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Posted on Techdirt - 26 April 2022 @ 03:30pm

Yes, Of Course Drug Patents Drive Up Drug Prices; Why Is This Even Up For Debate?

The idea that there is a link between the exclusivity period on patents and higher drug prices is about as noncontroversial as a view can be. It is the easy question on an ECON 101 exam on monopolies, supply and demand. Yet, somehow, this has come under attack thanks to big PhRMA and their minions. Unfortunately they have found a sympathetic advocate in the Senate who believes the unbelievable.

Sen. Thom Tillis has taken a host of actions trying to unlink the obvious connection between patents and high drug prices, and he is trying to force both the FDA and the USPTO to agree with him that the link is a “false narrative.” This assertion, of course, is ludicrous. Patents are the backbone of the pharmaceutical industry, and the reason why drug companies make significantly more than other large public companies. Patents give these companies a guaranteed monopoly period, in which monopoly profits are intended to reward them for the risk and investment spent in bringing new drugs to market. These monopoly periods eventually expire, as required by the constitution, and the resulting influx of competition lowers drug prices by about 80% on average.

This social contract is well understood, and almost everyone thinks this is good for society. So I will give Sen. Tillis the benefit of the doubt and interpret his statement as suggesting that there is no link between gaining an extra, and unintended, monopoly period and high drug prices. But even here the body of evidence to the contrary is extensive. I collected a lot of this evidence in a recent tweet thread. However, it is important to understand a little more about the background of what has quickly become an industry practice.

The story of patent thicketing starts with AbbVie. AbbVie created the patent thicket in much the same way Apple created the smartphone – there may have been others before, but none were as successful or as emulated since. AbbVie’s drug Humira was the best selling drug for almost 10 years, but they faced a problem. Internal estimates showed they would lose their exclusivity as early as 2017. They needed a strategy to stall generic entry for as long as possible, and they hired the extremely controversial consulting company McKinsey to help come up with a plan. While several strategies were presented, the patent strategy quickly became the most successful. As one biotech patent attorney put it: if you have a $16 billion-a-year drug, “every month is a good month that you’re on market alone. So you’re going to spend whatever it takes to be as aggressive as possible and get as many patents as possible.”

The strategy is simple even if it sounds like it should be impossible: find as many ways to patent an existing product as possible. This can include creating a staggered rollout of patent applications around formulations, dosing regimen, route of administration (for example, using the drug in an injector pen), dosing regimen for new indications (i.e. new diseases the drug can treat), and manufacturing processes. As one AbbVie internal document put it: “in the eye of biosimilar makers, how would they manufacture Humira?” AbbVie just needs to patent those manufacturing processes, even if they aren’t using them, and biosimilars won’t be able to make the drug.

All of these documents show that drug companies are trying to get new patents, with later expiration dates, on existing drugs for purely financial reasons. This alone proves Sen. Tillis wrong. But is there widespread failure of the patent system that demands a response? Again there is ample evidence that there is.

One study showed that 78% of new patents were associated with existing drugs, not new ones. The same study found that most of the companies who were successful doing this once would try again, with 50% becoming serial offenders. Another study found that most of the patents used to block generic and biosimilar entry represented minimal-to-no additional benefits to patients using the drug. 

These delays have costs. One study found that Medicare spent an average of $109 million a year extra due to delayed generic entry. The main cause of delayed competition? Patent litigation. Another study found that one year of improved patent examinations on secondary and tertiary drug patents, to catch bad patents before they issue, saves $8.7 billion in the future. And when Humira went generic in Denmark in 2018, residents saw their prices drop by 82.8%. In the US we’ve faced regular price increases on Humira because it remains patent protected.

These abuses of the patent system may carry additional costs to innovation and safety. A recent study of R&D competition around Covid drugs found that whenever a firm finds it profitable to invest in developing a minor modification, R&D for radical follow-on innovation goes down. This could mean that the incentives created by the availability of patents for existing drugs may actually lower R&D investment in new drugs, as resources chase lower risk and more immediate profits. Some researchers have even found startling signs of negative innovation, or innovation that promotes riskier and less beneficial treatments. This happens when the better treatments are unpatentable. The study shows a company pursuing a treatment that overdoses patients because more appropriate doses were considered obvious under prior art. Overdosing, however, was patent eligible because it was considered non-obvious.

This evidence shows a widespread problem in need of a policy response. Indeed, those calling for reform now include the New York Times, the Department of Health and Human Services, former Trump cabinet member Alex Azar, and many researchers and public interest advocates. Whoever is advising Sen. Tillis on this issue needs to include the full evidence on drug prices and patents. Especially since the Senator appears to be engaging in good faith around efforts to improve patent quality and stop various abuses of the patent system. But without good information, I fear bad policy may result.

Matthew Lane is a Senior Director at InSight Public Affairs where he specializes in competition and IP issues.

Posted on Techdirt - 21 July 2021 @ 01:42pm

The Key To Lowering Drug Prices Is Improving Patent Quality

This post is one of a series of posts we’re running this week in support of Patent Quality Week, exploring how better patent quality is key to stopping efforts that hinder innovation.

