One of the hottest-button political issues of the day is high prescription drug costs. On one side of the debate are politicians and patient groups espousing a populist viewpoint seeking for lower drug costs — starting immediately. On the other side are drug companies, their lobbyists, and those in favor of strong patent rights, who argue that unless companies are allowed to recoup their tremendous drug development costs, fewer life-saving or enhancing medicines will be found. There is no doubt this is a complicated question, with strong arguments on both sides. As an initial matter, however, it helps to understand why drug prices in this country can be so high in the first place.
In a simple sense, there are two levers that allow drug companies to charge what some consider exorbitant prices for their products in the United States. First is the FDA regulatory regime, which grants exclusivity to drug companies for limited periods when certain criteria are met, and can sometimes inadvertently delay generic competition due to delays in processing approvals for generic products. Second is the exclusivity granted by patents, buttressed by the complicated legal dances that generic companies need to engage in to clear the way for their products. Whether a drug enjoys FDA or patent exclusivity, or both, drug companies operate as if they will have a limited window to enjoy their monopoly pricing on a product before the entry of generic competition. For patients, that means when they need the drug — before or after generics are available — can have a big impact on what they need to pay. And because there is no uniform worldwide regulatory or patent system, patients in the U.S. often find themselves paying much more than patients in other markets with weaker patent rights, for example.
There is a lot to say on how patents can contribute to high drug prices, but for purposes of this column I would like to focus on a single drug that has been in the news because of its pricing — while taking a look at how complicated patent issues can both help or hinder the likelihood of cheaper prices for consumers. By now, many of us have seen the advertisements for Gilead’s Hepatitis C treatment, Harvoni (or Solvadi), which has an extremely high cure rate (over 95%) for Hep C sufferers. Gilead purchased the company that developed the Hep C cure in 2011 for close to $11 billion, and in 2014-2015 alone raked in over $15 billion on sales of the drug. A big chunk of that revenue came from U.S. patients, where Gilead charged over $80,000 per course of treatment. While that price has come down a bit due to competition, there is no doubt that this miracle drug is not a cheap cure.
For its part, Gilead argues that the cost of the cure must be measured against the even greater cost that Hep C sufferers would incur if they needed a liver transplant. At the same time, Gilead has been forced to drastically lower the price for its drug in countries like Egypt and India, which have large Hep C patient populations and have effectively forced Gilead to forego monopoly pricing supported by patents. In fact, the same pill that has sold for over $1,000 in the U.S. actually costs under $1 to produce, and Egyptian patients can be cured for hundreds, and not tens of thousands, of dollars. In India, forced generic availability has also greatly reduced the price. The disparity between prices in these countries and what is charged to U.S. patients has given rise to arguments that Gilead should be forced to offer lower prices in this country as well.
Political pressure to lower drug prices for its Hep C treatment is not the only hurdle Gilead has dealt with as it tries to maximize its profits on one of its key products. On the patent front, the company has been hit with legal challenges from all sides. A major competitor, Merck, launched two major patent infringement lawsuits against Gilead last year, based on patents relating to the active molecule in Gilead’s drug that Merck had acquired when it purchased two smaller biotech companies that were also pursuing Hep C treatments. While Gilead was able to fend off Merck in one case, a jury awarded $2.5 billion in damages in another case (currently on appeal). Since Merck is already selling a competitive Hep C treatment, these cases were straightforward attempts to extract a royalty from Gilead. If Gilead ends up having to pay royalties on its sales of Harvoni, that could be an independent reason why Gilead could choose to maintain, or even raise, its prices.
While Gilead has been dealing with these third-party claims of patent infringement, the company’s own patent estate around its Hep C franchise has also come under assault. In perhaps the most prominent example, groups like Médecins Sans Frontières (MSF) have challenged Gilead’s patents in Europe and Brazil. In Brazil, there is a large Hep C population of over 1.5 million likely sufferers, and even though Gilead’s rack rates in Brazil are much lower than in the U.S. ($6,500 versus nearly $60,000), there is still an effort to introduce even lower prices through generic entry. To that end, Gilead faces patent oppositions in these foreign jurisdictions, aimed at preventing Gilead from blocking generic competition through its patents. While these oppositions have a legal analog in the U.S. in the form of Inter Partes Review proceedings (which have been used to attack drug patents held by other companies), to date Gilead has not faced such challenges on its Hep C drug patents. The more successful those efforts are, the more the price disparity between what Gilead charges in the U.S. vs. overseas is likely to grow.