Don't Blame Patents For High Drug Prices

by Foley & Lardner LLP
Contact

Before his recent arrest, Martin Shkreli, the former CEO of Turing Pharmaceuticals, gained notoriety for increasing the price of the AIDS drug Daraprim® (pyrimethamine) from about $13.50 to about $750 per pill. He also was reported to be considering a similar price hike for benznidazole, for which his new company, KaloBios Pharmaceuticals, was going to seek FDA approval for treating Chagas disease. Complaints about Shkreli’s drug price hikes often turn into complaints about the supposed pernicious effects of pharmaceutical patents, but you can’t blame patents for Shkreli’s conduct because the patents on pyrimethamine and benznidazole expired long ago. Rather, the recent developments surrounding these drugs illustrate how the market functions without patents.

The Small Patient Population Problem

Pyrimethamine is extremely potent against toxoplasmosis, but the number of people with that disease are (fortunately) few. With such a small potential market and off-patent prices, there was little incentive for generic drug companies to invest the at least $400,000 it can take to obtain FDA approval of a generic drug. Thus, even though the relevant patents expired decades ago, there is only a single FDA-approved supplier of pyrimethamine. Once Turing Pharmaceuticals bought the rights to pyrimethamine and raised the prices to $750 per dose, the missing market incentive suddenly appeared. Express Scripts, the largest U.S. pharmaceutical benefit manager, quickly reached a deal with generic company Imprimis to provide pyrimethamine for $1 a pill.

Like pyrimethamine, benznidazole is an old drug used for a relatively rare infectious disease. Benznidazole treats Chagas disease, which is seen in the U.S. in fewer than 300,000 people. Prior to KalBios, the only way to obtain the drug was through the Centers for Disease Control, which provided it for free. As with pyrimethamine, the small potential market and lack of patent protection to limit market entry make it unsurprising that no generic drug company had sought FDA approval for benznidazole. KaloBios exploited that market vacuum by applying for FDA approval, which would give it market exclusivity and the ability to raise prices, at least temporarily.

Therefore, in both cases, the spike in drug prices was not caused by monopoly power supported by patents, but by monopoly power stemming from the barrier to market entry associated with the requirement for FDA approval.

Patents As Pricing Solution, Not Pricing Problem

The pharmaceutical industry says that patent protection–and the profitable drug pricing patents support–is necessary to provide a return on the significant investment it takes to bring a new drug to market, and to provide resources for investing in further research and development to generate new drugs. Those who advocate for the abolition or curtailment of pharmaceutical patents often do so on the assumption that patents permit unjustifiably high drug prices and prevent competition. But anti-patent advocates forget that patent protection only lasts for a limited time and that the ANDA statutes provide a framework for generic drug companies to enter the market as soon as patents expire or are invalidated.

The recent stories about pyrimethamine and benznidazole show that eliminating patents does not guarantee increased competition and lower drug prices, because no generic competitors emerged in the decades since the patents expired, contrary to the assumptions of anti-patent advocates. If there was not enough incentive to incur the relatively modest costs of regulatory review for generic versions of pyrimethamine and benznidazole, what incentive would there be to cover the much higher costs of developing a new drug?

Without patents to provide temporary market exclusivity to innovators, the pharmaceutical market could become dominated by the first mover and/or lowest marginal cost provider. Such a market structure could result in a small number of providers and monopoly power that is not subject to the limitations of the patent system, especially for drugs with small potential markets. The $13.50 to $750 price hike orchestrated by Martin Shkreli shows the potential consequences of such a patentless system. Those who would eliminate pharmaceutical patents should study pyrimethamine and benznidazole as cautionary tales, and be warned that a pharmaceutical market without the support and limitations of a strong patent system could result in higher drug prices and/or fewer drug choices, which is not what doctors want to order.

View This Blog

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Foley & Lardner LLP | Attorney Advertising

Written by:

Foley & Lardner LLP
Contact
more
less

Foley & Lardner LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.