Patent laws are created to protect the intellectual property rights of scientists and to motivate investors to produce rare drugs. Under the intellectual property laws in drugs, investors and investors could market and profit from their products for 18 years without the fear of losing sales from the threat of generic drugs.
Effects of Drug Patenting
Patenting drugs creates an opportunity for brands to monopolize the market, thus, gaining complete control over the pricing of their product. It allows maximum profits for brands within the specific period allowed by patent laws, in this case 18 years.
During the specific period allowed by patent laws, it is illegal for generic brands to infringe the rights of the patented drugs by marketing their products. This reduces competitive marketing, making it more difficult for the generics to penetrate the market. Naturally because of this reduced competition, prices are raised and the availability of drugs is decreased. This created the motion that patent laws should be limited to allow generic brands to enter the market more freely.
Loopholes in Patenting
After a patent expires, the generic brands can market their product without the restraint or fear from any legal implications that could be brought to them by the patented brand. The entrance of generic brands could reduce the sales of branded drugs by about 80 percent (Herper).
To maximize profits and at the same time reduce the threat imposed by generic drugs on their sales as well as legally, the inevitable expiration of patent is maneuvered by branded companies within the bounds of laws. The branded drugs could enter into private financial deals, usually by bribing drug companies who want to enter the market with their generic versions. Another way of maneuvering the laws include attaching riders on to some pieces of legislation in the congress to extend the patent of the brand (Kugler).
Some companies perform slight changes in the formulation of their drugs to make a new and improved version of their product. As a result, when the drug patent expires, the consumers would not want to choose the generic versions, believing it less potent.
This had been the case of Eli Lilly and Co. as they fought their way to win the case against generics maker Zenith Pharmaceuticals. The last claimed that Lillys patent on Zyprexa is invalid because it was too similar to its earlier patent. They argued that Lilly misled the institutions on the significance of their tests. Lilly on the other hand argues that Zyprexa is a more superior drug compared to its former and is worthy of its patent. However, according to Lilly, they had no plans of bribing their generic rival out of the case.
Another way of maneuvering is when drug companies continuously file patent upon patent to extend their monopoly over the drug and challenge the generics. This works to the great advantage of the brands and otherwise to the generics because when a branded product challenges a generic in court, The Food and Drug Administration delays the formers approval for 2.5 years (Herper). That is, if the case is not settled before that. This gives more time for the brands to profit their product at their monopolistic price.
The result is the constant legal suits of generic companies to invalidate the brand name patents of manufacturers that keep their generic versions off the market (Herper).
Weakening patents means weakening incentives
The Pharmaceutical Research and Manufacturers of America (PhRMA) had been strong in responding to the proposed legislation by Edwards and Kennedy. According to them, By weakening patent protection, the Edwards/Kennedy legislation harms patents and weakens the incentive to develop new medicine. Weaken patent laws will reduce drug research for rare diseases (Kugler).
The Edwards/Kennedy Legislation (Greater Access to Affordable Pharmaceutical Act of 2001) is proposed to speed up the process in which generic drugs are approved. This will reduce the monopoly of branded drugs and increase the competition among drug manufacturers by making generic brands more widely available and thus, cheaper (Kugler).
The legislation also wants to hold manufacturers to the Hatch Waxman act to ensure that practices in drug manufacturing and marketing are fair, competitive. The Hatch Waxman Act is created to increase development of generic versions of drugs and at the same time protect the patent rights of branded products. This is done by giving time for patented drugs to market and sell their products with consideration of the amount of time wasted in waiting for the approval of the Food and Drug Administration.
This legislation, as well as the Hatch Waxman Act has made a huge cut in the profits of branded manufacturers. This is despite the claim that the Hatch Waxman act is also created to protect the patent of branded products. The shares of Lillys Prozac, for example dropped by 30% in just one day in August of 2000 after the declaration of a new patent ruling (Herper).
This shows that investors are very reactive to changes and challenges in drug patents. However frivolous the challenges are, and however promising the potential of the drug is, the patent challenges have a negative impact on drug development. Any challenge in drug patents is as powerful as to reduce the investments to a very significant level that could wipe off any motivation and incentive for manufacturers to develop and produce drugs.
This, in general is the argument of brand manufacturersthat a decrease in drug patent provisions will decrease profits for branded drug makers, which will simultaneously reduce the incentives that are the primary motivators of inventors and investors.
There is no significant connection between patent protection and drug research
The National Organization for Rare Disorders (NORD) believes that It is the Orphan Drug act and not patents that have paved the way for the development rare drug products (Kugler). The Orphan Drug Act of 1983 encourages the development of drugs for rare diseases by giving the manufacturers 7 years of exclusive marketing rights. Included in the provision of the act are the tax credits that should compensate for the manufacturers, laboratories and investors research expenses (Kugler).
NORD implied that PhRMA is overstating that there is a significant connection between patent protection and rare disease drug research. This, according to them is needlessly inducing alarm among the patients.
The main argument against drug patent is the unfair marketing practices imposed by the branded drug products as supported by the intellectual property laws.
A balance should be set to meet both the need for more affordable drugs and the need for new drugs.
If this is the case, that is, if the main problem is the power of branded manufacturers to set prices, it is not by limiting the provisions of patents that could increase the distribution at more affordable prices of rare drugs. It is by setting a middle point that could balance both the need for drugs and the motivation of inventors and investors through incentives.
A lot has already been suggested regarding this. One includes offering drug companies a period of exclusivity without fear of patent challenges after a drug is approved (Herper). More specifically stated, the proposal is to give drug patents a shorter term of 15 years (instead of 18 years) (Herper). In addition to this shorter term, it is suggested that the 15 years should start only after the approval of the FDA (Herper).
At present, patents protect drugs from generic versions for 18 years exclusive of the 8 years or more that are needed for the product to pass the FDA tests. Also, to minimize the probability of monopolies, the prices of the products should be regulated that it will not harm the producers as well as the consumers.
The provisions of drug patents should not be limited.
Undeniably, for a drug innovation to proceed, financing is very crucial, making the interest of investors necessary for the development of drugs. As implied earlier, decreasing the power of patents creates fear among investors in drugs whether or not this fear is justifiable by actual probabilities. The interest of investors in drug manufacturing depends very much on the idea that they could profit from it through patent laws.
Threatening to limit this power and exclusivity would affect their interest and thus their motivation. Drug companies would not be rewarded and there would be less incentive to develop new drugs. This rebuts the NORD statement that it is not the patent that motivates or creates drug innovation. Limiting patents would in the short run decrease the prices and increase the availability of drugs but it will not produce drugs that are needed in the future.
The economic law states that a higher price of products would decrease the demand. This means that branded drug manufacturers could only rise their prices up to a point that they would still gain profit from what they invested. Higher than this point, they could not raise their prices. This is the point where the manufacturers would feel rewarded based on their contributions. Limiting the power of patents would make the manufacturers feel unrewarded because prices of the products they developed using millions of dollars are being sold at a cheaper rate compared to what it really is supposed to sell at. Consumers pay for the innovation and development. Without these manufacturers and investors, there would be no drugs.
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