This article is part of a series about drug pricing reform. In this article, we dive deeper into patent exploitation, pharmacy benefit managers, and unfair trade

By: Nicole Saleme

President Donald Trump's speech on drug pricing on May 11 specifically called for the elimination of patent exploitation as a key tenet in his fight to reduce drug pricing. Although his remarks that day were light on details, they raised the question of how much power and influence the executive office has on drug pricing.
This piece explores the four main avenues pharmaceutical companies take to extend the exclusivity or protections of patents. We examine whether these advancements are actually helping patients, and whether a presidential administration has the power to make these desired patent changes to help drive down drug costs.

Background: A Quick Primer on Drug Patenting

As pharmaceutical companies conduct research, develop new formularies and, hopefully, advance a new drug, they apply for patents. These typically last for 20 years, to protect their intellectual property and their significant investments from competition, ensuring the company reaps the profits of the innovation. The timeline can be a tough pill to swallow, as it typically takes eight or more years for drugs to get approval from the U.S. Food and Drug Administration and come to market. A 2014 study estimated that the cost of bringing a new drug to market was $2.6 billion (in 2013 dollars), making cost recovery challenging in the 12 years between FDA approval and a patent’s expiration. 

Once a patent expires and generics or biosimilars enter the market, the sales of a drug plummet. For example, Claritin used to gross its developer, Schering-Plough Corp., more $3 billion in U.S. sales  every year by charging $2.80 per tablet. Once the patent expired in 2002, U.S. sales dropped to $370 million per year as the price dropped to 45 cents per tablet. Another example: In 2003, worldwide sales of Lipitor, a drug used to treat cholesterol, totaled $9.5 billion. Lipitor’s patent expired in November 2011, and in 2012, worldwide sales fell to $3.9 billion – a 60 percent decrease from its revenue before the patent’s expiration. By 2017, worldwide sales had slumped 80% to $1.9 billion.

How Pharmaceutical Companies Stretch the Exclusivity of Patents to Increase Sales 

It is important to note the difference between patents and exclusivity. Patents are granted by the United States Patent and Trademark Office during the development of a drug and can include a wide range of claims. Exclusivity refers to delaying and/or prohibiting the approval of competing drugs to enter the market. Patents cannot be extended past the 20-year mark. Pharmaceutical companies work on extending the exclusivity of a drug (e.g., AbbVie extended the manufacturing exclusivity of Humira, prohibiting generics from manufacturing the drug until 2023). Depending on the type, exclusivities can be extended anywhere between 180 days to 7 years.

An overwhelming number of drugs that enter clinical trials never receive FDA approval, so drug makers count on their successful products to recover the costs of failed drugs by maximizing patent terms and setting prices high.

A pharmaceutical company can increase sales and extend the exclusivity of a patent in several ways:

    1. Combination of Drugs: This method consists of taking two existing drugs on the market, combining them and selling them as a new medication. Pharmaceutical companies can market such drugs as a newly patented product, boosting sales. An example is the drug Symbyax, a combination of the drugs Zyprexa and Prozac which helps with the treatment of bipolar disorder. Symbyax has added more than $100 million in sales to Eli Lilly and Co. 
    2. Alternate Delivery: The alternate delivery method involves developing a new way to deliver an existing drug, such as creating a micro-encapsulated form or a pill with layers that dissolve at different rates, allowing for a more controlled release. The patent for Advair, a drug manufactured by GlaxoSmithKline Plc that helps with asthma and chronic obstructive pulmonary disease, was extended when GSK developed a formulation that could be delivered in a meter-dose inhaler device.
    3. Compound Structure: Pharmaceutical companies are looking into versions of drugs that tweak the structure of a drug’s molecule of patented drugs that are already on the market. Such variants, known as single-enantiomer drugs, can offer increased efficacy and reduced side effects, which can provoke the FDA to extend a patent. An example is AstraZeneca Plc.’s Prilosec, which was developed to reduce acid reflux. The product’s patent was expiring in 2002, so years ahead of that, AstraZeneca began research into a single-enantiomer version, creating the drug Nexium. Nexium accounted for nearly $3 billion in sales in 2003.
    4. New Uses: Pharmaceutical companies can obtain new patents on drugs already in the marketplace, increasing their commercial life, when they discover new uses and treatment indications for the same molecule. Multiple pharmaceutical companies have successfully obtained new patents for new uses of a product. As an example, Merck & Co. Inc. developed, patented, and marketed Proscar, a drug used to treat benign prostate enlargement. The company then discovered the drug could also treat male pattern baldness, which led to the FDA providing additional patent protection and approval.

Do Patent Extensions Improve Patient Lives? 

