Treats, Not Tricks: When Brand Name Drugs Fall Off the Patent Cliff

A pharmaceutical company may spend years of research and billions of dollars to develop a new drug with the expectation that the time and money invested will be rewarded by a patent for its innovation. But what happens when the patent expires, and the company loses its exclusive right to market the drug? One strategy used to avoid this fate is drug repositioning. In this case, the patent is extended under the claim that the drug has additional therapeutic applications beyond its original indications. For instance, if a drug was initially developed for depression, and has since proven effective for treating heart disease as well, its patent can be extended for another 10 to 17 years. Another approach is to develop “me-too” drugs, whose activity is unchanged, but due to changes in formulations and packaging, have easier dosing regimens. These drugs benefit manufacturers because they are easier to develop and generate new patents, but confer little benefit to consumers.

Perhaps the most devious tactic pharmaceutical companies use to avert falling off the patent cliff is “pay-for-delay.” In this scenario, brand-name companies delay generic competition by paying a competitor to hold its product off the market for certain period of time.

Typically, brand-name pharmaceutical companies challenge generic labels’ entry onto the market and litigation ensues. For the brand to prevail and block generic entry, it must defend the validity of its patent and demonstrate that the generic product would infringe upon those patents. Given the cost and uncertainty of patent litigation, pay-for-delay agreements have become common practice to settle such legal matters. In fact, brand-name pharmaceutical companies are using pay-for-delay to hold off generic products for substantial periods of time even after patents expire.
Pay-for-delay is a “win-win” for both companies: brand-name prices stay high, and the brand and generic labels share the benefits of the brand’s monopolistic profits. It is the consumers that lose. They miss out on generic prices that can be as much as 90 percent less than brand price.

While it seems to breach the United States Antitrust Law, pay-for-delay practices have been widely accepted as legal. The Federal Trade Commission has taken actions against such practices with little consequence, perhaps because consumers have not claimed the power to challenge the system. Additionally, health care professionals, who are consumer advocates, have been unable to infiltrate the necessary bureaucratic institutions to effect change.Proponents of pay-for-delay practices argue that due to the expense of the drug development process, having longer patents and the ability to profit for longer periods of time provide incentives for companies to invest in new innovations. While patents do promote innovation to some extent, however, having ] patents that last too long discourage pharmaceutical companies from pursuing newer and better products.

Without question, pay-for-delay agreements have significantly hindered consumer savings and affordability. Pharmaceutical companies need to balance promoting innovation with ensuring access to essential drugs. Most importantly, consumer and health care force unite in pressing Congress to pass legislation protecting pharmaceutical consumers from such anti-competitive agreements.