Aug 3, 2022 - Health

Democrats' backdoor crackdown on pharma "gaming"

Illustration of a pile of money under a cracked glass dome with a gavel hovering overhead.

Illustration: Aïda Amer/Axios

Democrats' drug pricing plan could end drugmakers' practice of taking out overlapping patents around one drug — a strategy which fends off competitors but that the industry argues incentivizes innovation after a drug is approved.

Why it matters: Patenting new uses, delivery methods or ingredients can often ensure monopoly prices for years after a drug's market exclusivity expires. But the Democrats' proposal would allow Medicare to negotiate much lower prices for those drugs after a set period of time, slashing drugmakers' revenues years before competition enters the market.

The big picture: Patient advocates, health policy experts and politicians from both parties have for years decried "thickets" of patents they say let the pharmaceutical industry game the system, flout antitrust laws and keep prices higher for longer.

  • Critics zero in on instances where companies patent minor components of a drug, then reformulate those components and take out more patents, to deter potential competitors from making a cheaper copycat version.
  • AbbVie is the poster child for using patent litigation to delay generic competition, having kept biosimilars of its blockbuster Humira off the U.S. market for years after they became available in Europe.

The other side: The drug industry says cutting the benefits of prolonged market protections is a huge problem, because manufacturers won't be incentivized to find new uses for drugs that have already come to market.

  • "If this bill becomes law, it will change a lot how companies think about investment and ongoing clinical trials to identify new indications for approved medicines," said Jocelyn Ulrich, deputy vice president for policy, research and membership at the Pharmaceutical Research and Manufacturers of America. "Any of those more complex diseases — immunology, orphan diseases and oncology in particular — will be significantly impacted by these shorter time frames.”

State of play: Democrats' party-line reconciliation bill would indirectly address patent stacking.

  • The bill gives Medicare the authority to negotiate prices directly with drug manufacturers and creates ceilings for what those prices can be.
  • Only drugs without competition that have been on the market for a certain amount of time — nine years for small molecule drugs and 13 for biologics — can be subject to negotiation.
  • Current law gives small molecule drugs five years of exclusivity after approval, and biologic products 12 years.

Yes, but: In reality, exclusivity periods are significantly longer.

  • Small molecule drugs usually have, on average, around 14 years of market protections, according to one study — which often results in monopoly pricing. Another study found that exclusivity periods are even longer for biologics. (Drugs do sometimes see competition from other branded products before generics come to market.)
  • Research published Monday in Health Affairs found that small molecule drugs approved in 2019 and 2020 had patent protections that extended for a median of 10.3 years after approval. The authors note that these are likely only the drugs' first batch of patents.

What they're saying: “That patent litigation sort of pushes out generic entry is the norm. It’s the rule rather than the exception," said Aaron Kesselheim, a professor at Harvard Medical School and an author of the Health Affairs study.

  • "The negotiation process would help ensure there are slightly more reasonable prices and reduce investors’ incentives to invest in those strategies," he added.

The intrigue: Key wording of the Democrats' bill eliminates what would have been a major opening for drug companies.

  • In order for a drug to be exempt from Medicare negotiations, the competitor product must be both FDA-approved and marketed — meaning that competition thwarted by patent thickets doesn't count.
  • That doesn't negate patent protections. But it does remove the incentive to take out new patents, because the drug will be eligible for Medicare negotiations anyhow and see a reduced price.
  • Under the current system, that drug — think Humira — can retain monopoly pricing for years after its statutory exclusivity period has expired, even if generic products have been approved.

The bottom line: If Democrats pass this version of Medicare negotiations, it will effectively cap how long drugmakers can expect monopoly-generated revenues from new drugs.

  • Whether that's a good thing or a bad thing depends on who you ask.
  • “You have the Humiras of the world which are able to use these extensive patent portfolios to delay competition for 20 years or more, and that’s not the social bargain as we think of it," said Rachel Sachs, a Washington University law professor.

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