Business

Murky Waters

Pharmaceutical patents in the United States and their regulatory oversight.
Murky Waters

With the rapid development of COVID-19 vaccines by firms such as Pfizer, Moderna, and AstraZeneca, the pharmaceutical industry has fallen into the limelight of mainstream media, and for good reason. For the better part of a year, these firms have researched, developed, and tested their vaccines  in order to bring a hopeful cure for the COVID-19 virus to market; at the time of writing, Moderna and and Pfizer have had their vaccines approved for widespread administration in Canada, and distribution has begun in larger cities. But despite their monumental contribution to ending the pandemic, their current hero status should not be overshadowed by their somewhat tainted track record. Before pharmaceutical companies switched gears to focus on a COVID-19 vaccine, “Big Pharma” was often in headlines for less admirable and defensible acts: They were notorious abusers of patent law which allowed them to extract massive monopoly profits from the market by charging high prices, inevitably to the detriment of consumers.


The process of developing a novel, safe and effective pharmaceutical is undoubtedly a costly one. With the cost of clinical trials and R&D exceeding hundreds of millions of dollars, and the hefty legal fees required to bring a product to market, the average total cost of developing a pharmaceutical falls between $1 billion and $3 billion USD. [1] In order to preserve incentives for pharmaceutical companies to pursue ground-breaking research in the hopes of developing new products, the government grants firms with the temporary, but exclusive, right to market and distribute a drug by issuing patents. In the United States, patents permit market exclusivity for a period of 20 years upon approval by the Patent and Trademark Office (PTO), subject to slight variances due to delays in the FDA’s approval procedure. Without patents, competitors (often referred to as “generics” in the pharmaceutical industry) are free to replicate the newly invented products from which they would reap profits without enduring the steep R&D costs and thereby reducing incentive for firms to develop drugs in the first place. A natural yet unfortunate by-product of patents is that patients are burdened with higher prices under the monopoly scheme than if competitors were to enter the market.


While patents are wholly necessary to reward and credit innovation, a fine line separates justified market control in the form of temporary monopoly and excessive market power. Historically, large pharmaceutical companies in the United States have had an unruly habit of abusing the patent system to extend their reign and control over a particular drug.


One way in which they do so is through the persistent and relentless lobbying of politicians on either side of the aisle to tip the regulatory landscape in their favour. According to Open Secrets, a non-profit and nonpartisan research institution based in Washington D.C., pharmaceutical companies in the United States spent a whopping $129 million USD on lobbying between January and September of 2019, a figure which dwarfed those of all other industries last year. Inevitably, antitrust laws have often come face to face with patent issuances as legal authorities from different sectors of government frequently dispute patent rulings.


Unfortunately, political lobbying is only one of many tricks in the playbooks of large pharmaceutical corporations to exploit market power. According to a research report titled “Drug Pricing and Pharmaceutical Patenting Practices” published in February of this year by the Congressional Research Service, pharmaceutical companies use four predominant measures to skirt patent law to ensure two primary objectives: Firstly, to extend the life cycle of their patents and secondly, to prevent regulators and competitors from challenging their patent claims.


The first technique employed by American pharmaceutics is referred to as “product hopping,” and is intended to lengthen the patent protection period on a particular product. Firms accomplish this by layering “improvement patents” onto a product whose older patents are nearing expiry and, despite what the name may suggest, an improvement patent may be granted to a drug without any tangible improvements to its efficacy; according to the PTO, the requirements are solely that the drug is “new and nonobvious.” Many pharmaceutical companies have exploited this legal loophole by tweaking non-essential characteristics of their drugs which have no material impact on the effectiveness of the drug in order to meet the “new and nonobvious” criteria, and it permits them to extend its life cycle by deploying these “improvement” patents. AbbeVie, an American biopharmaceutical research group, demonstrated the effectiveness of product hopping when it successfully acquired new patents on a drug called TriCor, a drug intended to treat high cholesterol levels. As TriCor’s original patents neared expiry, AbbeVie lowered the drug strength, switched from capsules to tablets, bought back the remaining capsules on the market and declared capsules as obsolete. Despite the lack of scientific innovation, the PTO contended that the requirements for an improvement patent had been met and therefore granted TriCor with further patent protection. Product hopping has stirred much controversy as critics assert that the motives of pharmaceutical companies are purely profit-driven and create no incentive for scientific innovation to better the health of their consumers.


