Drug prices are too high. Americans spend an average of about $1000 per year on prescription drugs. And some prescription drugs cost thousands of dollars a month. There are some good reasons for this. It’s costly to develop effective drugs and get them through the FDA approval process. Many more pharma R&D projects fail than succeed, and pharma companies need the profits from successful drugs to support R&D in developing new drugs. But prescription drugs are, no doubt, a significant driver of high healthcare costs.
People have offered a variety of proposals to address this problem, many of which involve a measure of top-down price control. Price-control-based solutions are far from ideal. Most importantly, they quash the incentive to innovate by lowering pharma companies’ profits. Simplifying the FDA approval process is a better way to help reduce drug prices, but more is required—patent reform, specifically.
Patent rights are important property rights. The Founders understood this and provided Congress the power in Article I of the Constitution to grant patent rights to promote innovation. Patents provide an incentive to innovate by giving the inventor the opportunity to profit from his invention while excluding others from practicing it.
Patent rights play a critical role in pharma, among other industries, because they protect truly innovative new drugs and provide incentives to develop them. But they also stifle competition by granting a right to exclude others from marketing competing drugs and stifle innovation by granting a right to exclude others from using the invention to develop other, related drug products. In addition, pharma patents often don’t cover new drugs or truly new uses for those drugs. Instead they cover minor, obvious improvements to or variations on old drugs that have been on the market for decades. So, branded companies have an incentive to use their profits on R&D for these product-line extensions rather than on new drug therapies.
Simply put, pharma patents keep the cost of medications high. More competition is needed, primarily in the form of generic drugs, which are as safe and effective as branded drugs and compete directly with branded drugs, driving down drug prices.
So, how do we promote both innovation and competition at the same time? By reforming patent laws so it’s easier to invalidate patents. Right now, pharma patents are relatively easy to get and relatively hard to invalidate or design around. In the patent office, it’s just the inventor and a patent examiner having a back and forth about whether the invention is patentable. The patent examiner is, in theory, supposed to be pushing back on the inventor to make sure there’s really an invention. But patent examiners have huge case loads and have to rely quite a bit on the inventor being forthright about what has and hasn’t been done before.
Once the patent is granted, it’s up to competitors like generic drug companies to try to get around the patents in court. The burden is high—too high. Patents exit the patent office with a presumption of validity, and patent challengers face a higher burden of proof than just the “preponderance of the evidence” standard in ordinary civil cases.
The system of granting and reviewing patents needs to change. The standards to get patents should be higher, and the standards to invalidate patents should be lower. Both of these can be accomplished through changes to the Patent Act, for example, by eliminating the higher standard of proof in patent cases, by requiring the support to obtain a patent to be stronger, by loosening up restrictions on what can be used to show that an invention is really just an obvious variant of what was known, and by enabling a more adversarial process in the patent office before a patent is granted. These changes would enable generic drug companies to bring more competition to the market by lowering the most significant barrier to entry, and thereby bring down the cost of prescription drugs in a market-friendly way.
Just a gaggle of people from all over who have similar interests and loud opinions mixed with a dose of humor. We met on Twitter.