Red Tape Podcast, Episode 10 – You stepped on my patent
Red Tape is the newest R Street podcast about the country’s biggest problems and the surprising ways that governments (and regular people) often get in the way of solving them. It was produced in partnership with Pod People. Listen wherever you find podcasts, including Apple Podcasts and Spotify, and learn more about the podcast here.
Episode description: Politicians like to point the finger at big pharma greed as the reason why you’re paying through the nose for prescription drugs. They’re right, but that’s not the whole story. Big pharma couldn’t do what they do without the government letting them manipulate the rules and tie up their competition in bureaucratic red tape.
On this special episode of Red Tape, host Kelli Pierce interviews Wayne Brough, R Street Institute resident senior fellow for the Technology and Innovation Program. They discuss why drug prices are sky-high, how the United States’ outdated patent system lets pharmaceutical companies block competition that could lead to lower prices, and the real-life solutions that could help Americans get the drugs they need for less money.
Episode transcript:
Kelli Pierce (00:00):
What’s keeping the price of your prescription drugs so high? Hey guys, it’s Kelli Pierce and this is another very special episode of Red Tape. I want you to think about your medicine cabinet. Close your eyes and think about it, unless you’re driving. Don’t do that, but are you taking any prescriptions? Some of them might be generics and pretty inexpensive. Others might make you think about mortgaging your house. However, we all probably know people who’ve bought safe, effective prescription drugs for a lot cheaper from other countries like England, Italy, maybe you’ve done it yourself, and those price differences can be crazy.
(00:40):
The drug deflazocort, for example, which helps some muscular dystrophy patients, retails for over $22,000 in the US. In Canada, you can get it for less than a dollar a dose. Politicians like to point the finger at big pharma greed as the reason why you’re paying through the nose for prescription drugs and they’re right, but that’s not the whole story. What if I told you that big pharma couldn’t do what they do without the government letting them manipulate the rules and tie up their competition in bureaucratic red tape? Today, I am speaking with Wayne Brough, R Street Institute’s Resident Senior Fellow for Technology and Innovation, and he’s been researching the relationship between drug prices and patents for a long time now, and what he says is going to blow your mind. I know it did mine. Hey, Wayne.
Wayne Brough (01:40):
Hey, how’s it going?
Kelli Pierce (01:41):
Going great. Do you want to hear the craziest pharmaceutical story?
Wayne Brough (01:46):
Love to hear it.
Kelli Pierce (01:47):
I once interviewed Dr. Gilbert Berdine from Texas Tech University. He takes a heart medication and decided to get it through a Canadian pharmacy because it’s much cheaper. Mind you, this is a pill that’s manufactured in the United States, so it’s made here in the US and he’s buying it from a Canadian pharmacy and everything’s going fine until Customs and Border Patrol intercepted the shipment. They then sent him a note saying that by intercepting his medication, they were protecting him from terrorists. But seriously, I think that story shows people go overseas all the time to get safe prescription drugs because they’re so much less expensive than in the US. You’ve done a lot of work on this drug pricing problem, and you’ve identified that one of the major roots of our problem is the US patent system. So, first I got to ask, what’s a patent and what’s the purpose of the US patent system?
Wayne Brough (02:55):
A patent is a period of exclusivity that is granted to an inventor. It goes back all the way to the constitution. It’s written in our constitution that Congress has the right to create a patent system, and that patent system now gives a patent owner 20 years of exclusive abilities to market and sell that product. So, if you invent something, it’s yours to do whatever you want with it for 20 years without worrying about any competitors coming into the marketplace. Consider if you’re a drug manufacturer and you’re creating a new blockbuster drug, that means nobody can compete with you until 20 years later.
(03:35):
It’s a very lucrative incentive to invent, and that was the whole goal of the patent system is provide people the incentive to invest in the inventions that make us all better off. So, it’s a way to get the R&D done when it comes to drug manufacturing because it’s expensive. You need to find the right molecules, do clinical tests, do FDA approvals. It’s all a very expensive process, and at the end of the day, if you don’t have the money to invest in that process, you’re going to get fewer drugs at the other side of it. So, the whole role of the patent system is to give drug manufacturers and inventors in general the incentives to go out there and create new cool things that make us all better off.
Kelli Pierce (04:20):
What, in your opinion, is the value of a patent?