Another method that pharmaceutical companies utilize is “patent thickets,” whereby the firm aims to deter regulators and prosecutors from challenging their patents by loading a single drug with tens to hundreds of patents. Even when prosecutors are successful in reversing the grant issued for a particular patent to a drug, if the drug inventor has packaged a slew of other patents behind it, the legal shield surrounding the drug becomes virtually impenetrable. Consequently, prosecutors and other regulators lose the incentive to investigate suspicious patents as the reversal of a single patent issuance is merely a drop in the ocean of others that protect the drug’s market power. The average number of patents among the top 12 best-selling American pharmaceutical companies is 71, but more extreme instances exist such as with AbbeVie’s Humira drug which was found to have filed a total of 247 patents of which 132 were successful. Not only do patent thickets represent a legal nightmare that helps keep prosecutors tangled in litigation at the courts for years, but they also pose a substantial monetary barrier. According to the Biosimilars Council, which is a division of the Association for Accessible Medicines, the average cost of challenging a single patent against a large US-based pharmaceutical company amounted to $3 million USD in legal fees.


The last way in which pharmaceutical companies can maintain market power is through the “pay-for-delay settlements,” where firms can (legally) pay biosimilar producers to delay their entry into the market in order for the inventor to extract further monopoly profits. While this does not pertain to patents specifically, it speaks to the overarching legal oversight of the pharmaceutical industry and has often been viewed as a collusive and anti competitive behaviour. While this practice proves economically beneficial for both the inventor and the biosimilar company as the payee receives a portion of the monopoly profits, customers are left with higher prices than if the market were competitive.


Although profits have pushed pharmaceutical corporations into a money-driven debacle, regulators, too, have succumbed to the cash craving. In 1992, the Prescription Drug User Fee Act was passed by Congress which forced pharmaceutical companies to pay the FDA $300,000 for each drug they reviewed. While this bill was intended to raise funds for their branch of government and to dissuade pharmaceutical companies from spewing biosimilar products at regulators in hopes that one would be approved, it has left the FDA in a conundrum. With drug review fees amounting to 50% of the FDA’s annual budget, regulators in the United States have fallen under the financial thumb of the very groups that they are meant to regulate. At the whim of the pharmaceutical corporations, the FDA has become inclined to churn out as many drug reviews as feasibly possible in order to maintain steady cash flows. The unfortunate by-product is that since 1992, the average number of drug reviews per year has doubled while the review time per drug has halved. As a result, many critics maintain that the quality of the drug approval process has deteriorated since the bill was passed. 


While pharmaceutical companies continues to enjoy substantial market power and manipulation, many regulatory changes have been implemented over the last several years to monitor the pharmaceutical industry. For instance, the America Invents Act of 2011 created the Inter Partes Review (IPR) whereby the Patent Trial and Approval Board (PTAB), a branch of the PTO, is required to review and re-evaluate all recent and contested patent issuances. The IPR process invites third parties to present evidence against a particular group of patents which has helped increase the legal liability and accountability of patent holders by granting otherwise unheard protestors with a voice. Since the creation of the IPR, the results have been clear: As of January 2018, 62% of petitions for review had been authorized by the PTAB as they had reason to believe that these patents should not have been made valid by the PTO. Of these, 37% had claims reversed by the PTAB while another 7% had claims reversed by the patent owner  as of March 2017. [2]


Despite certain regulatory advancements such as the establishment of the IPR, pharmaceutical companies in the United States continue to exploit the hole-ridden patent law framework. According to IAM, an intelligence service which provides coverage of patents and IP value creation, the average price of America’s top 12 best-selling drugs experienced an average increase of 68% between 2012 and 2018. Moreover, according to the Organisation of Economic Cooperation and Development, the average American spends more on pharmaceuticals each year than in any other country in the world, beating the second-place contender by a whopping 44% (Canada). While the United States is often labelled as a key innovator in the biopharmaceutical space, it is clear that something has gone astray when its firms are capable of extracting monopoly profits by charging higher prices than anywhere else in the world through exploitation of the existing legal system. The unfortunate reality is that the members of society who suffer most from these anti competitive behaviours are those who rely on these medications to keep them in good health, and in many cases, to keep them alive. In the absence of a swift and forceful re-structuring of the current patent law framework and of broader pharmaceutical regulation, large pharmaceutical corporations will continue to extort the financial and legal power they possess over regulators, competitors, but most importantly, the patients of their products.


References:

[1] “Drug Pricing and Pharmaceutical Patenting Practices.” 11 Feb. 2020.

[2] “AAM Issue Brief: Inter Partes Review (IPR).” Association for Accessible Medicines, accessiblemeds.org/resources/fact-sheets/aam-issue-brief-inter-partes-review-ipr.

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