The astoundingly wonderful radio program/podcast Radiolab just recently had an episode called“Worth” — which included a few different stories trying to establish how much something is truly “worth.” The first story in the collection talked about how much extra time in life is worth, as part of a discussion on whether or not it’s reasonable for certain drugs to be priced insanely high. It was an interesting discussion, mostly revolving around the question of whether it’s “worth” paying tends of thousands of dollars for a drug treatment that might only extend your life a few weeks. There is just a brief discussion about whether or not it’s appropriate for pharmaceutical companies to charge the rates that they do — with the Radiolab team unfortunately accepting the tired (and incredibly misleading) claim from a drug company that because drug research includes so many failures, it needs to charge these ridiculous high rates to make up for all the failures.
This is misleading in all sorts of ways, though that will need to be the subject of another post at another time. My biggest complaint, after the story was over, was that it failed in economics 101. It stuck with the premise that there was a quantifiable single amount that something was “worth” — and that price is a reflection of that. This is something that many people tend to feel, instinctively, but it’s not accurate. The value of something is different to different people and depends on many factors. The price of something may be quite different than the value — again, something we’ve been highlighting for years.
Here’s the key bit: the price of something is driven by supply and demand. When you — as the program did — look at price solely based on “value” you’re only looking at the demand side of the equation, and not the supply. And that’s where things get extra tricky in pharmaceutical pricing — because the supply side is massively distorted through patents, which enable drug companies to artificially limit the supply, driving up prices to insane levels. In a normal, functioning society, we might recognize that this is a problem. Deriving pricing for healthcare solely based on demand isludicrous, and shows a society with very short-term thinking. It prioritizes short-term narrow profits of drug companies over long-term contributions from a more healthy populace.
But this is the way of our pharmaceutical industry today. And these distortions have become something of, well, a drug to the pharma industry. They’ve become so fat and happy based on the monopoly rents of patents artificially limiting supply, that they can’t fathom how to survive without such rents. That crutch has resulted in big pharma running into some serious problems lately — because they haven’t been discovering many really valuable new drugs lately. At the same time, many of their old drugs have seen their patents start to expire.
In response, pharmaceutical companies have been pulling out all sorts of tricks to try to extend the monopoly rents (rather than actually improving people’s health or their own business model). For a while, we were discussing “pay for delay” schemes, in which big pharmaceutical companies would sue small generic drug makers… and then “settle” by paying those generic companies a bunch of cash not to compete with generic drugs for some time. That practice recently became harder after the Supreme Court said that the FTC can go after such practices as a form of antitrust enforcement.
But that’s not the only game that big pharmaceutical firms have been playing. A recent lawsuit filed by New York against Forest Labs and its parent company Actavis revealed that the company was trying to force Alzheimer’s patients onto a new drug, and away from one that they had been using. The only real difference in the two drugs: the length of the patent protection. Basically, the company was trying to force patients onto a drug that wasn’t close to becoming available in generic forms, which would make it much, much cheaper. From the lawsuit:
This case is brought to prevent Defendants from illegally maintaining their monopoly position and inflating their profits at the expense of patients suffering from Alzheimer’s disease. The manipulative tactic that the Defendants seek to employ here is what some in the industry, including Defendants’ own CEO, have called a “forced Switch.” In a forced switch, a pharmaceutical company that sells a drug facing imminent generic competition withdraws its drug from the market, forcing patients to switch to a different form of the drug with patents that expire later. The switch has the effect of impeding the entry of lower-cost generic drugs. A physician recently complained to Defendants, aptly describing their contemplated action as “immoral and unethical.” It is also illegal.
Defendants sell a blockbuster drug to treat Alzheimer’s disease, called Namenda. Namenda is Forest’s top selling drug, and is protected by patent and regulatory exclusivities that prevent generic versions from entering the market until July 2015. But rather than allowing patients with Alzheimer’s to continue to take Namenda and switch to the less expensive generic version when it becomes available, as contemplated by federal and state drug laws, Forest instead hatched a scheme that interferes with patients’ ability to make this switch.
Defendants’ strategy is to discontinue or severely restrict patient access to its original, immediate-release version of Namenda, known as Namenda IR, prior to generic entry in order to force patients to switch to Forest’s newer, virtually identical, extended-release version of Namenda, called Namenda XR. Because Namenda XR is protected by patents for many years longer than the original Namenda IR, Defendants’ goal is to use the “forced switch” to reap several more years of monopoly profits than they would have earned otherwise. Under generic substitution laws, a pharmacist will not be able to substitute lower-priced generic Namenda IR (known as memantine) for Namenda XR. As a result, once patients have switched to Namenda XR, it will destroy the market for the generic form of Namenda IR because of the dramatically increased burden, cost, and time needed to arrange for patients who have been switched to Namenda XR to switch back to the original version.
