Excessive patents, litigation and settlements extend lucrative monopolies beyond FDA exclusivity.
Many of the top-selling drugs in America are direct beneficiaries of their manufacturer’s success in extending monopolies, with layers of patents and multi-year litigation that keeps approved generics and biosimilars off the market. The larger the drug’s revenues, the safer the franchise because the potential damages could be devastating to would-be competitors if they launch “at risk” and the courts uphold the originator’s claims. As a result, the two parties may reach anti-competitive settlements because it is more lucrative for generic competitors to be paid to delay entry than try to compete or to lose the case and wait even longer.
Layers of patents and multi-year litigation often keep FDA-approved generics and biosimilars off the market.
Some of the most striking examples of this practice – and the value it can create for the manufacturers – include: Abbvie’s Humira, $14.9 billion (62% of US sales in 2019); Amgen’s Enbrel, $5.1 billion (31% of US sales) and Bristol Myer’s (formerly Celgene’s) Revlimid, $7.3 billion (30% of US sales).
- For the largest global pharmaceutical companies, more than one-third of US pharmaceutical revenues (34%) in 2019 were generated by products whose marketing exclusivity or primary patent have already expired
- Four companies generate over 50% of their 2019 US revenues from products with expired exclusivity: Abbvie (73%), Amgen (59%), Biogen (86% including recently overturned patent for Tecfidera) and Roche (55%).
Expansion of 340B program indirectly raises costs while providers and pharmacies profit.
Section 340B of the Public Health Service Act was originally conceived nearly 30 years ago as a program allowing certain hospitals that cared for low-income or uninsured patients to obtain drugs for their patients at substantially reduced prices. Toward that end, the program requires pharmaceutical manufacturers participating in Medicaid to sell outpatient drugs at discounts that generally range from 30-40% off list price (capped at the Medicaid price). In recent years, drug purchases under the 340B program have been growing in excess of 25% per year and now account for 8-10% of the drug market by some estimates. According to Adam Fein, the program has grown to ~$36 billion and is now approximately the same size as the Medicaid outpatient drug market.
While noble in concept, much of the growth of the program is a result of massive consolidation among hospitals, providers and pharmacies, which has enabled many providers and pharmacies outside of the intended scope to procure drugs at the mandated 340B discount. As there is no requirement to pass the lower price on to patients (many of whom are insured), the contract pharmacies and hospitals often profit from the spread between their procurement cost and reimbursement they receive.
Why Does this Matter?
Since the 340B program drives down the acquisition costs of drugs but not their reimbursement, it can influence the costs of patient care in several ways. Several studies have concluded that the availability of profits from administering expensive drugs is known to alter physician prescribing behavior toward those products with higher profit margins. Moreover, when the cancer drug or medication is administered in hospital-based infusion suites, the overall cost to both the insurer and the patient can be dramatically higher. The 340B discounts are largely a diversion of funds from the manufacturers to the hospitals, clinics, and contract pharmacies that dispense and administer the drugs. As a result, the manufacturers have an incentive to offset these revenue losses by raising list prices so that the net revenues can be preserved.