Patents are increasingly a hot topic in drug price policy conversations. So much so, that one might wonder if this newfound attention is deserved. For example, a recent Senate Judiciary Subcommittee hearing examining anticompetitive conduct in prescription drug markets ended up focusing heavily on Pharma?s blatant abuse of U.S. patent laws. Indeed, it seemed at times that patent thicketing had eclipsed the many other anticompetitive ?shenanigans? that Pharma uses to delay competition.

So why is there such a growing spotlight on patents?

First, it?s important to realize just how big the drug price problem is. Prescription drug spending remains a critical issue in the United States as millions of American patients and the U.S. healthcare system struggle to keep pace with the growing price tag for medical innovations with limited financial reprieve from low-cost alternatives. In 2020, the total US drug spending was estimated at $358.7 billion and the Centers for Medicare & Medicaid Services (CMS) projects national spending on healthcare to reach $6.2 trillion by 2028 ? the bulk of the cost resting on shoulders of the federal government and American households (mainly through taxes and insurance premiums).

One of the key drivers of these rising costs are the habit of drug makers of blocking competition on older drugs that have proven themselves to be blockbusters. And the best modern strategy for doing that is creating a patent thicket. As Committee Chairman Senator Dick Durbin (D-IL) pointed out, ?[T]he top-12 best-selling drugs in America each have an average of 71 patents and 78 percent of all new patents are for drugs that are already on the market.?

The reason behind this is two-fold. Older tactics have had successful antitrust cases filed against them, but patent thicketing is somewhat protected by the Noerr-Pennington Doctrine which states that (except for some limitations) people can petition their government even for anticompetitive reasons. That means it is up to the government to resist anticompetitive gaming of its regulations. The second reason is that the patent office is failing at just that. Dr. Rachel Moodie, vice president for Biosimilars Patents and Legal for Fresenius Kabi, a leading health care company, gave testimony stating, ?[W]e see the U.S. Patent system as being an outlier now compared to other systems around the world? the way that the patent system is working right now is that it?s easy to circumvent certain rules that allow you to repetitively claim a similar invention over and over again.?

What is the result of this patent thicketing?

Drug manufacturer AbbVie has filed over 240 patent applications for a single drug, Humira, and received over 130 granted patents. ?This patent thicket has allowed Humira to control the marketplace in the U.S., leading to Humira claiming the number 1 spot as the world?s bestseller since 2012 ? while other countries have had access to more affordable biosimilars. AbbVie itself has had to cut prices by 80% in some markets due to competition.

AbbVie isn?t alone. A study by I-MAK found the practice of patent thicketing pervasive among the top 12 best selling drugs by revenue.

Just how big of a deal is patent thicketing?

The 2020 US revenues of just three drugs ? Humira, Enbrel and Revlimid ? represent 8.2% of total drug spending in that year. All three of these drugs should be facing competition now or be close to the end of their monopoly terms. They were approved in 2002, 1999, and 2005 respectively. Patent terms only extend 20 years and drugs have historically averaged a little over 14 years of protection on the market due to the length of the approval process (this includes patent term restoration passed by Congress to give some of this time back). Humira has a deal with biosimilar manufacturers that allows them to come to market in 2023, but Enbrel and Revlimid?s final patents don?t expire until 2029 and 2036. Add Imbruvica, a drug we could have seen competition this decade but won?t, and just those four drugs represent almost 10% of all US drug spending.

Competition, on the other hand, works when allowed to. A list by Fierce Pharma of the top 20 drugs by worldwide sales in 2020 indicates just how well competition works to lower the price of some of Big Pharma?s most sought after drugs. As competition from biosimilars and generics hits the marketplace, sales of the industry?s top performing drugs correspondingly drop. For example, as competition emerged against Johnson & Johnson?s ulcerative colitis drug, Stelara, the company had to cut its prices to remain competitive. The same report by Fierce Pharma also anticipates the number two drug, Keytruda, soon taking over the number one spot as Humira?s patent is expiring in 2023, opening it up to competition by biosimilars.

What does this have to do with patent quality?

Drug patent thickets are largely made up of low quality patents whose applications were only filed because of the benefit they provide in keeping competition away from top selling drugs. This means that any patent quality efforts are also efforts to reduce drug prices. For example, the USPTO?s inter partes review process (IPR) has been instrumental in cancelling low-quality patents and allowing new drug competition. This is one of the best tools created by the America Invents Act to cut through these dense patent thickets. IPRs were substantially weakened under the last administration, but a Congress that cares about drug pricing could restore and strengthen this tool to great effect.

Matthew Lane is the executive director of the Coalition Against Patent Abuse

Posted on Techdirt - 5 November 2020 @ 12:07pm

People With Silly Patents Would Really Like It If It Was Harder To Cancel Them

A large group of patent holders sent a letter to Congress expressing concern that, since the US Patent and Trademark Office (USPTO) Director Iancu might soon be leaving, recent policies making it harder to challenge bad patents might be reversed. The letter concerns a process created somewhat recently, called inter partes review (IPR), that allows the USPTO to take a second look at the patents they issue based on a public request.