Wayne Brough (04:25):
Especially in the drug space, it’s a very, very lucrative monopoly, basically. It gives you free rein to charge higher-than-market prices and collect higher-than-market revenues for 20 years. So, it’s a license basically to charge a lot for drugs that would be sold for much cheaper in a competitive marketplace.
Kelli Pierce (04:47):
But it also, it seems, protects innovators and really encourages them to try, I think.
Wayne Brough (04:53):
There is that incentive to innovate that comes from the patent system, but the question is where do you draw the line on what’s innovation and what’s worth patenting? What we see a lot of times in the drug space is there’s a lot of patenting that doesn’t really add value in terms of health or medical outcomes. So, you want to make sure that these patents are doing the right thing and helping consumers, but a lot of times you can sort of abuse the system a little bit and use these patents just to keep your prices higher than they would be otherwise where they don’t really add any other value for consumers or patients.
Kelli Pierce (05:30):
Oh, absolutely. Before we really dig into the weeds, I’d love to get your thoughts on this. I’ve heard the argument that we shouldn’t patent drugs at all because you’re basically patenting the table of elements. It’s like patenting a lettuce or something like that. What do you say to that? Do patents have an important role to play here in prescription drugs?
Wayne Brough (05:51):
I think patents do have a role, and especially if they’re done right, because it’s a little more complicated than simply patenting the table of elements, but the first step in trying to get a patent is to prove that whatever you’re trying to patent is new, it’s non-obvious, and it’s useful. Those are the three requirements to get a patent. If you’re talking about something that’s a chemical or an abstract idea even, those the Patent Office has always said, “No, you can’t patent that.” So, you can’t patent a chemical on the chart. You can’t patent an abstract idea or a law of nature.
Kelli Pierce (06:34):
So, let’s get into the specifics of how the government’s allowing… Because it’s really the government allowing these companies to game the patent system. So, let’s say a company gets a patent for a medication, but then there’s something called evergreening. What’s evergreening?
Wayne Brough (06:52):
Well, evergreening is a practice that drug companies use to extend the life of their original patent. Say they’re producing a blockbuster drug. They’re making a lot of money off of it. You got to remember, these are drugs that bring in billions of dollars, so you extend the patent by six months, you’re talking millions of dollars in profits for these companies. So, they have every incentive to make those patents last as long as possible. What happens in evergreening is they come up with new ideas of how to deliver that drug, maybe change the dosage, change the delivery mechanism from a pill to a tablet. There’s a lot of things they can do.
(07:28):
When they do this, each of those patents… They’re called secondary patents around that primary patent of the original drug and the active ingredient. The secondary patents on deliveries, dosage, things like that, all add to the length of the original patent because they’re new patents, they go through the same process at the Patent Office and they get their 20-year patent grant. So, if you add up all these secondary patents and what they do, they extend the life of that original patent, meaning there’s no competition that can come into the marketplace and bring prices down for that original drug. So, consumers and patients are left paying much more for the prescriptions that they need.
Kelli Pierce (08:08):
What are some of the things that you’ve seen companies do for evergreening? What are some of the things that they’ve tweaked that have allowed this patent to have a little bit more life to it?
Wayne Brough (08:19):
A lot of things. For instance, they can take it from a capsule to a pill or from an injection to a pill. Those are common things that you see in the marketplace. You can combine two drugs into one, and this is something that happens as well, and that’s a new drug. Even though the primary ingredients haven’t changed, they just combine two into one pill, and then you take that one pill. That’s a new drug, so another 20-year patent on that. So, there’s a lot of little things you can do to tweak the system where at the end of the day, you’re getting the same results from the same active ingredients, but the way you have to pay for it and the way their original brand name drug is protected means that the generics don’t come into the market. We don’t get the lower prices, and we suffer in terms of paying higher prices for the medications we need.
Kelli Pierce (09:08):
Wow, this seems like something that’s very similar to something called product hopping. What’s product hopping? It seems to be something we see a lot with insulin, right?
Wayne Brough (09:20):
It’s actually reformulating the original product in some usually minor way, but that minor change enables it to get another grant of patent protection. It can go from, for instance, a tablet to a capsule, or go from an injection to a tablet, things like this that are little bit changes in the way the drug is delivered or the way the drug is used and what happens is once the change is made, the company goes out and markets the new drug as the right version of the drug. This is typically because the old drug is coming near the end of its life in terms of patent protection, and they know generics are about to come into the market and start competing. When that happens, the price of a drug usually falls by 80 to 90%. So, there they’re losing their profit margin, they’re looking for a new way to earn money, and rather than innovate with new and exciting new drugs, they tweak old drugs to make them have a new life.
