A new beginning in drug pricing: Nationwide attempts to reduce drug costs

The United States is often hailed as a leader in medical innovation, but whether these remarkable advances are actually accessible to people there is another question. The price of patented drugs with proprietary names in the United States is 422 percent higher than the average price in the 33 member countries of the Organisation for Economic Co-operation and Development (OECD). Novo Nordisk produces Ozempic at a price of $5 per dose and charges $969 in the United States, while the same drug sells for one-sixth of that price in Canada and just $59 in Germany. These stark price differences prevent many households in the United States from benefiting from vital treatments. Government agencies must therefore take concrete steps to promote access to health care. But even with recent patent challenges and changes to march-in rights by the federal government, these adjustments are not enough to make accessible medical treatments a reality across the board.

Currently, large pharmaceutical companies have a median annual profit margin of 76.5%, 39.1% higher than the average of the 500 largest companies in the Standard & Poor's Index overall. To maintain high profit margins, many companies try to extend patents beyond the 20-year mark through lifecycle management strategies such as patent thickets and evergreening, as in the case of insulin patenting. Since insulin often requires a complex delivery mechanism, this lends itself to the formation of thickets in which small changes to the drug itself and to any component of the injection pen, even if not specific to insulin delivery, can be subject to a new patent; these thickets extend insulin patents for over five years, costing individual users thousands of dollars or forcing them to switch to lower-quality but cheaper alternatives.

Similarly, companies may try to file patents at a later date on components of a drug other than the active ingredient, or on a slightly different composition of the drug, to extend their market exclusivity. This technique is known as “evergreening.” Although these patents are easier to challenge, they can effectively delay competition from generics. The antidepressant Paxil, for example, was protected by ten patents that did not cover the active ingredient paroxetine. Had it not been for a case in 2003 that made the additional patents obsolete, these patents would not have expired until 16 years later, while the price of Paxil would have remained artificially high.

Fortunately, in September 2023, the Federal Trade Commission issued a warning statement to curb and reduce drug patent abuse. It challenges that only patents covering an active ingredient, including drug and device patents, should be granted market exclusivity under the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations (often referred to as the Orange Book). The Commission threatened that improper patent lists designed to prevent competition from cheaper generics to maintain elevated prices could also be legally challenged as violating Section 5 of the FTC Act by attempting to gain an unfair advantage over competitors.

Then, on November 7, 2023, the FTC challenged 110 patents from 10 major pharmaceutical companies that were listed in the Orange Book. After the challenge, the FDA informed the companies that they had 30 days to withdraw or correct the patent entries in question; otherwise, the companies could be charged with perjury if they choose to maintain their current patents and claim they are in line with legal guidelines. Revoking these patents could give consumers a choice of a generic alternative and lower prices, making important treatments available to a wider range of people.

According to FTC reports, these patent challenges resulted in the revocation of 14 patents covering six products. However, most companies claimed that their current patent applications were compliant and wrote to members of Congress that they had not hindered competition. Therefore, the overall effectiveness of these disputes could depend heavily on whether the FTC decides to open antitrust investigations into improper patent filings. Nevertheless, on April 30, 2024, the FTC filed challenges to over 300 additional patent applications covering 20 drugs.

In a further attempt to combat inappropriate patent filings, the Biden administration issued a new march-in policy in December 2023 that affirms the government's right to revoke patents exploited to set excessive prices when supported by federal grants and allows the government to offer licenses to other companies to produce those drugs. Although the march-in principle was introduced 43 years ago by the Bayh-Dole Act and may have been relevant in several cases in the past, the White House has never used those powers or cited exorbitant prices as a valid basis for implementing march-in rights.

However, the scope of march-in rights may still be limited. They can only be used for government-funded inventions or advancements supported by taxpayer money, which accounted for less than one in 72 drugs launched between 2011 and 2020. In addition, disclosure of government funding and patent rights is relatively weakly enforced. Therefore, many patents may lack this key piece of information for the application of march-in rights.

Others are also skeptical about the new policy's potential, pointing to the relatively ambiguous provisions that stipulate that the drug's cost must be “unjustified” for march-in rights to apply. Putting a price on that term could be difficult, especially since the Biden administration has not based its interpretation of “extreme” prices on comparisons with other countries. Therefore, the overall impact of the new march-in legal framework could depend on the interpretation of those few critical words.

But the government has other alternatives to march-in rights to reduce excessive prices on patented products. For example, it can demand royalty-free licenses for government-funded products, allowing the production of generic drugs, and receive a guarantee of using any patent in return for paying a court-determined amount. For drugs developed with taxpayer money, the threat of a royalty-free license may be enough to start negotiations with a pharmaceutical company, which may decide to significantly reduce the price of the drug at the risk of a zero return. Even if these government powers, including march-in rights, are not used directly, scientists can imagine that governments could instead use them to force lower prices in negotiations with pharmaceutical companies.

But some lawmakers have raised concerns that Biden's approach could hamper innovation. Given the high cost of drug development, estimated to average around $1.38 billion per drug, many argue that patents that allow companies to take ownership of new healthcare discoveries so they can set prices that secure revenue for their efforts will increase the incentive for further investment and innovation.

Therefore, within weeks of the updated framework being released, 28 senators and representatives wrote a letter to Biden asking him to reconsider the new policy. They mainly raised concerns that the policy could scare away private investors, for whom the possibility of march-in rights is a sign that companies do not have sufficient control over their patents—a weakness they would prefer to avoid. Others speculate that it would discourage pharmaceutical companies from accepting federal grants, which would hurt U.S. international competitiveness, especially as other governments have increased their investments in research and development. On the other hand, some believe that certain patents currently held by pharmaceutical companies already limit innovation by unduly hindering competition. Therefore, the overall role of patents and march-in rights as drivers of innovation may remain unclear.

Although the dual-pronged approach of FTC patent challenges and government march-in rights tentatively signals the beginning of a shift in thinking about patent rights in the U.S., its effectiveness will depend heavily on how these regulations are interpreted and enforced: Will the FTC continue its myriad patent challenges or push through antitrust litigation? And what is considered an unreasonable price to implement march-in rights? Ultimately, the path to truly affordable healthcare without sacrificing technological development still seems nebulous, which raises the question: Is it even possible to set a price for drugs in life-threatening scenarios?