This is important because 43% of all issued patents challenged in court are ultimately found to be invalid, albeit at great expense due to the high costs of patent litigation. An IPR, by contrast, offers a far faster and less expensive way to challenge patents than using the courts, with the average IPR costing around $350,000 compared to litigation costs just shy of $1 million when defending against infringement claims brought by an NPE. It is no surprise that many who profit off patents do not like a process that makes it easier to find out if those patents are valid.

The letter states that “Director Iancu has clearly changed the dialogue surrounding patents, defined the patent system by the brilliance of inventors, the excitement of invention, and the incredible benefits they bring to our economy and society as a whole.” While a lot of this is true, celebrating the brilliance of inventors and the benefits of patents ignores the very real direct and indirect costs of the current patent system. Patents can issue for inventions that don’t actually work or exist. This was true of Theranos, a company built around patents with technology that didn’t work or exist. Patents can also be used to try to win big paydays on seemingly unrelated products. This happened again with Theranos, whose patents were bought and used against a company making covid-19 tests.

Then there are also many, many, silly patents that get issued that usually don’t matter because very few people want the thing the patent describes. It would be weird if these inventors got to dictate patent policy. But here we are, as a large number of the inventors signed to this letter have very silly patents (feel free to find your own favorites):

  • US 7,814,680 – Overshoe Unit For Indoor Use (it’s a shoe that you put on your shoe)

  • US 5,178,576 – Apparatus And Method For Manipulating A Spring Toy (expired due to non-payment of maintenance fee)

  • US 9,009,870 – Garment Pocket For Rapid Extraction And Deployment Of A Concealed Weapon (does what it says it does)

  • APP 16/199,080 – Peeball (“a potty-training slide apparatus for boys that temporarily clips onto the toilet seat and provides an ornamental target (target has a hole through it) that boys aim and pee through and on the back side of the target is a permanently affixed ornamental slide that the urine travels down and into the toilet water.”)

  • US 9,278,737 – Remote Control Fishing Robot (when you just don’t feel like fishing yourself)

  • US 6,923,299 – Wallet For Retaining a Plurality of Credit Cards (for holding all the credit cards you used to pay for the other weird stuff on this list)

To quote Thomas Jefferson, “these monopolies produce more embarrasment than advantage to society.”

While those with silly patents have a low chance doing any harm, even if their patent were invalid, the changes the inventors advocate for can be life or death for others. These patent policies would make it harder to challenge weak drug patents that could be holding up generic competition. Cancelling drug patents and enabling competition can save patients 79%, on average, for small molecule drugs. While biosimilar competition is nascent it is projected to save patients 15%-45% or more over the next five years, possibly more. For some, this is the difference between being able to afford a treatment and not being able to afford a treatment.

It would be a travesty if those that filed these silly patents swayed policymakers to make it harder to cancel all bad patents. Many of the inventors on this letter haven’t even had their listed patents challenged in an IPR–of the 240 listed, only 18 have had any IPRs instituted–making their perspective even less relevant. This makes sense, as many of these patents describe products that are probably not economically viable due to low demand. Indeed, our casual search found several that were allowed to lapse without paying maintenance fees, a sure sign that the inventions did not produce value.

The policies being championed by the letter are already having a large effect. Procedural denials, meaning denials based on something other than the actual merits of the petition, are spiraling upward. The inventor letter makes it seem that these denials are good because they happen when a court challenge of a patent is moving faster than the IPR challenge. The letter claims that since IPR was intended to be an alternative, not an addition, it makes sense to do away with these cases. But in practice these procedural denials are being applied nonsensically and for many other reasons.

For example, sometimes drug patent challenges are so complicated that petitioners have to file multiple petitions at the same time just to get around word counts. The USPTO’s Trial Practice Guide Update says this can be fine “when the patent owner has asserted a large number of claims in litigation.” However, the USPTO is using the “in litigation” language as an excuse to deny all but one of the petitions when there isn’t parallel litigation. So much for IPR being an alternative! These denials happened to challenges to patents on the important diabetes medication Lantus, which costs $357, and a Narcan injector that can save the lives of those overdosing on opioids, costing $126 for two doses. Narcan is only expensive because of the injector patent, the active ingredient – Naloxone – is available as a low cost generic.

The USPTO has also gotten rid of a petition because of the trial date of a completely different company. This concerned a drug used to treat schizophrenia , Invega Sustenna, that costs patients $1,853.

Another denial, concerning vaccine patents, was because the USPTO refused to allow a petitioner to step into the shoes of another company that settled. This was even though the petitioner could have not known that the other company would settle and withdraw their challenge.

Patents are legal instruments with real consequences. When patents represent true innovation, those consequences are usually positive. Patents often incentivize innovation, especially when inventions are difficult to discover but easy to copy. When patents do not represent true innovation, when they should never have been granted, they can be a drag. They can be used to hold up competition or harass other innovators. Common sense dictates there should be a quick and inexpensive system for sorting out bad patents from those that are good. However, any such system is a threat to those that make money off patents that could be cancelled. These voices should be taken with the huge grain of salt they deserve.

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