DOSE OF REALITY: LAWMAKERS TO PROBE BIG PHARMA PATENT ABUSE AS INNOVATION EXCUSES CRUMBLE

Jul 13, 2021

U.S. Senate Judiciary Subcommittee Hearing Tuesday Will Build on Momentum for Lawmakers to Hold Big Pharma Accountable, Lower Prescription Drug Prices

On Tuesday, the U.S. Senate Committee on the Judiciary’s Subcommittee on Competition Policy, Antitrust, and Consumer Rights is set to hold a hearing examining Big Pharma’s egregious anti-competitive practices that drive-up prescription drug prices. In particular, the hearing will examine brand name drug makers’ abuse of the patent system to extend product monopolies and hike prices — without any real innovation occurring.

The hearing has bipartisan support, with Senators Amy Klobuchar (D-MN) and Mike Lee (R-UT), Chairwoman and Ranking Member of the Subcommittee, signaling earlier this year their intent to question drug makers on “the extent to which consolidation and anticompetitive practices have contributed to skyrocketing drug prices.” The hearing adds to the growing bipartisan momentum in Washington D.C. to take decisive action to lower prescription drug prices and hold Big Pharma accountable.

The scrutiny of Big Pharma’s anti-competitive tactics comes on the heels of lawmakers exposing the dishonesty of the industry’s rhetoric that solutions to increase competition and lower drug prices threaten innovation.

Last week, the U.S. House Committee on Oversight & Reform released a report examining financial data from 14 of the largest branded drug makers in the world. The report found that between 2016 and 2020 brand name drug companies:

Spent $577 billion on stock buybacks and dividends, $57 billion more than they did on research and development (R&D).
Paid-out a total of $3.2 billion in top executive compensation —climbed 14 percent over the five years analyzed.
Rewarded executives for price-gouging American patients in some instances by offering larger bonuses for price hikes on marquee products.

Big Pharma has a history of defending the industry’s anti-competitive and pricing practices with bogus arguments centered on “innovation,” especially when it comes to patent abuse. But when you take a closer look, it’s clear the industry is just using hollow excuses to defend tactics that limit competition at the expense of consumers.

PRICE HIKES UNCONNECTED TO CLINICAL IMPROVEMENTS
Multiple studies have found Big Pharma’s price hikes have little to no connection to the cost of its development or improvements in drugs’ efficacy. In other words, brand name drug companies set launch prices and hike prices to maximize profits — not because there is any connection to innovation.

“A Drug’s Sunk R&D Costs Do Not Influence Its Price.” A 2021 report from the Congressional Budget Office (CBO) found that pharmaceutical R&D costs do not have a relationship to the prices drug companies set on their products. The report concluded, “Importantly, when drug companies set the prices of a new drug, they do so to maximize future revenues net of manufacturing and distribution costs. A drug’s sunk R&D costs—that is, the costs already incurred in developing that drug—do not influence its price.” (“Research And Development In The Pharmaceutical Industry,” Congressional Budget Office, April 2021)
Big Pharma’s Unjustified Price Hikes On Just Seven Popular Drugs Cost American Taxpayers $1.2 Billion In Increased Costs. An analysis conducted by the Institute for Clinical and Economic Review (ICER) found that drug companies hiked prices on seven popular drugs in 2019 with no evidence that the drugs had been improved. These price hikes included AbbVie, which increased the price of its best-selling rheumatoid arthritis drug Humira by 6.2 percent, Johnson & Johnson, which increased the price of schizophrenia medication Invega Sustenna by 10.7 percent, and Bristol-Myers Squibb, which increased the price of rheumatoid arthritis drug Orencia by 7.4 percent. (“Unsupported Price Increase Report,” ICER, January 12, 2021)
Price Hikes On AbbVie’s Blockbuster Drug Humira Were Not Supported By Clinical Evidence And Led To A More Than $1.8 Billion Increase In Unnecessary U.S. Drug Spending. Price hikes on AbbVie’s Humira were not supported by new clinical evidence and accounted for an unnecessary increase in U.S. drug spending of more than $1.8 billion from 2017-2018 according to ICER. (“AbbVie’s Humira, Roche’s Rituxan top ICER’s list of worst price-hike offenders,” FierceHealthcare, October 8, 2019)

