Yesterday John Goodman posted a link about pharmaceutical companies gaming the patent system. The following is an excerpt from the American Institute for Economic Research:
Senator Bernie Sanders isn’t right about much, but he is about one thing: The United States pays too much for prescription drugs.
… [t]here are also many bad US government policies putting upward pressure on domestic drug prices.
The fundamental issue is that there is no free market in the drug industry. It’s been steadily eroded by regulators and lawmakers, often at the behest and to the benefit of drug manufacturers, resulting in their ability to charge prices well over what a competitive market would allow.
Much of the blame for a lack of market competition can also be attributed to a U.S. patent system that is too easily gamed and exploited by drug companies.
A New York Times article illustrates how gaming patents reduces competition.
Gilead delayed a new version of a drug, allowing it to extend the patent life of a blockbuster line of medications, internal documents show.
The firm Gilead had an HIV treatment that was under patent protection. The firm realized its new drug in development would compete with its old drug and thought it better to wait, delaying the release by years.
Gilead, one of the world’s largest drugmakers, appeared to be embracing a well-worn industry tactic: gaming the U.S. patent system to protect lucrative monopolies on best-selling drugs.
Gilead ended up introducing a version of the new treatment in 2015, nearly a decade after it might have become available if the company had not paused development in 2004. Its patents now extend until at least 2031.
Patient advocates and state officials are blaming the firm for unnecessarily risking the health of patients due to gaming of the patent system. It could have increased its revenue by releasing the drug earlier. However, delaying a promising product until later had an even better revenue-enhancing effect.
Gilead’s apparent maneuver with tenofovir is so common in the pharmaceutical industry that it has a name: product hopping. Companies ride out their monopoly on a medication and then, shortly before the arrival of generic competition, they switch — or “hop” — patients over to a more recently patented version of the drug to prolong the monopoly.
Christopher Morten, an expert in pharmaceutical patent law at Columbia University, said the Gilead case shows how the U.S. patent system creates incentives for companies to decelerate innovation.
A good comparison of how patents should work is Apple, the maker of consumer electronics such as iPhones, iPads, Apple watches and other items. Apple releases new products every year that cannibalizes sales of its earlier products. I use an Apple iPhone 8 Plus released six years ago that works perfectly well. My wife finally gave up on her old 2014 iPhone 6 Plus that needed repair and bought an Apple X Max. The latest iPhone is the 14 Pro but an iPhone 15 is probably less than two months away. The reason that Apple rolls out new products every year, long before their old products’ patents expire, is because competition forces them to. Competition doesn’t force drug companies to continually upgrade products because the drug regulatory system creates a barrier to entry and inhibits competition. Plus, drug companies have become adept as gaming patents to extend them.
“There’s something profoundly wrong that happened here,” said Mr. Morten, who provides pro bono legal services to an H.I.V. advocacy group that in 2019 unsuccessfully challenged Gilead’s efforts to extend the life of its patents. “The patent system actually encouraged Gilead to delay the development and launch of a new product.”
Internal documents showed that Gilead had a new formulation in 2003 but didn’t roll out the new product until 2015. The patent should have ended around 2023, 20 years after its own internal documents reference the new formulations, but has been extended until 2031. What needs to be done is to vigorously enforce patients, while making it easier to bring safe, effective products to market. Many drugs have dozens, sometimes upward of 100 patients on them, many of which were granted after a drug was approved. That is technically impossible. To get a drug approved takes years of testing after a molecule is first devised.