Why Consumers Lose in the Big Pharma Wars - Knowledge Wharton
Same Drug, Different Packaging
Drug companies make significant profits as long as their patents hold, preventing generics from entering the market. But they have found a clever way to extend patent expiration by “tweaking” the medications. Feldman cited a 10-year study of prescriptions sold in the U.S. that showed how companies extend the “protection cliff” by adding exclusivities, additional patents and other minor changes.
“Rather than creating new medicines, pharmaceutical companies are recycling and repurposing old ones,” she said. “Every year, at least 74% of the drugs associated with new patents were not new drugs coming on the market, but they were existing drugs. In other words, we are lavishing these rewards not on exciting new innovations but on tweaks to things that already exist.” She added that extending the protection cliff is particularly pronounced among blockbuster drugs. “Of the roughly 100 best-selling drugs, almost 80% extended their protection cliff at least once, and half extended the protection cliff more. We have lots of examples of what I like to call serial offenders.”
The Hatch-Waxman Act, enacted in 1984, was designed to allow rapid entry of generic drugs into the market as soon as patents ended. For a long time, the law was successful at bringing competitors into the fold, which brought down prices by up to 80%. The law also allows a drug company to challenge a patent. If the challenger wins, they are rewarded by being the only generic on the market for six months.
“That’s intended to help clear out weak and inappropriate patents,” Feldman said. “Unfortunately, the drug companies have taken this system and twisted it around.” She said patent holders are settling with challengers in what is known as “pay for delay” agreements. In other words, they pay that first generic to stay off the market.
“So, the branded drug stays on the market at a very high price. The generic gets paid a little of that monopoly rent to stay off the market. And when the generic comes to market, it still gets its six-month exclusivity,” she said. “It’s a win-win for the branded drug. It’s a win for the generic drug. Consumers and society lose. These things push out the horizon at which a generic drug would enter the market.”
Feldman believes the best way to fix the broken system is to simplify it. “Complexity breeds opportunity. And the drug industry is adept at exploiting that complexity. A simpler system makes it much more difficult to play games.” She advocates legal changes that would remove incentives and limit companies to one period of exclusivity on a chemical formulation with no allowance for extensions. She also calls for greater transparency in the process.