A Dissenting View: Patently Absurd

Published December 1, 2002

President George W. Bush’s proposal to limit the ability of biotech and pharmaceutical firms to protect products from being replaced by generic versions before their patent expires is regarded as a way to speed affordable medicines to consumers. But it is doubtful that the proposal–or more restrictive legislation passed by the Senate–will accomplish that.

Instead, limiting the right to challenge generic firms without curbing the lawsuits required to bring generic products to the market before a patent expires could harm medical progress and the public health.

On the one hand, the Bush proposal recognizes that consuming and discovering new drugs is a good thing. Each generation of new medicines helps reduce total health care spending by billions of dollars. The proposal also recognizes that with rare exception, new uses and forms of innovative drugs provide both a social and a health benefit that satisfies the U.S Patent Office’s criteria of being useful, novel, and obviously unique. And it reaffirms that before a generic company can infringe on a valid patent to copy drugs, companies that invent new ones are entitled by law to defend in court an early challenge to each patent by the generic company.

On the Other Hand

But the Bush proposal also caves in to the conventional wisdom that pharmaceutical firms are evildoers and generic firms are defenders of the public good. Contrary to the perception, biotech and drug companies are not getting an extra 30 months of patent life on top of 20 years of protection. In fact, the average “effective” patent life or monopoly for innovators is only 11 years.

Additionally, even with the 30-month stays that are common, the effective patent life is far less than the 18.5 years afforded other industries. In the FTC report, an antidepressant, Paxil, was identified as having five 30-month stays–yet even then it will have less than 15 years of effective patent life.

Current drug-patent law doesn’t just allow generic companies to obtain innovator drug trade secrets in order to test, manufacture, and warehouse copycats before a patent ends. It gives the first company to successfully challenge a patent early an incentive to do so: a monopoly of its own. The winner gets 180 days in which no other company can bring a generic competitor to the market.

Generics Drive Lawsuits

In response to an increase in the number of innovative drugs, the number of lawsuits seeking to end patents early soared. During the 1980s only 2 percent of generic drugs tried to cut patent life short as a way to approval. Today, more than 20 percent of all generic drugs now enter the market through legal attacks on patent life. And generic firms are attacking as soon as a drug hits the market, with multiple challenges of the same patent in many cases. No wonder generic companies such as Barr Labs make most of their money not from selling medicines, but from suing drug companies and settling cases. (See “A Bitter Pill,” Fortune, August 13, 2001.)

It is almost astounding that in this litigation-rich environment the FTC could find only seven products, or eight cases, where innovator companies may have received multiple 30-month stays. The hothouse for trouble is the incentive to sue for early patent termination: the 180-day monopoly of generic drugs. Neither the President’s nor the Senate’s proposals touch that bonanza in the belief that generic drugs offer, in the words of the FTC, “significant cost savings over brand-name products.”

But that assertion is suspect. HMOs and large corporations like using generic drugs because they are cheaper than newer medicines, but that cold calculus fails to look at the total cost of care or the impact on patient health. Studies show patients who were restricted to older, generic asthma and anti-depressant drugs wound up being sicker and spending more on hospitals, doctors, and emergency rooms than those who used newer medicines. Making it easier to bring generic drugs to market might enrich big corporations and HMOs, but it might reduce the number of newer medicines that offer a variety of benefits and fewer side effects to the people using them.

Generic Inflation

Finally, generic drugs are not always the bargain the President makes them out to be. For example, a 30-day supply of the generic Prozac is a prescription that costs drugstores just $2.16 or less … but it can cost anywhere from $72 to $100 at some retail stores.

The generic form of the calcium channel-blocker Vasotec wholesales for about $6. Wal-Mart–a member of a business coalition supporting speedier generic-drug approval–often marks up the drug to the tune of $40.

The President’s proposal might make it easier for generic drugs to cut short the patent of new drugs. But don’t expect that to lead to better health or significant savings. Instead, as long as the law encourages generic firms to sue early and often to take breakthrough biotech and pharmaceutical products off the market, it will make investing in additional uses and different forms of new medications–which are increasingly more expensive to develop–riskier and costlier still. The 180-day bounty that generic companies and their lawyers pursue must go.

Robert Goldberg is director of the Manhattan Institute’s Center for Medical Progress. This analysis appeared October 24 on National Review Online and is reprinted here with permission.