Drug-Price Transparency Won’t End the Patent Games

(Bloomberg Opinion) -- Late last week, Sandoz Inc., the generics division of Novartis AG, settled a patent lawsuit with AbbVie Inc. over Humira, a so-called biologic drug that treats rheumatoid arthritis and just so happens to be the biggest money-maker in all of pharma. With 2017 sales of $18.4 billion, Humira accounts for an astonishing 65 percent of AbbVie’s revenue.

The settlement will enable Sandoz to bring a generic version — called a biosimilar — to the U.S. market at the beginning of 2023, while paying AbbVie a royalty. This mirrored similar settlements with Mylan NV, Amgen Inc. and Samsung Bioepis Co. Ltd. that will allow all of them to sell generic Humira at staggered dates in 2023. (A fifth company, Boehringer Ingelheim GmbH, is continuing to litigate over the Humira patents.)

On the one hand, I suppose that U.S. patients and insurance companies should be grateful that relief from Humira’s exorbitant $60,000 annual cost is just five years away. After all, although the original patent for the drug expired in 2016, the company has more recent patents on the drug — over 100, in fact — some of which are good until 2034.

On the other hand, a look across the Atlantic Ocean should make U.S. insurers stew with frustration. Why? Because Amgen and Novartis will begin selling their biosimilars in Europe this week. Even before the advent of generic Humira, the cost of the drug was much lower than in the U.S., ranging between $10,000 and $25,000 a year. The biosimilars are expected to cut that price by between 10 percent and 25 percent, according to the Wall Street Journal. The U.K.’s National Health System is expected to save about $200 million a year by 2021, said the Journal.

This is happening because Europe has much less patience than the U.S. for the kind of patent gamesmanship that pharmaceutical companies routinely deploy to maintain monopolies on their best-selling drugs. Although AbbVie used the same pile-on-additional-patents strategy in Europe as it had in the U.S., the patents were thrown out when challenged in court. In the U.K., the company’s tactics were roundly criticized by the judge.

Back in July, during AbbVie’s second-quarter conference call, its chief executive Richard Gonzalez stoutly denied gaming the system. “We invested a tremendous amount in research and development” he said. “And we’ve improved and refined the manufacturing and the formulation of Humira over time, and there’s nothing inappropriate about protecting that investment in innovation,” he added.

But really, the only reason he doesn’t think he’s gaming the system is that adding new patents to extend a lucrative monopoly is what every pharma company does now. Any company that doesn’t do it would catch holy hell from investors.

The laws regulating generic drugs were built on an important compromise. Companies would get a certain amount of time to have a monopoly on a new drug to reward them for doing the expensive research that resulted in the drug. But once that time had expired, generics would be allowed on the market, giving the country the benefit of their lower prices.

The practice of extending the monopoly with add-on patents has perverted the original intention of the law. Humira was approved by the U.S. Food and Drug Administration in 2002, which means that the company had had 14 years to squeeze monopoly dollars out of the drug. As, indeed, it has, generating somewhere around $140 billion in Humira revenue during that time. Can you really make the case that $140 billion isn’t enough of a reward for creating a drug?

On Monday, Health and Human Services Secretary Alex Azar rolled out a proposal to require drug companies to disclose the cost of any drug more than $35 a month in their advertisements. Listing the price publicly will cause the companies to establish prices that won’t outrage consumers. Or at least that seems to be the theory.

I’m certainly in favor of drug price transparency, but it’s not going to solve the larger problem of monopolies being extended far beyond Congress’s intention. To fix that, we need a new, simple law — one that says that once the patent has expired on the original molecule, other companies can begin selling a generic version. Companies like AbbVie can establish “patent thickets” all they want, but they’ll be pointless, because they won’t be able to prevent generic competition.

Though there are lots of reasons for high drug prices, patent abuse is at the top of the list. Fixing that might not be as flashy as, say, posting nasty tweets about drug company practices, but it sure would make a big difference.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. He is co-author of “Indentured: The Inside Story of the Rebellion Against the NCAA.”

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