It’s not always clear which of the methods stated above consist of patent exploitation. Discovering a new use for a molecule can lead to market innovations and bring researchers closer to curing diseases. Releasing a drug with a different structure, such as a single enantiomer, can boost efficiency and cut side effects, improving patients’ quality of life.

While patients can reap benefits and the pharmaceutical industry can make progress through such maneuvers, the alternate delivery method and combination of drugs method can be seen as exploiting drug patents. It’s rare for an alternate delivery method to meaningfully improve a patient’s quality of life. And getting the exclusivities of a patent extended by combining two drugs can appear deceptive – as though patients are being coerced into paying a higher price for a drug, when a similar effect can be had with two cheaper drugs. Meanwhile, gag rules (discussed in more detail below) prevent pharmacists from informing patients of the cheaper two-drug alternative.

Extending the exclusivity of protection of drug patents can negatively affect patients by creating a barrier to generics entering the market. Lack of competition keeps prices high, preventing patients from getting access to cheaper generic drugs, which could deter patients from purchasing drugs altogether, creating obstacles, rather than a path, to desired wellness goals.

Trump's Efforts to Rein In Drug Companies 

Trump said in his drug pricing speech on May 11: “We are getting tough on the drug makers that exploit our patent laws to choke out competition. Our patent system will reward innovation, but it will not be used as a shield to protect unfair monopolies."

The rising cost of drug pricing is a major concern as 1 in 5 Americans are unable to afford medication.  Pres. Trump recently laid out his blueprint  to combat these issues to the U.S. Congress, however how much power does the executive branch really have to deliver on these promises? Can the president work collaboratively with lawmakers to contain the pharmaceutical giants?

The gag rule restricts pharmacists from telling patients of cheaper drug options. The CMS already sent a notice to Medicare Part D enrollees indicating the gag rule is not tolerable.  Additionally, the president has the authority, through existing FDA regulations, to enforce full transparency from drugmakers by requiring they include drug prices in their commercials.

While rebates lower the out-of-pocket cost for medication, the process can confuse patients and muddy the waters on price transparency. Yet, rebates generate profit for pharmaceutical companies and the pharmacy benefit managers which pocket part of the rebate. Eliminating incentivized rebates could damp medication price increases and offer cost transparency with the proposed fixed-pricing model Trump has highlighted. Trump has eliminated rebates in five states and seeks to expand these regulations nationwide.

The inability to track rebate distribution obscures who benefits from rebates. The U.S. Secretary of Health and Human Services Alex Azar has held that the administration has the regulatory authority to eliminate rebates within governmental programs, citing its status as an exception in the statute within Medicare Part D negotiations. He is seeking support from Congress, anticipating resistance from drug makers, but this authority isn't as influential in the commercial space.

The Trump administration intends to work with Congress to introduce competition and negotiation into Medicare Part B with beneficiaries at the center to allow for choice. Leveraging private-sector expertise through pharmacy benefit managers should increase competition, giving patients better contracts with lower drug pricing and more options. Deploying modern techniques of formulary management will help drive down costs by solving complex pricing problems.

The Trump administration intends to leverage trade agreements to distribute the financial burden of drug creation more evenly throughout the world. It is uncertain if the Trump administration can accomplish the desired outcome or has the authority to do so.

Lowering drug prices is an initiative that is on the agenda of both the Republican and Democratic parties. The Trump administration is exploring ways to do so by addressing things such as patent exploitation. The Democratic party has indicated it wants Medicare to be able to negotiate prices, and for Americans to be able to buy cheaper prescription drugs from abroad. In either scenario, pharmaceutical companies will most likely face new regulations or laws that will reduce drug prices.

What are the top three strategies that pharmaceutical companies can take to be best prepared for the future of drug pricing?

  1. Marketing Campaigns: Pharmaceutical companies can invest in marketing campaigns and public relations campaigns to promote the clinical value and attributes of their drugs as soon as possible. Companies can work on providing patients with knowledge about the disease prior to having the drug hit the market. (For example, AbbVie's strategy with Orlissa to fight Endometriosis.) Pharma companies can also invest in arming doctors with the clinical knowledge of the drug prior to market entry.
  2. Be sure data is in order: Pharmaceutical companies need to ensure they are well on their way to becoming an organization that makes decisions based on data. To do so, companies should be building toward clean, efficient, and organized data operations – with a focus on providing better insights on costs, to ensure that the company is making the best and most efficient choices possible. This will also help companies adapt to change in a quicker and more efficient way.
  3. Become leaner across the supply chain: Pharmaceutical companies should work on determining areas across the corporation where they can decrease costs and improve efficiencies. For example, they can perform an audit on their supply chain and see where their operations can become more digital or nimble. This will not only help decrease costs but will also allow the company to respond to change faster.