and other tests necessary to obtain regulatory approval from the US Food and Drug Administration (FDA).”
The two main types of intellectual property rights are patents and regulatory exclusivities.
Patents
Patents in the pharmaceutical industry can vary heavily, varying from chemical compounds to drug development methods.
Although amended multiple times, the Patent Act of 1952 establishes the right to patent a product.
The Congressional Research Service states, “the holder of a valid patent generally has the exclusive right to make, use, sell, and import the invention for a term lasting approximately 20 years.”
Pharmaceutical patents, at the most basic level, are composition-of-matter patents that cover specific molecules or combinations of molecules. The patent can either cover the tangible item or the production process. Furthermore, existing drugs can be patented for new uses or new formulations.
The Orange Book, published by the FDA, lists all branded patents. The patent’s primary lifespan is 20 years from filing and can be extended with additional applications. The ability to extend patents plays a significant role in medication costs.
During the span of the patent, no other entity is allowed to sell a generic version of the drug, which keeps competition and lower prices at bay.
Obtaining a Patent
The United States Patent and Trademark Office (PTO) — the governing organization responsible for patents in the US — reviews applications and issues patents for various industries, including the pharmaceutical industry.
The multistep process of obtaining a patent is complex and consists of the following stages: patent submission, patent review, and patent issuance.
To begin a patent application, an individual or company enters the patent prosecution phase, in which the PTO evaluates the patent from a legal standpoint. The Congressional Research Service states that “along with requirements regarding the technical disclosure of the invention, the claimed invention must be (1) directed at the patentable subject matter, (2) new, (3) nonobvious, and (4) useful.”
In general, most things are patentable. Processes, machines, manufacturing strategies, compounds, or improvements on existing versions of the aforementioned items can be patented. Conversely, natural phenomena and abstract ideas cannot be patented. Approval of the patent application is contingent on the item or process falling into a patentable category.
The Congressional Research Service heavily implies that being new is the most critical requirement for obtaining a patent. You cannot patent something that already exists because that would not be considered an innovation.
In addition to novelty, the patented item must be nonobvious, meaning the patent must not be something anyone could think of or a basic expansion on an already available item or procedure.
Finally, when reviewing patent applications, the PTO seeks patents deemed useful and fulfill an unmet need.
Patents vs Market Exclusivity
Contrary to popular belief, product patents and market exclusivity are not the same but are related. Unlike patents granted through the PTO, market exclusivity is approved by the FDA.
Researchers in an AJMC article state, “in its essence, regulatory exclusivity is a congressionally mandated monopoly under the law. It allows a brand name manufacturer a certain guaranteed period of protection, regardless of what patents they may or may not have. The protection provided by patents, however, is not guaranteed.”
Patents and Rising Drug Costs
While patent systems may provide incentives for innovation, misuse of patents has driven medication costs to a new high. These increased costs have limited access to necessary medications.
“It is no exaggeration to say that drug prices have skyrocketed. The cost of prescription medication is growing faster than any other form of healthcare spending, including hospitalization or nursing home care,” stated researchers in the Journal of Law and the Biosciences.
The original purpose of the patent system was to encourage and incentivize innovation. Most companies are no longer innovating new medications but monopolizing existing ones. It is estimated that between 78% and 80% of new patent applications are not for new medicines.
“The patent system is not functioning as a time-limited opportunity to garner a return, followed by open competition. Rather, companies throughout the industry seek and obtain repeated extensions of their competition-free zones,” noted investigators in the Journal of Law and the Biosciences.
Furthermore, approximately 70% of the bestselling drugs have had an additional patent filed or extended to further monopolize the market for that drug.
“An analysis of the ten best-selling drugs of 2019 found that, on average, these drugs held more than 69 patents with 37.5 years of patent protection, well past the 20 years of patent life intended by Congress. Furthermore, the prices for these drugs increased 71% over the previous five years,” wrote the authors in an article from the Commonwealth Fund.
Abbvie has been highlighted as a pharmaceutical company that has abused the patent system by the House Oversight and Government Reform Committee due to their patents on Humira and Imbruvica.
According to data from the Commonwealth Fund, the company filed for approximately 225 patents for Humira. These patents have contributed to over $19 billion in healthcare costs due to restrictions on creating generic versions of the drug.
Looking Ahead
Companies that abuse the US patent system and attempt to patent components of drugs that do not represent true innovation ultimately keep drug prices high, stifle progress, and harm patients. Although numerous recommendations have been made to minimize drug patents’ impact, policymakers have failed to legislate change and reform the current system.
An article in the Journal of Law and the Biosciences has proposed solutions, including a one-and-done policy, simplified patent systems, transparency, and improved accessibility to drug information.
