THE GOOD, THE BAD, AND THE UGLY

In the American medical industry, pharmaceutical companies, drug manufacturers, and healthcare conglomerates have formed a labyrinthine network: Big Pharma. Though the term is linked with a negative connotation, the development of new pharmaceutical drugs by “Big Pharma” has catalyzed the revolution of medical care and contributed to medical innovation in the 21st century. Large pharmaceutical companies have developed important treatments, from Bayer’s Aspirin™ to Pfizer and Moderna’s Covid-19 vaccines. Undeniably, the advancement of pharmaceuticals has contributed to longer human lifespans. 

Despite such developments, Americans are struggling to actually access necessary drug treatments. The lack of drug affordability has plagued a significant portion of the population, with  three in ten adults reporting not taking their medicines as prescribed in the past year because of the cost. High prices could be attributed to R&D innovation expenditures, but perhaps this reason has become a red herring. We must examine Big Pharma’s patent monopolies and whether they have caused the surge in drug prices. 

PATENTS V.S. PATIENTS

Typically, pharmaceutical companies are granted patents to encourage risky investments in research and development (R&D) for novel drugs that have the potential to become blockbuster drugs and generate billions in annual profits. However, a common criticism of the industry is that despite millions of individuals who need access to life-saving drugs, Big Pharma prioritizes developing and patenting drugs that provide the greatest return on investment. But the dynamics between innovation and accessibility in the pharmaceutical industry is complex. Drug development processes are long, complicated, and highly regulated, involving significant investments and risks such as expensive clinical trials. To protect these efforts, recoup investments, and incentivize future innovation, pharmaceutical companies rely heavily on the market exclusivity granted by patents. As patent protections expire, pharmaceutical companies face the prospect of eroding profits before another bestselling drug comes along, a period marked as the innovation gap. 

Many pharmaceutical companies have begun to exploit a legal loophole and repeatedly appeal for more patents before previous ones expire to tighten their grip on trademark protection of brand-name drugs. Natural up-and-downturns in drug innovation may become stagnant as Big Pharma prioritizes extending monopolies on patented drugs. This process, known as evergreening or patent thicketing, ensures companies retain high levels of revenue at the expense of introducing affordable generic bioequivalent drugs to the market. 

EXAMPLE$$$

Big Pharma, through manipulation, has turned the patent system into an aggressive business strategy. Examples of monopolization tactics and artificially inflated prices include: 

• AbbVie’s patent piling practices for Humira, a drug that is responsible for $100 billion of its profit. AbbVie had filed for 311 patent applications—165 of which were approved—in order to extend its exclusivity on Humira for nearly 40 more years. 
• Eli Lilly, which extended patents and increased costs for insulin since the late 20th century and has dominated the insulin market along with two other European companies.
  • In March of 2023, Eli Lilly announced that they would lower their list price of insulin by 70% and cap out-of-pocket costs at $35. 
  • The original insulin patent was sold for one dollar, from which prices have risen more than 300% in the last 20 years. 
• Amgen built a patent thicket around the arthritis drug Enbrel, for which cumulative sales have already topped $74 billion and have protected Amgen’s pricing power until 2029. 
• Nostrum Laboratories’s nitrofurantoin, first developed in 1953 to treat bladder infections. Nirmal Mulye, CEO of Nostrum Laboratories, bought the rights and raised the medication’s price 400% without any additional R&D investments.
  • When asked about the price increase, Mulye told the Financial Times: “I think it’s a moral requirement to make money when you can … to sell the product for the highest price.”

