(Bloomberg View) -- The Senate Health Committee held a hearing Tuesday morning about why prescription drugs cost so much and what might done to make them more affordable. According to the committee’s website, the witnesses include a lobbyist for the pharmaceutical industry, a lobbyist for the pharmacy industry and a lobbyist for the pharmacy benefits-management industry.
Might I make a small suggestion? The Republican chairman, Lamar Alexander of Tennessee, and the ranking Democrat, Patty Murray of Washington, should begin their next hearing with a reading of the decision issued on Monday by Federal Judge William Bryson in the matter of Allergan, Inc. v Teva Pharmaceuticals USA, Inc. et al. Rarely will you find so clear an explanation for why consumers can’t get relief from spiraling drug prices.
Bryson is a veteran appeals court judge; since 1994, he has sat on the U.S. Court of Appeals for the Federal Circuit, the panel that hears patent litigation appeals. From time to time, Bryson has been designated by Chief Justice John Roberts to hear patent cases at the district court level. That’s how he wound up hearing the Allergan case.
Or perhaps I should call it the Restasis case, since that is what the dispute is about. Restasis, Allergan’s $1.5 billion dry-eye medication, made headlines last month when Allergan pulled a now-infamous patent ploy, transferring its patent rights to New York State’s Saint Regis Mohawk Tribe. The idea was that because the tribe had sovereign immunity, potential generic competitors trying to overturn the drug's patents at the Patent Trial and Appeal board would be stymied.
But this bit of tribal trickery was only the most recent effort by Allergan to keep generics off the market. The Restasis patent, granted in 1995, was set to expire in 2014. Under the 1984 law that established the generic drug industry, once the patent on a branded drug expires, generics are supposed to flood into the market and bring the price down by 90 percent or more.
But for some time now, big pharmaceutical companies have found ways to extend their monopolies on branded drugs by preventing lower-priced generics from entering the market. The primary way they’ve done this is by abusing the patent system. In effect, that is what Bryson called Allergan out on.
He issued two rulings on Monday. In the smaller one, he allowed the Saint Regis Mohawks to join Allergan as a co-plaintiff in the litigation, while also making it plain that he found the ploy disgraceful. "What Allergan seeks," he wrote, "is the right to continue to enjoy the considerable benefits of the U.S. patent system without accepting the limits that Congress has placed on those benefits."
The bigger ruling was his decision to invalidate the patents Allergan was using to fend off Teva, Mylan NV and other generic manufacturers—the very patents that Allergan was trying to protect by shifting them to the tribe. In a short conclusion at the end of his highly technical, 135-page decision, Bryson outlined, in plain English, how Allergan tried to scam the patent system.
“There is no doubt,” he wrote, “that Allergan has invented a useful and successful pharmaceutical product.” But, he added, the company had been “richly rewarded” for its development of the drug, with a patent that had given Allergan a monopoly on Restasis for two decades.
The key patent was named Ding I after its inventor, Shulin Ding. Although Allergan filed a handful of what’s called "continuation applications" over the years, in 2009 it conceded that it would probably lose additional efforts to extend the life of the Ding I patent. Its reasoning was that a follow-on patent would probably not be granted because the next refinement of the drug was too obvious to merit patent protection.
But in 2013, with the expiration of Ding I imminent, Allergan "withdrew its concession of obviousness" and began a serious effort to obtain further patent protection. It applied for, and received, patents that would continue its monopoly until 2024.
The judge then described some of the moves Allergan made to justify its add-on patents: for instance, it put forth "evidence" that "the Restasis formulation resulted in efficacy levels up to eight times as great as would be expected based on studies of the formulation" of the Ding I patent. In fact, this supposed evidence was bogus: "The actual clinical results,” the judge wrote, “show no significant difference in efficacy."
Another move Allergan made was to use its new patents to preemptively sue the potential makers of generic versions. Bryson called these moves "blocking patents,” which they certainly were.
Because it wasn’t part of the litigation, Bryson didn’t mention another sleazy maneuver Allergan used to maintain its Restasis monopoly: It issued a series of "citizen's petitions" to the U.S. Food and Drug Administration. Citizen's petitions were created to give individuals and community organizations a voice at the federal regulatory agency. But pharmaceutical companies have essentially commandeered the practice, using citizen’s petitions to delay approval of a generic drug. As of this summer, Allergan had submitted three such petitions related to Restasis.
And there's more: According to Shire PLC, Allergan has been cutting deals with insurance companies that effectively prevented Shire from selling a competitive product. (Shire recently sued Allergan.) Allergan, meanwhile, has sued the compounding company Imprimis, claiming that it is in violation of FDA regulations. Needless to say, Imprimis makes a dry-eye medication. And of course there was the effort to shift the Restasis patents to the Saint Regis Mohawk Tribe.
Restasis is Allergan's second-biggest moneymaker, after Botox. There appears to be very little it won't do to hold onto to its monopoly. After Bryson's ruling on Monday, the company quickly came out with a statement saying that it "remains committed to vigorously defending the intellectual property of our products."
But if Allergan were to truly abide by the spirit of the law, its hold on this particular bit of intellectual property should have expired three years ago. Yet it feels perfectly justified in asking—nay demanding—at least another seven years, until 2024.
With billions of dollars at stake, it is probably too much to expect pharmaceutical companies to start abiding by the spirit of the law. So the only way to fix the problem is for congressional committees to radically reshape the law surrounding pharmaceutical patents. I have some ideas about how to do that. I plan to lay them out within the next few weeks.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Joe Nocera is a Bloomberg View columnist. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. He is the co-author of "Indentured: The Inside Story of the Rebellion Against the NCAA."
To contact the editor responsible for this story: Jonathan Landman at jlandman4@bloomberg.net.
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