Drug prices in America are out of control.

In one recent outrageous example, Turing Pharmaceuticals acquired the rights to Daraprim, a 62-year-old drug used to treat toxoplasmosis—a common infection that has serious consequences for people with weakened immune systems. Overnight the price was raised from $13.50 a pill to $750 a pill – an increase of 5,000%. The company was forced to back down after an article in the NYTimes led to a huge public outcry.

Beating Inflation (By Miles)

Barron’s shares a Credit Suisse report that shows branded drug prices are going up at a rate of 11-12% a year — at a time when inflation is running under 2% per year.

Some companies, such as Eli Lilly and Pfizer, have averaged one-year price increases of over 17%.

That 9-15% difference between the inflation rate and the rate of increase in drug prices translates into billions of dollars of profits for pharmaceutical companies. This price gouging also puts many drugs out of reach for people who desperately need them, and drives up overall healthcare costs for everyone. Playing by the rules, drug companies can charge whatever they like—it is when they become beneficiaries of a massive corporate welfare program and misguided policies of an obscure government agency (the US patent office) that most people have never heard of that it raises serous issues.

There are many reasons for the big increases in drug prices. They include:

  • “Niche” drugs whose market is too small to support more than one manufacturer. That one manufacturer may feel free to charge astronomical prices since no one is interested in competing with them. That was the case with Daraprim.
  • By law Medicare, the largest purchaser of drugs in the world’s largest market, can’t negotiate prices with drug companies. An article in the Wall Street Journal claims drug costs could be reduced by $16 billion per year by changing this. Medicare pays double what health care systems in other countries pay for the same drugs.
  • “Evergreening,” a process whereby drug companies extend patent protection for drugs from the statutory (and reasonable) 10 to 20 years to 30 years or more by getting new patents for “innovations” that aren’t at all innovative.

I don’t have a solution to the first two problems. Write your Congressperson. But I do have a solution for “evergreening” — one that could save consumers billions of dollars a year.

Stop Evergreening

The solution is very simple: get the US Patent and Trademark Office (USPTO) to do its job. Stop treating pharmaceutical patents as a privileged class of technology to which the usual rules don’t apply.

By law, inventions are supposed to be “novel” – new – and “not obvious to one skilled in the art” in order to qualify for a patent.

For some reason, the same “novelty” and “obviousness” standards that apply to other fields of endeavor don’t seem to apply to drug patents.

In a practice the drug companies call “life cycle management” (and everyone else calls “evergreening”), pharmaceutical companies are getting patents on highly questionable “innovations.” It is not so much that they are “incremental” (which the patent law promotes) as they are simply not patentable for various reasons.

These bogus “new” patents can extend a drug’s patent protection by a decade or more – allowing drug manufacturers to charge legally sanctioned monopoly prices far longer than deserved.

The patent office has granted patents where the only “novelty” is:

  • siliconized rubber bottle stoppers
  • micro tablets (rather than the full-size versions or granulates)
  • using computers to manage drug distribution

There are many more examples and I will write on this topic soon. Perhaps we’ll give an annual award for the most ridiculous pharma patents.

You can tell when you’re getting into evergreening territory just by looking at the patent. Evergreening patents will typically have the following attributes:

  • more than 100 references on the cover page
  • a four (or greater) year gap between the expiration date of the patent and the previous patents listed with the drug in the FDA’s “Orange Book” of approved drugs
  • a convoluted prosecution history — typically the patent was prosecuted by some mega law firm that simply wore down the patent examiner
  • multiple uses of the phrase “surprising result” or “unexpected result” in the patent specification

When these four attributes are present, it’s likely that there’s nothing really patent-worthy here. It’s just a case of evergreening — extending the patent monopoly to hold generic manufacturers at bay.

The algorithm we use to analyze the Orange Book patents is a bit more complicated, but if you don’t have time to build and test an algorithm, you’d do well just looking at these four attributes.

One interesting example is Celgene’s Revlimid, a drug used to treat anemia and multiple myeloma. This drug has gone up in price from $18,000 a year in 2005 to almost $200,000 a year in 2015. This 1,000%+ increase has resulted in Medicare Part D costs for Revlimid in 2014 of $1.35 billion – for treating approximately 25,000 patients.