TAXPAYERS PICK UP BIG PHARMA’S R&D TAB
While Big Pharma tries to obfuscate their out-of-control list prices by invoking “innovation,” the industry has gotten a huge boost in recent years from taxpayer dollars in the form of taxpayer-funded research at the National Institute of Health (NIH).

“The U.S. taxpayer has funded research for every single one of the 210 new drugs that the FDA approved between 2010-16. Yet the companies that have access to this research are increasingly viewing pharmaceuticals in the same way that banks view their financial product — opportunities for short-term returns.” (Mariana Mazzucato, “Big Pharma Is Hurting Drug Innovation,” The Washington Post, 10/17/18)
“More than $100 billion in NIH funding went toward research that contributed, either directly or indirectly, to the 210 drugs approved between 2010 and 2016. That’s roughly 20 percent of NIH spending since 2000.” (Megan Thielking, “NIH funding contributed to 210 approved drugs in recent years, study says,” STAT News, 2/12/18)

BIOLOGIC PATENT ABUSE COULD COST AMERICANS $30 BILLION
A September 2020 study from Avik Roy and Gregg Girvan of the Foundation for Research on Equal Opportunity (FREOPP) found that ballooning spending on U.S. prescription drugs is being particularly driven by Big Pharma’s abuse of the patent system to undermine biologic and biosimilar competition.

One way Big Pharma is able to maintain monopoly power is through ‘patent thickets.’ By seeking a multitude of patents for marginal aspects of a biologic, brand name drug companies are able to create a ‘thicket’ of patents that can dramatically extend exclusivity periods — blocking cheaper generics, or biosimilars, from coming to market.
Another way Big Pharma maintains monopoly power is through ‘submarining’ and ‘evergreening,’in which a branded drug maker purposefully delays the filing and issuance of a patent in order to extend market exclusivity of drug for as long as possible.

Without action, the study’s authors estimate the anti-competitive nature of the biologic drug marketplace will cost American patients more than $30 billion from 2015-2029.

PATENT ABUSE: ‘BUSINESS AS USUAL’ FOR BIG PHARMA
Unfortunately, engaging in anti-competitive tactics is a time-honored tradition for Big Pharma. Pharmaceutical companies abuse the patent system by deploying a host of other anti-competitive tactics – including ploys like co-pay coupons, ‘charitable’ kickback schemes and patent abuse – to prevent patients from accessing more affordable alternatives:

Patent Abuse: Big Pharma has a long history of price gouging American patient through patent abuse schemes, like patent thicketing and product hopping, to hinder generic competition and maintain monopolies over their biggest money makers.
‘Charitable’ Kickback Schemes: It’s no secret that Big Pharma employs a number of shady tactics in order to keep prices high. Recent reports show how brand name drug manufacturers game the system by using industry backed ‘charities’ to provide kickbacks in the form of copays to doctors and patients to quell concerns over sky-rocketing prices.
Co-pay Coupons: Brand name drug manufacturers have long used co-pay coupons to drive patients towards their expensive drugs and away from cheaper alternatives under the guise that they are helping patients afford their prescription medications. This scheme keeps health care costs high for patients and taxpayers.

Read more about how Big Pharma’s patent abuse blocks competition, harms consumers and contributes to ballooning taxpayer spending HERE.

Read more on why Big Pharma’s tired argument that innovation justifies their out-of-control prices doesn’t hold up to scrutiny HERE.

Read more on market-based solutions to hold Big Pharma accountable and lower prescription drug prices HERE.