Introduction
Pharmaceutical companies have been making drugs for centuries with companies, such as Merck, being founded as early as 1668. Within the early stages of the industry, many physicians and pharmacists viewed patenting medicines and the use of trademarks as unethical forms of monopoly (Gabriel, 2014). Unreliable enforcement and an emphasis on process patents, the protection of the manufacturing process, shaped this time period. Terms such as “patent medicine” from this era mainly referred to trademarked remedies as opposed to government-patented creations. Over time, especially into the early twentieth century, the passage of regulation in the U.S., such as the 1906 Pure Food and Drugs Act, began to erase the era of unregulated remedies (FDA, 2019). Furthermore, the industrialization of pharmaceutical production made formal IP management a crucial component of businesses within the industry. As manufacturing continued to become more complex and costly, pharmaceutical companies began to utilize patents beyond those that simply protected the final chemical compound (product patents). As a result, the specific manufacturing products used to create these substances became more heavily protected.
Today, IP management in the pharmaceutical industry includes a multitude of patents for products, process, formulation, and method-of-use. These patent components are all vital to mitigating immense R&D costs, the long-term patent management of a drug, and the overall navigation of the intricate patent landscape. For instance, IP can protect up to $2.6 billion per drug which can attract further investment and boost job creation (FTI Consulting, 2022). Additionally, it can also promote beneficial competition through the continuous creation of cutting-edge treatments. For example, immune checkpoint inhibitors such as Merck’s development of Keytruda and Bristol Myers Squibb’s development of Opdivo were a result of successful IP management (IFPMA, 2024). Immune checkpoint inhibitors are monoclonal antibodies that function by blocking proteins that stop the immune system from attacking cancer cells. The strong patent protections on the specific biological compounds within the substances enables companies to invest billions of dollars into R&D and clinical trials across several different cancer types, ultimately bringing these customized cancer treatments to market (Danlong, 2013).
Although IP management yields positive effects for both companies and consumers, there are several detrimental negative effects relating to high drug prices, challenges in balancing innovation with public health needs, and data exclusivity that arise. In examining its effects on high drug prices, it is evident that the use of patents can significantly increase a drug’s sale price. When a company gains exclusive rights to produce and sell a drug for a certain period, it prevents other companies from producing alternate versions, which would decrease prices via competition. For example, in 2015, Turing Pharmaceuticals acquired the rights to the life-saving drug Deraprim (Luthra, 2018). Derapim is a medication primarily used to treat a parasitic infection called toxoplasmosis, a condition that can prove life-threatening for individuals with weakened immune systems. After the company’s acquisition of the drug, Turing raised the price from $13.50 per pill to a lofty $750 per pill (Luthra, 2018). With an increase of more than 5,000%, the treatment became unaffordable for those with toxoplasmosis, many of which were HIV/AIDS patients. Some pharmaceutical companies also use strategies such as “evergreening” to raise prices. This entails making minor modifications to existing drugs and subsequently patenting said modifications. This enables companies to extend their exclusivity periods, delaying the introduction of alternative versions and keeping prices high (Gibbons et al., 2023). This tactic, along with increases in price as seen with Turing, presents operational challenges for healthcare executives regarding reputational risks and public backlash as being associated with unaffordable care damages consumer trust.
Moreover, in regard to balancing innovation with public health needs, the manner in which IP is managed can lead to situations where profit motivated decisions overshadow public health priorities. Pharmaceutical companies have been shown to focus R&D efforts on drugs that are financially lucrative for them (Taylor, 2015). This includes chronic diseases or conditions that often affect larger, more wealthier populations. These areas offer a high return on investment due to the large number of patients who can afford long-treatments and therapies. As a result, diseases that affect smaller populations, most often in low income areas, receive less attention as they are seen as less profitable. For example, Pfizer invests heavily into oncology because cancer drugs are among the most profitable in the market (Constantino, 2024). The condition often requires long-term treatment, enabling patent protections to ensure high prices for years. On the other hand, antibiotic research by the company has been scaled back despite global public health needs as they are taken for shorter periods and, therefore, have far lower returns on investment (Mason, 2023). This issue matters now as it has contributed to global crises such as the COVID-19 pandemic where a focus on profits resulting in delayed medication access in poorer regions allowed the virus to continue to circulate, affecting society worldwide.
In addition to neglecting public health needs, data exclusivity within the industry also contains a few drawbacks. Data exclusivity is a form of IP protection that prevents biosimilar (drugs designed to have active properties similar to those already licensed) manufacturers from using the clinical trial data of an original drug for a certain number of years. This has the potential to delay biosimilar competition as alternative versions of a drug cannot enter the market even if patents expire if data exclusivity is still in effect. Extending the monopoly period, the practice keeps drug availability low long after patents should have enabled there to be competition and prevents access to affordable medication. This is relevant to healthcare policymakers who decide how compulsory licensing is utilized as it can override it. Compulsory licensing is a legal tool that allows an authorized party to bypass patents for public health emergencies (Van Loy, 2024). However, it does not override data exclusivity in many regions. For instance, in 2001 the country of Jordan signed a Free Trade Agreement (FTA) with the United States. As part of the agreement, Jordan enacted strict 5 year data exclusivity rules for medicines, which applied regardless of whether or not a drug was patented. As a result, regulators in Jordan were forbidden from utilizing the originator company’s clinical data to approve generic drugs until after the exclusivity period has expired. With no clinical trials able to be repeated, alternate versions of the drug could not enter the market, resulting in decreased access and the uselessness of the compulsory licensing tools that legislators put into place (Malian, 2007).
Application of Solutions
Drug Access
Although the necessity of IP management in the pharmaceutical industry supports drug innovation, market regulation, and long-term access to medicines, its negative effects continue to persist. In order to address the aforementioned inequities, companies may adopt several solutions to responsibly combat negative effects. To ensure that high drug prices do not hinder access to essential medications, companies may reform patent practices related to “evergreening” and transparency. As mentioned prior, companies extend market exclusivity through practices such as “evergreening” by filing secondary patents on minor modifications to drugs and their usage, effectively keeping prices high. Stricter patentability standards that entail a higher required threshold for both novelty and non-obviousness, i.e. not granting patents merely for minor or strategic modifications, may decrease monopoly periods. For example, India’s section 3(d) Indian Patents Act (1970, amended 2005) states that new forms of known substances are only patentable if the applicant proves a significant clinical benefit (Sohrabji & Maloney, 2020). This
The law was enacted to act as a filter for the patent process and ultimately protect access to affordable medicines. As a result, cancer, HIV/AIDS, and hepatitis drugs have priced 70-90% lower when compared to patent-protected markets (Jishnu, 2015). From a systems level perspective, this can positively contribute to higher quality of care scores and improved patient outcomes, a metric that healthcare leadership is held accountable for by regulating bodies. Additionally, in regard to patent transparency, the promotion of systems by healthcare executives such as the U.S. Food & Drug Administration’s Orange Book, a primary resource listing all patents and their transparencies, could promote accountability within the industry. Increased patent regulation and transparency in tandem with one another aids in keeping medications easy to access.