A BITTER PILL TO SWALLOW

The biggest issue of patent monopolies is the effect of anti-competitiveness. Generic drug-makers who develop drugs with identical chemical properties to patented drugs can apply for ANDAs (Abbreviated New Drug Application) and file for a certification (paragraphs I, II, III, or IV) to challenge patents. On paper, ANDAs streamline the process for generic companies to market generic drugs by waiving clinical trial requirements, but delays in application approvals mitigate this purpose. That’s because backlog from thousands of ANDAs has left the FDA swamped in paperwork, slowing down the approval process and inadvertently contributing to patent monopolies being extended. Instead, most generic drug companies choose to settle with brand-name drugs instead of challenging them, resulting in a “reverse payment” where patent holders compensate generic companies for an agreement not to compete. 

This is largely due to the 1984 Hatch-Waxman Act, which established the regulatory procedures for modern pharmaceuticals. The act was created to be pro-competitive and facilitate the entrance of generic drugs into the market, but its vague phrasing opened up loopholes that “gave patentees substantial freedom in drafting [claims]” and allowed patentees to “define the invention to which they have exclusive rights,” essentially granting Big Pharma companies an unlimited scope of protected exclusivity. This rhetoric explains the fundamental asymmetry in a patent infringement suit that will always favor the patent holder. The profit incentive, for both patent holders and smaller biotech companies, risks creating a chilling effect on innovation overall, the price of which consumers pay. An FTC report from 2010 estimated that reverse payment agreements resulted in over $3 billion in higher prescription drug prices for Americans. Although reverse payment agreements and patent monopolies are a significant part of the problem, Big Pharma uses other tactics to boost profits including but not limited to: 

• Cutting R&D budgets to increase investments in advertising and marketing, primarily towards primary care doctors who provide prescriptions. 
• Buying potential “novel drugs” from small start-ups by funding the costly FDA approval process and then retaining market exclusivity after approval. 
• Lobbying to pass or preserve pharma-friendly U.S. laws
  • PhRMA is one of the largest lobbying organizations across all industries, and its members, employees, and PACs lobbied $21,043,000 in 2023. 
  • Lists of candidate and organization recipients are listed on opensecrets.org

POTENTIAL SOLUTIONS 

The first potential solution would be to create a separate administrative agency that solely focuses on regulating pharmaceutical patents. Having a specialized pharmaceutical agency will help the FDA alleviate the immense backlog in approving thousands of ANDAs that generic drug companies apply for, which will speed up the approval process and allow generic drug companies to manufacture and market their generics. Furthermore, the new administrative authority can enforce financial penalties for violations of antitrust law and routinely examine the quality or validity of pharmaceutical patents. A specialized board can review the legitimacy of patent applications under The Federal Trade Commission vs. Actavis, where the US Supreme Court ruled that the legality of reverse payments should be determined on a case-by-case basis, depending on the size and scale and anticompetitive effects. 

Additionally, language in the Hatch-Waxman Act should be updated to limit the number of reverse payment settlements for a particular patented drug. A “limited right to settle” provision would not ban settlement in cases where it is appropriate (such as recouping costs from R&D investment), but rather reducing interactions between brand name and generic drug companies so that it does not lead to a hostile pattern of violating antitrust laws. Brand name companies would then have a greatly reduced power over extending patents. One way to enforce this is to have a patented drug company report annual profits and use data based on that trajectory to calculate the optimal length of a patent. This “limited right to settle” provision, financial penalties, and risk of financial losses from ceding market exclusivity would likely be enough to discourage Big Pharma from abusing the patent system. These legal deterrents effectively hit pharmaceutical companies where it hurts the most—the returns on their investments. Threatening to slash their monetary incentive leaves pharmaceutical companies no choice but to comply. 

CONCLUSION 

Reforming the Hatch-Waxman Act will revitalize the original purpose to promote competition and expedite generic drugs to the consumer market. Under these new provisions, we can still encourage pharmaceutical innovation with patents while also ensuring that the public has access to lower-costing drugs. 

The American health care industry has always been a source of intense scrutiny, and not without reason. For too long, our leaders have treated the pharmaceutical industry as a business. But for 131 million Americans who rely on prescriptions, there is no choice. Affordable drugs are not a luxury, they are a necessity.