The Misunderstood Beauty of Patents

Patents save lives and enhance the value of medicines. As Abraham Lincoln said, “Patents add the fuel of interest to the passion of genius.”

Yet some misguided members of Congress (such as Sens. Elizabeth Warren and Bernie Sanders) still believe the innovator pharmaceutical industry is getting a free ride on government-sponsored research and development and call for aggressive use of the Bayh-Dole Act to use “march in” control prices on government inventions. A recent study in Health Affairs by Bhaven N. Sampat and Frank R. Lichtenberg (“What Are The Respective Roles Of The Public And Private Sectors In Pharmaceutical Innovation?”puts the issue in a data-driven perspective that gives the NIH its due — but in the proper frame of reference.

Per Sampat and Lichtenberg, less than 10 percent of drugs had a public sector patent, and drugs with public-sector patents accounted for 2.5 percent of sales, but the indirect impact was higher for drugs granted priority review by the FDA. (Priority review is “given to drugs that offer major advances in treatment, or provide a treatment where no adequate therapy exists.”)

“478 drugs in our sample were associated with $132.7 billion in prescription drug sales in 2006. Drugs with public-sector patents accounted for 2.5 percent of these sales, while drugs whose applications cited federally funded research and development or government publications accounted for 27 percent.”

As Harvard University health economist David Cutler has noted, “Virtually every study of medical innovation suggests that changes in the nature of medical care over time are clearly worth the cost.” When it comes to drug pricing it’s important to look at the whole picture.

The anti-pharma/pro-price control crowd often invokes it’s bête noire, the Hepatitis C medicine Sovaldi, as costing “$1000 per pill.” Bu this is incorrect. Every major insurance company and pharmacy benefit manager (PBM) receives significant double-digit discounts from the manufacturer and now, with competition from other innovator companies, prices are dropping even further. That’s the power of patents in a free market.

Even more importantly, patents drive innovation. The pre-Sovaldi “best practice” treatment for Hepatitis C, the drug Pegasys, requires one injection a week for 48 weeks — and very few patients see the treatment through to completion, so much of that treatment, both physician time and drug cost, is wasted. Nor is it that much cheaper: At about $7,000/month, the full course of treatment is more than $70,000 — barely less than cost of the three months needed for Sovaldi to work a cure. And the price of not using Sovaldi is very high. One in three patients with the Hepatitis C virus eventually develops liver cirrhosis, and managing these patients is costly. A “routine” liver transplant (where the liver is from a cadaver) costs close to $300,000; a “living donor” transplant is even more expensive. But why let the facts get in the way.

Also, per Sovaldi, is anyone really paying “$1000 per pill?” Certainly nobody with insurance. And for those without coverage, there are generous programs supplied by the manufacturer. When people voice their displeasure over the “price of drugs,” they’re generally referring to the co-pays they have to fork over at the local pharmacy. But, surprise! Pharmaceutical companies don’t set co-pay rates, insurance companies and pharmacy benefit managers do. What most people don’t know is that drug manufacturers give huge discounts and rebates to these “payers,” savings that aren’t passed on to consumers in the form of lower co-pays. Consider the giant PBM Express Scripts. Since 2003, our nation’s biggest PBM has increased its profits per prescription by 500 pecent.  

What rates have large payers negotiated?  They won’t say.

The more important question is, why doesn’t this result in lower co-pays for consumers?


Peter J. Pitts, a former FDA associate commissioner, is president of the Center for Medicine in the Public Interest.

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