Revlimid is based on thalidomide, a drug that’s been around since the 1950s. An article in SeekingAlpha points out:

…examiners of Celgene’s ‘517 patent should have found it obvious that a closely-related chemical analog like lenalidomide would reasonably exhibit similar properties and therefore should not have issued this core Revlimid® patent upon which all of the Revlimid® patents are based. There has been nothing unexpected or unanticipated about the effects or uses of the pharmaceutical compounds claimed by Celgene over the precedent scientific literature.

In May, the European Patent Office revoked one of Celgene’s patents on Revlimid. The USPTO should follow its lead.

Reducing Drug Prices—Get the USPTO to do its Job

Two simple steps by the US patent office would dramatically reduce drug prices:

Step One:

The US patent office should stop allowing evergreen patents that turn what should be 10- to 20-year monopolies into 30+ year monopolies. This will have a medium- term impact on prices, as generics become available more quickly, and the associated savings would be considerable.

Step Two:

The US patent office (technically the Patent Trial and Appeal Board or PTAB) should stop giving ridiculous deference to pharma patents in Inter Partes Review (IPR) proceedings.

Inter Partes Review

An IPR is an administrative procedure for challenging the validity of a US patent. The procedure is conducted by the PTAB.

A study from DLA Piper shows the preferential treatment the pharmaceutical industry is getting.

When filing an IPR, the first hurdle is getting the PTAB to agree to institute a proceeding. In all other technology areas, the institution rate is approximately 80%. For pharmaceutical patents it’s only 46%. In other words, non-pharmaceutical patents are nearly twice as likely to be subjected to an IPR. Is it that pharma patents are somehow of higher quality than other patents? According to a 2009 European Patent Office study, it is likely just the opposite is true and that pharma patents are generally of lower quality given European Patent Office invalidation rates in proceedings similar to US IPRs.

If the Director of the US patent office would take her thumb off the scale in favor of pharma patents — or direct whoever owns the thumb to remove it — this would have a near-term impact, accelerating generic entry and lowering drug prices.

According to the Congressional Budget Office, the cost of excluding pharma patents from IPRs (at least in part what the US patent office is now doing) will exceed $1.3 billion over the next 10 years. According to the Center for Economic and Policy Research this cost will exceed $200 billion over the next 20 years.

That windfall will be paid by patients and taxpayers to pharma companies – unless we do something about it.

Can a “Troll” be Altruistic?

As I thought about this more, it became apparent to me that I was probably the wrong person to be the face of this effort – particularly on Step Two. Drug companies constantly remind me that I am a “patent troll” and lacking altruistic motives.

But it’s because of the money I’ve made from patent monetization that I can afford to be altruistic (at times) – and to offer others the resources to fight the pharma industry. I truly believe that it is outrageous that pharmaceutical companies get away with misusing the patent system to gouge consumers, and I want to help fix this.

Here is how it will work.

I’ll make publically available substantially final draft versions of IPR petitions for pharma patents that I think are invalid. My hope is that, via crowd-sourcing or some other way, people far smarter than me will comment on the petitions and make them even better.

After the petitions are polished and suitable for hanging in The Louvre of IPR petitions, perhaps some person with altruistic motives will file them or maybe a person that is mean to puppies will file them.

I don’t care who files. It could be a law school student group, a charitable organization, a health insurance company, a consumer protection group, or a government entity sick of seeing and outrageous example of corporate welfare that results in harm to patients and taxpayers.

To help whoever takes on the task, I’ve found a number of law firms and experts that have offered fee arrangements that are a fraction of normal market pricing. If you email info@nxn.com, this information along with additional materials you will need will be provided. If there are any law firms or experts who are interested in helping out in this effort, happy to make introductions.

Unfortunately, I can’t pay the legal or expert fees or that would make me part of the IPR as a “real party in interest,” and then we’d be back to dealing with the lack of altruism rubbish from these corporate welfare-benefiting thieves that engage in the most outrageous activities.

The first draft IPR should be up on the blog early next week. Enjoy.