Kelli Pierce (10:18):
Going into maybe some even deeper weeds, there’s something called patent thickets. Now, what are those and how is this gaming the system?
Wayne Brough (10:30):
Again, this is all about keeping generics out, because the only real competition that these brand names have are the generics who can come in after the patent expires, because remember, once a patent expires, it’s fair game for everyone. That’s when you’ll see generics come into the market and you’ll see these substantial price reductions, but if you have more than one patent surrounding your drug, it’s harder for these generics to get into the marketplace. You see this all the time with all these blockbuster drugs. For instance, Humira had 166 patents on its drug. Revlimid has another 117 patents on their drug.
(11:12):
All of these blockbuster drugs, once they’re out in the marketplace, the brand name manufacturers do what they can to keep as many generics out of the market. These thickets are a wall or a web of patents that they build around the primary patent. So, not only do you have to wait for the original patent to expire, but then you have this web of patents that you have to weave your way through. If they’re not expired, you’re always at threat of being sued or being shut down because you’re violating or infringing one of the secondary patents. So, it’s a very smart strategy on the pharmaceutical company’s part in terms of protecting their original primary drug and keeping generics off the market.
Kelli Pierce (12:00):
We lose out as consumers it seems like, because-
Wayne Brough (12:03):
Absolutely.
Kelli Pierce (12:04):
Yeah. Some of these drugs are for cancer, diabetes, some very serious illnesses. Can you give me an example of when someone used that patent thicket to keep those competitors off the market? Something maybe that caught your eye.
Wayne Brough (12:18):
Revlimid is a notorious example. It’s a top-selling drug. I would say Revlimid is a good example, but all the top-selling drugs, you see the same kind of behavior, but Revlimid, once they had their patent… Ultimately, they applied for over 200 patents on the same drug, but at the end of the day, 117 of those were granted. So, what that means is if you’re a generic trying to get into that marketplace, not only do you have to worry about the patent or infringing the original patent, you have to weave your way through 117 patents before you can even compete in that marketplace. It’s a very complicated legal structure, and these companies are very good at setting up these patents to keep people at bay and keep their profits as high as possible.
Kelli Pierce (13:08):
What type of drug is Revlimid?
Wayne Brough (13:11):
It’s a chemotherapy drug, and it’s very popular. It’s widely used, and it’s a big moneymaker, so it’s something that they have every incentive to protect from generic competition.
Kelli Pierce (13:24):
It’s not just the manufacturers themselves. There’s something called patent assertion entities. I think they’re called patent trolls. This seems just very blatantly shady. Can you talk about this, please?
Wayne Brough (13:39):
Yeah. Patent trolls are another part of the problem, and you see it not just with pharmaceuticals. This is across the board. Tech companies are plagued by the same issues, but patent trolls, what they do is buy portfolios of patents. They don’t produce anything. They’re not buying the patents so they can invent and create new things or apply those to new inventions. All they do is take this giant portfolio of patents, and then they have lawyers who basically just run through the patents and look for what could be a potential infringement of this patent. Then they send out letters to cease and desist to all these other guys who are actually really trying to produce stuff and trying to innovate, but they’re saying, “No, you stepped on my patent. If you want to continue with your work and your inventions, you have to pay me a licensing fee before you can even get into the lab and do what you want to do.” They are shady and just basically making profits off the legal system and making profits off of people who are actually really out there trying to innovate and invent.
Kelli Pierce (14:46):
I want to really focus on what all of this does for us as consumers, because a 2018 study by Dr. Robin Feldman, who was a professor at the University of California, Hastings at the time. I think she’s with UC Law San Francisco right now. She found that 78% of new drug patents between 2005 and 2015 were for existing drugs, and she testified before Congress with that stat. Is that true?
Wayne Brough (15:20):
She’s done some very interesting work, and it just points out the perversities of the patent system where instead of having all that money go to R&D and new pathbreaking drugs, they’re saying, “Well, Revlimid’s making me a lot of money. Why don’t I just invest in patents around Revlimid so that money keeps coming in?” So, in one sense, it deters the incentive to innovate, and it makes it harder to get real pathbreaking, groundbreaking drugs into the marketplace because all the incentive is, I’m a monopolist. I got all this money coming in. All I need to do is make sure that money keeps coming in by throwing up a few more patents around what I’ve already got. So, in terms of what happens to patients and consumers, maybe we don’t have the access to the most pathbreaking drugs as quick as we would otherwise, because if the patent quality is not that good, where do you see actual invention or innovation that can help us?
