As the light at the end of our pandemic tunnel grows brighter, policymakers are turning their attention to issues that were moved to the backburner as we fought through COVID-19. Prescription drug pricing, long an issue that Americans identified as a key policy priority, is moving back to the forefront of policy debates at the federal and state levels, and Oregon is no exception. Unfortunately for Oregon patients, a proposed law, SB 764, is a backwards attempt to address drug pricing that will only benefit brand-name drug manufacturers at the expense of patients.
There is little disagreement that the price of prescription drugs are too high for too many Americans. What is less widely understood, however, is that there are (broadly speaking) two types of drugs on the market: brand-name drugs that enjoy monopolies for years after their introduction and generic drugs, which are more affordable but therapeutically indistinguishable versions of those brand name drugs that are available after brand-name patents expire.
The economic difference to patients is stark: the average generic copay is $6.97 compared to $56.32 for brand name drugs. The benefit to taxpayers is similar: 90% of the prescriptions filled in the United States are for generic drugs, but those prescriptions only account for 20% of the country’s spending on prescription drugs. And, in contrast to the headline-grabbing price increases that brand-name manufacturers routinely take, generic drug prices have actually gone down over the last few years.
The one proven method of lowering the price of a drug is to introduce competition from a generic version of that drug. For policymakers trying to tackle the problem, the answer is to encourage more generics to come on to the market sooner.
The catch is that affordable generics remain out of the reach of patients while brand-name drugs are protected by their web of patents. Because a monopoly is obviously a very valuable thing to the manufacturers of those brand-name drugs, they do all that they can to delay the introduction of competition from generics. For example, Humira, the best-selling drug on the planet, is protected by over 100 patents, many of which were issued after the original patent expired, extending the manufacturer’s highly profitable monopoly period by decades.
A generic drug maker has two options: wait for all of the patents protecting a brand-name drug to expire, or launch complicated, uncertain, and extraordinarily expensive lawsuits over each and every patent covering the brand-name drug. As you can imagine, for a drug like Humira with over 100 patents, that process is prohibitively expensive and time-consuming.
So what can be done if an expensive brand-name drug is patent-protected through, for example, 2035, but there is enormous demand for lower-priced competition? The would-be generic competitor can sue the brand-name company and then enter into a settlement. The result is that (again, for example) the brand-name manufacturer might agree to forego a decade of patent protection in exchange for the end of the litigation. In that case, patients benefit from getting access to a lower-cost competitor 10 years earlier than they would have otherwise and the generic manufacturer can prepare to launch the drug on a certain date.
SB 764 is a misguided piece of legislation that would prohibit those settlements. As a result, would-be generic competition will simply have to wait out the expiration of a brand-name drug’s patent protections before becoming available to patients. If SB 764 becomes law, it will result in higher prices for patients, higher costs for already-strained programs like Medicare and Medicaid, and higher profits for brand-name drug manufacturers.
That result is not a prediction, either. California recently enacted very similar legislation, and brand-name companies are already using that law as a weapon against generic manufacturers seeking to launch generic versions of brand-name drugs.
Moreover, there is already a federal system in place to ensure that patent settlements are pro-patient. Every single time that a brand and a generic manufacturer enter into such a settlement, it is reported to the Federal Trade Commission (FTC) for review to ensure that the terms are pro-competition and pro-patient. A recent report from the FTC itself emphasizes the efficacy of that system, stating that problematic settlements are at the “lowest level in 15 years.”
We all share the common goal of making sure that all Americans have access to the prescription drugs that they need. There are many problems that can and should be addressed, but patent settlements are not one of them. On average, those settlements result in generic drugs being available to patients 6.75 years prior to the expiration of a brand-name drug’s patents, a result that should be encouraged rather than prohibited. SB 764 is a well-meaning but misguided proposal, and any Oregon lawmaker concerned with the rising price of prescription drugs should stand in opposition to it.
