Patent Policy Produces Higher Drug Costs: Study

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By Joseph Marks

Aug. 23 — Lax U.S. patent policy bears part of the blame for a steep rise in prescription drug costs, according to an Aug. 23 study in the Journal of the America Medical Association.

The study cites “permissive” Patent and Trademark Office standards for granting new patents that cover existing drugs and “pay for delay” deals that encourage generic drug companies to settle rather than press to shorten brand name drugs’ period for market exclusivity. These forces and others have allowed drug companies to raise prices far beyond what’s necessary for research and development costs, the authors argue.

They contemplate fixes, including prohibiting patents for drugs that are slightly altered versions of existing drugs except when the patent seeker can prove increased effectiveness.

Incremental Changes to Existing Drugs

A spokesman for the industry group Pharmaceutical Researcher and Manufacturers of America criticized that proposal, saying incremental changes to existing drugs often reduce drug side effects and have other beneficial outcomes.

“This proposal would deter companies from conducting valuable R&D into advances that may significantly improve patient adherence and quality of life,” PhRMA Deputy Vice President for International Communications Mark Grayson said in an e-mail to Bloomberg BNA.

He said that patent protections for minor advances in drugs don’t foreclose doctors from prescribing or patients from taking generic equivalents of the original drug.

The study authors also suggest outlawing non-cash “pay for delay” settlements, where a generic manufacturer agrees to refrain from challenging a patent associated with a brand name drug.

The Supreme Court ruled in Federal Trade Commission v. Actavis Inc. that cash-based pay for delay settlements might constitute an antitrust violation, but has not weighed in on non-cash deals, the authors note ( Federal Trade Commission v. Actavis Inc., 12-416, U.S., decision, 06/17/2013 ).

The government could also exercise its “march-in rights” under the 1980 Bayh-Dole Act, which allows the government to force brand name manufacturers to issue licenses to other producers at reasonable costs to benefit public health, the authors suggest.

The article does not prescribe particular solutions.

Drug Priced at What the Market Will Bear

The study is based on peer reviewed medical and health policy articles published from 2005 and 2016. The authors, Aaron S. Kesselheim, Jerry Avorn and Ameet Sarpatwari, all work with the Program On Regulation, Therapeutics, And Law, or PORTAL, a research program affiliated with Brigham and Women’s Hospital and Harvard Medical School. Kesselheim is the program’s director; Avorn is co-director and Sarpatwari is assistant director.

“Because permissive U.S. Patent and Trademark Office standards for novelty or usefulness make it relatively easy to patent many nontherapeutic aspects of a drug, companies can strategically patent small changes and try to influence prescribers and patients to transition from one linked product to the next, sometimes discontinuing production of older versions of the drug,” the study finds.

Prices for the most commonly used brand-name drugs jumped 164 percent between 2008 and 2015 compared with a 12 percent rise in the consumer price index, the study notes.

“There is little evidence of an association between research and development costs and drug prices,” the authors note, “rather, prescription drugs are priced in the United States primarily on the basis of what the market will bear.”

The study also lists non-patent related culprits for high drug prices, including generic drug approval delays at the FDA and Medicare’s inability to negotiate lower drug prices.

The study received funding from the Laura and John Arnold Foundation, a philanthropy that focuses on education, innovation and criminal justice reform among other topics. Additional funding came from the Engelberg Foundation, whose sole trustee is Alfred Engelberg, an intellectual property attorney who was counsel for the Generic Pharmaceutical Association, according to his LinkedIn profile.

The Engelberg Foundation provides $100,000 per year in unrestricted funds to PORTAL, a foundation spokesman told Bloomberg BNA. The foundation does not have any say in what PORTAL studies and did not know about the prescription drug study before it was released, the spokesman said.

The study itself notes that no funders participated in its design or conduct.

To contact the reporter on this story: Joseph Marks in Washington at

To contact the editor responsible for this story: Mike Wilczek at

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