Kelli Pierce (16:21):
Yeah, it puts an anchor on the boat of innovation. Absolutely. It just keeps these generics or biosimilars off the market, which raises our prices. Sometimes it can be just so capricious. It just reminds me of what happened with a drug colchicine, which if you don’t know, it’s a treatment for gout that’s been around since ancient Greece. So, in 2010 however, the Food and Drug Administration, the FDA, gave the exclusive patent for it to one company. There were a couple of reasons why, but really at the base as UCLA Health reported, all the company really did was a new statistical analysis, and boom, they have the patent. Then they jacked up the price from 10 cents a pill to something insane, $50 a pill, something insane, because they could.
Wayne Brough (17:16):
Yeah, it’s a situation that unfortunately happens too often. When you have these patents, in addition to those, you also have the FDA who provides its own exclusivities on top of the exclusivity you get from the patent. So, it’s kind of a double whammy, and when you come in with a drug that’s been around forever and ever and nobody thought you need a patent for it, and somebody comes along and throws in a patent, then suddenly the whole system’s in disarray. Legally, they probably followed every step they should have and have every right, unfortunately, to do what they do, but that means we should be changing the laws, not letting this kind of stuff happen.
Kelli Pierce (18:00):
Absolutely. I have to be very clear, they didn’t do anything illegal. They absolutely followed every law and doctors and patients were quite furious, and luckily, now there’s more generics on the market for that drug, but you can definitely see that situation is not ideal to say the least. We’ve been talking about a lot of this really government-approved red tape that’s driving up our prices and letting companies really game the system, and it can get easy to get discouraged. I know I’m a little bit discouraged talking with you unfortunately, but let’s actually pivot to how we can fix things. How do we make sure that the patent system functions as a tool to support innovation rather than protect monopolies? What are some simple things that you would have us do?
Wayne Brough (18:50):
Yeah, sure. I think there’s two sides to this question. The first side is fixing the Patent Office and fixing the examination process so we get better patents at the end of the day. The second side is looking at what legislators are thinking about and making sure that they don’t do things that make the patent system worse. On the patent side, I think we need the Patent Office to do its job better. Patent examiners should get more than 16 hours to look at one patent. They need to get in and understand what they’re looking at in order to understand whether it’s really novel, non-obvious, and a good innovation that should be granted a patent. So, that’s the first side of things, getting patents right, making sure the examiners are getting good quality patents in the system.
(19:38):
The other side of that question is if you get bad patents in the system because maybe an examiner slipped up, or didn’t see something, or didn’t understand the prior art that was behind that patent, then you’re in a situation where you need to get bad patents out of the system. So, we need a process to do that. We have one right now that was put in place in 2011 under the America Invents Act, which sets up a review board at the Patent Office, and you can take your complaint about a patent rather than going to court, which can be very expensive and a very lengthy process, to the Patent Office and they can make a decision in a much quicker time with a review panel of judges who are skilled in patent policy and they can make a much better decision and get those bad patents out of the system much quicker than the courts can. So, I think both of those are very important when you’re looking at how to make the Patent Office work better.
Kelli Pierce (20:32):
There’s something called the Patent Trial and Appeal Board. Are they doing things like that or what’s their role here?
Wayne Brough (20:40):
Now, this is an important question, because the Patent Trial and Appeal Board is where you take your complaints to at the Patent Office. They do a very good job because they have a panel of judges who are experts in patent policy. They can look at a drug or they can look at a patent in general and make a very informed decision on whether it’s a good patent or not. So, that’s very much happening, and it’s something that not just patent holders, but anybody can bring a claim. So, a patient advocacy group could go to the Patent Appeal Board and say, “Hey, we think this patent is wrong. It’s keeping the prices of our drugs way higher than they should be.” So, it’s an open forum where anybody can challenge a questionable patent, but unfortunately, Congress is looking to change that, and that’s where we see problems is Congress, probably at the behest of strong patent holders, is moving in the opposite direction, both in terms of patent eligibility and what can be patented, as well as how powerful the review panel at the Patent Trial and Appeal Board can be.
