A Patently Reasonable Approach to Addressing Pharmaceutical Prices

We seem to be at an impasse when it comes to getting the prices of prescription drugs under control for patients while at the same time fostering innovation. This need not be the case.

The left and the right have their own ideological approaches, none of which will advance given current political reality. Progress will only come in the form of bipartisan, good-government reforms that make the system more fair and predictable.

Both parties can work together to lower drug prices while protecting innovation. We can achieve this through rational approaches, including more transparency around pharmacy benefit managers; the continued streamlining of approvals for generic biologics (also known as biosimilars); and maintaining the delicate balance between incentivizing innovation while fostering lower prices through the entry of generic drugs to the market.

At the heart of most calls for lower drug prices is some form of government intervention requiring innovators to charge less for the medicine that their investments financed. Like waving a magic wand, some would like the government to simply mandate lower prices. But to think that such a move wouldn’t stifle innovation in the already expensive and risky field of drug research and development would require, well, magical thinking.

The financial driver of pharmaceutical R&D investment is the promise that if the drug receives Food and Drug Administration approval, a manufacturer will be able to market it exclusively for a period of time at the price it chooses, without generic competition. After the patent expires, generic drugs serve to reduce drug prices dramatically.

As Sen. Orrin Hatch’s remarkable career in the Senate came to a close at the end of the year, he introduced legislation, the Hatch-Waxman Integrity Act, which will protect the delicate balance created in his 1984 Hatch-Waxman Act that paved the way for a robust marketplace for generics while still protecting innovation through strong patent rights.

In 2011, when technology patent trolls were wreaking havoc in the tech world, Congress, in an effort to protect true innovators, created a patent adjudication process called inter partes review, where patents could be challenged by the Patent Trial and Appeal Board.

When creating IPR, Congress didn’t intend to upset the Hatch-Waxman apple cart. It intended to create a streamlined process to challenge technology patents, an area not governed by Hatch-Waxman.

But because IPR can also be used by drug patent challengers, the process inadvertently created a form of double jeopardy, allowing pharmaceutical patent challengers to try their hand in two separate venues: both the federal court, as well as in PTAB’s IPR. The use of both adjudication forums not only raises fairness questions, it drives up the cost of branded medicines through unnecessary legal costs and greater uncertainty about the patent life of a drug.

Since 2011, not only have pharmaceutical innovators had to defend their patent in two different venues, a scenario not intended under the delicate balance created by Hatch-Waxman, but the legal standards in each forum differ significantly. For instance, in federal court, there is a presumption that a patent is valid, whereas in IPR, there’s a presumption a patent is not valid.

The Hatch-Waxman Integrity Act introduced recently k wouldn’t synthesize standards between venues, nor would it prevent drug patent challengers from using IPR (as might have been wise to do when IPR was created). However, it would require challengers to pick their legal venue — and stick to it.

The proposal would restore the delicate balance between promoting innovation and fostering generics. As Hatch explained on Dec. 11th, this proposal is necessary to ensure “that newer, alternative procedures for challenging drug patents do not give one side an unintended advantage.”

Tweaks of this type are ideologically neutral and, as such, fail to satisfy partisans on both sides who seek to use the issue for political gain. But if the success of the original Hatch-Waxman Act is any indicator, it is just what the doctor ordered.

Jeff Stier is a senior fellow at the Consumer Choice Center.

Scroll to top