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Congress Considers Targeting Secondary Patents on Prescription Drugs

July 31, 2019

In another sign of growing impatience with the high cost of prescription drugs, bipartisan legislation has been introduced in the U.S. House that would limit pharmaceutical companies’ ability to delay the entry of generic drugs into the market.

The Terminating the Extension of Rights Misappropriated (TERM) Act targets the practice of “evergreening,” in which pharmaceutical companies make minor changes to a drug and file a new patent on those miniscule modifications in order to extend their exclusivity and maintain high prices.

Introduced on June 12 by Reps. Hakeem Jeffries (D-NY) and Doug Collins (R-GA), the bill would lower costs and boost competition, thereby giving patients more choices, its supporters say.

Under current patent law, generic drug manufacturers have the burden to prove why a new patent should not be granted on existing medication. This process, the bill’s sponsors argue, invites patent abuse, adds significant costs to generic drugs, and delays the release of lower-cost drugs.

Shifting the Burden of Proof

The TERM Act would make it easier for generic drug makers to challenge an extension of a patent, what is known as a secondary patent, for a new use. The patent holder can choose to protect its intellectual property in court but is unlikely to do so if the new use is trivial.

     “Competition in the pharmaceutical market decreases costs and increases options for patients,” Collins said in a statement. “Pharmaceutical companies are great innovators that create lifesaving cures and treatments for families everywhere. Unfortunately, some manufacturers simply file additional patents to delay generic drugs from coming to market. I cosponsored the TERM Act to make it easier and fairer for generic pharmaceutical companies to challenge trivial patents, which ultimately means that patients get access to more drug options faster.”

Rep. Debbie Mucarsel-Powell (D-FL) said the TERM Act takes on “drug manufacturers’ shady practice of amassing endless patents to keep more-affordable generic medicines from reaching the market and to stop these companies from increasing their profits at the expense of hardworking Americans,” in a press statement.

According to Rep. Jeffries’ office, prescription drug expenses now constitute nearly 20 percent of the nation’s health care costs and are growing faster than any other category of health care expenditure.

“As of 2017, Americans spend more on prescription drugs—average costs are about $1,200 per person per year—than anyone else in the world,” Jeffries’ office states on his website.

Not Enough?

Although the TERM Act is a step in the right direction, it does not completely address the evergreening problem, says Charles Silver, a law professor at the University of Texas, Cato Institute scholar, and coauthor of Overcharged: Why Americans Pay Too Much for Health Care.

“I’m glad that members of Congress are recognizing evergreening as a serious problem that harms consumers by making branded drugs more expensive, and that they are looking for solutions that will reduce prices by facilitating competition,” said Silver. “But I think that the TERM Act’s proposed presumption of abandonment of secondary patents is a small step in that direction.”

One problem is that the TERM Act won’t stop drug companies “from surrounding branded drugs with a “thicket” of secondary patents,” says Silver.

“Consequently, potential competitors will have to bear the expense of litigating and endure the associated delay before entering the market, and that will be a deterrent” to lawsuits that would allow them to create generics, said Silver.

Collusion Problems

The use of pay-to-delay settlements must also be dealt with, says Silver.

“Otherwise, the main effect of the TERM Act is likely to be larger ransom payments to generic drug makers who agree to stay out of the market after suing,” said Silver.

Pay-to-delay settlements involve arrangements between drug companies and generic companies not to put generic versions of their drugs on the market. In January of this year, U.S. Sens. Amy Klobuchar (D-MN) and Chuck Grassley (R-IA) introduced the Preserve Access to Affordable Generics and Biosimilars Act, which would prohibit such deals.

Little Changes, Big Costs

The problem with secondary patents is the public gets little bang for the buck from the granting of these patents, says Silver.

“Consumers keep paying high prices and suffering deadweight losses, even though the amount of innovation, relative to the first patent, is often small,” said Silver.

A better solution would be to let innovations fall into the “trade secrets realm,” says Silver, where drug makers find ways to distinguish their version over another. Trade secrets law “provides an alternative means to patents of protecting secrets.”

“Shift innovations that currently produce secondary patents into the trade secrets realm,” said Silver. “Drug makers could then still profit on these innovations, but society wouldn’t pay nearly as much for small innovations as it does for large ones,” said Silver.

The Association for Affordable Medicines, the trade group for generic drug manufacturers, does not support the TERM act, spokesperson Rachel Schwartz told Health Care News.

 

Bonner R. Cohen,  Ph.D., (bcohen@nationalcenter.orgis a senior fellow at the National Center for Public Policy Research and a senior policy analyst with the Committee for a Constructive Tomorrow (CFACT).

Author
Bonner R. Cohen is a senior fellow with the National Center for Public Policy Research, a position he has held since 2002.
bcohen@nationalcenter.org