Kelli Pierce (21:45):
The Patent Trial and Appeal Board, do they have actual judges that are making the decisions and adjudicating disputes, or are these other different types of bureaucrats? Who makes up the Patent Trial and Appeal board?
Wayne Brough (22:00):
The Patent Trial and Appeal Board is comprised of judges who come out of the patent system. They’re not judges in the judiciary branch, but a lot of agencies have their own administrative proceedings where you have in-house legal proceedings that go on and they can make determinations. That’s what happens at the Patent Office. The Patent Trial and Appeal Board, it’s a random set of… There’s a number of these people out there for every case. I think they bring a panel of three of them together to make the decision based on their expertise in patents. They’re probably going to come up with a better answer than a trial jury in a courtroom where nobody really has that same expertise as the judges who are doing this within the Patent Office. So, they play a very important role. They’re very informed in what they’re doing, and they’re very good at spotting invalid patents that need to be taken out of the system.
Kelli Pierce (22:53):
You mentioned that congressionally, we might be moving a little bit backward. There’s something called the PREVAIL Act that’s been floating around in Congress. What does it do and why might it be a problem?
Wayne Brough (23:07):
Well, it’s a problem because it goes directly to the Patent Trial and Appeal Board that we were just talking about. In fact, what it does is it limits their power. It limits who can bring a case before the Patent Trial and Appeal Board. It would only be someone who is being sued or potentially being sued, so that means consumer groups. Anybody else can’t make a complaint at the Patent Trial and Appeal Board anymore, and it does things like raise the standard of evidence before you can invalidate a patent, limits how many patent complaints you can file on a given patent. So, it basically protects patent holders from the threat of being overturned by the Patent Trial and Appeal Board.
Kelli Pierce (23:50):
Interesting, because we’re always told to see something, say something. Apparently, with the PREVAIL Act, not so much, right?
Wayne Brough (23:57):
No. They’re going in very much the opposite direction, making it much harder to get bad patents out of the system.
Kelli Pierce (24:04):
Let’s say that we get a patent system that is actually functional and works for us as the consumers. Will this bring down prices right away for drugs, or will some drugs just always be expensive?
Wayne Brough (24:22):
Well, I would say at the margin where you’re seeing the pathbreaking research and innovation, those drugs will probably be expensive for a while, but more generally, if you change the system, so make it easier for generics to get into the marketplace and easier for the competition to chip away at prices, I think you’ll see prices much more flexible and coming down in a much faster fashion than you would otherwise. So, the patent system does play an important role in getting that initial investment, but for the market to work, you want competition as well. If you get the patent system right, that means generics can get into the market quicker and we’ll see, as patients and consumers, the benefits much sooner than we would under the current system.
Kelli Pierce (25:08):
If you could wave your magic wand and fix things, what would you like to see happen so we have a functioning, effective patent system that really could lower drug prices at the same time?
Wayne Brough (25:21):
First thing I would do is address patent eligibility, tighten up the standards for issuing patents. That would get rid of all the crazy secondary patents and the patent thickets that you can build around a primary drug. So, that’s an important question is, how do you get rid of all the evergreening and patent thickets that don’t really add value, but keep prices high for consumers? So, I would fix that. The other thing I would do is make the Patent Trial and Appeal Board more effective so we can weed out bad patents that are already in the system. That means some of these secondary patents, you could chip away at them and they’d fall out of the system and again, bring prices down quicker because that opens the door for generics to get into the marketplace.
Kelli Pierce (26:08):
I hope you learned a lot today about why you’re paying outrageous prices for your prescription drugs. While the government has a big role in thwarting innovation and keeping generics off the market, this is not a political statement. Did you know that most people who study this stuff, no matter their politics, left, right, and everywhere in between, agree that we have a problem with our patent system, but as Wayne showed us, there is a way out of this mess. We can cut the red tape and get a system that works for all of us.
(26:42):
Red Tape is produced by R Street in partnership with Red Edge. To learn more about the work we’re doing at R Street, follow us on LinkedIn and on X. Our X is at @RSI. For more resources and information on the topics we explored today, you can check out Rstreet.org. Also, if you’ve enjoyed listening to today’s episode, the best thing you can do is share Red Tape with a friend or an enemy. If you’re an overachiever, please leave a glowing review and rate us on Apple Podcasts, Spotify, or wherever you listen to podcasts. It really does help us introduce the show to new listeners. I’m Kelli Pierce. Thanks for listening.