Thankfully, a few weeks ago, an initial ruling in the case found that Actavis could not move forward with these “forced switch” plans and needed to continue making the original drug, Namenda IR, available. The full court ruling [pdf] is fairly detailed in how Actavis has a monopoly on the market for memantine and is abusing it in anti-competitive ways. The court notes that merely having a patent isn’t necessarily proof of a monopoly — but in this case, Actavis absolutely does have a monopoly. Further, it notes that just because you have a monopoly, it doesn’t mean you’re abusing it. But… Actavis does appear to be abusing its monopoly position. It didn’t help that Forest Labs CEO, Brent Saunders (recently moved up to Actavis CEO as well), was pretty open about this:
Saunders stated, contemporaneously with the adoption of the hard switch by Forest, that the purpose of the switch was anticompetitive: to put barriers obstacles in the path of producers of generic memantine and thereby protect Namenda’s revenues from a precipitous decline following generic entry…. He further stated: “if we do the hard switch and we’ve converted patients and caregivers to once-a-day therapy versus twice a day, it’s very difficult for the generics then to reverse-commute back, at least with the existing [prescriptions]. They don’t have the sales force, they don’t have the capabilities to go do that. It doesn’t mean that it can’t happen, it just becomes very difficult. It is an obstacle that will allow us to, I think, again go into to a slow decline versus a complete cliff.”).
Of course, this particular practice, of trying to force people to avoid generic competition is increasingly widespread. As I was finishing up this post, I came across a similar, if equally disturbing, story about Pfizer directly threatening doctors should they decide to prescribe generic versions of pregabalin, an anti-epilepsy drug, that will also go off patent in 2015. But here’s the tricky part: Pfizer holds a different patent on the same drug if it’s used to treat pain (rather than epilepsy). Pfizer is claiming that prescribing the generic version for pain use would lead to serious problems — even though it’s the same damn drug.
You will see that, whilst the basic patent for pregabalin has expired and regulatory data protection for Lyrica expired in July 2014, Pfizer has a second medical use patent protecting pregabalin’s use in pain which extends to July 2017. Pfizer conducted further research and development on pregabalin leading to the invention of its use in pain and hence was granted a second medical use patent for this indication. This patent does not extend to pregabalin’s other indications for generalized anxiety disorder (GAD) or epilepsy.
As a result of the pain patent, we expect that generic manufacturers will only seek authorisation of their pregabalin products for use in epilepsy and generalised anxiety disorder and not for pain, whilst Pfizer’s pain patent is in place. Generic pregabalin products therefore are expected not to have the relevant information regarding the use of the product in pain in the PIL (Patient Information Leaflet) and SmPC (Summary of Product Characteristics). In other words, the generic pregabalin products are expected to carry so-called “skinny labels” and will not be licensed for use in pain. In the circumstances described above, Pfizer believes the supply of generic pregabalin for use in the treatment of pain whilst the pain patent remains in force in the UK would infringe Pfizer’s patent rights. This would not be the case with supply or dispensing of generic pregabalin for the non-pain indications, but we believe it is incumbent on those involved to ensure that skinny labeled generic products are not dispensed and used for pain.
In this regard, we believe the patent may be infringed, even potentially unwittingly, by pharmacists and others in the supply chain, if they supply generic pregabalin for the pain indication. Without information, guidance and practical solutions from the authorities, Pfizer believes that multiple stakeholders, possibly without realizing, may contribute to patent infringement which would be an unlawful act. This runs contrary to the government’s established policy of rewarding additional research by the granting of a second medical use patent.
As Cory Doctorow notes in the article above, Pfizer here seems to be trying to take its own “stupid problem” and make it everyone else’s stupid problem:
Weirder still is that Pfizer wants to make their stupid problem into everyone else’s stupid problem. The fact that it’s hard to enforce this kind of secondary patent is Pfizer’s business, not doctors’. Doctors’ duty is to science and health, not Pfizer’s profit-margins. Scientifically, there’s no difference between the two compounds. Doctors who prescribe generics leave their patients (or possibly the NHS) with more money to pursue their other health goals.
If your dumb government monopoly is hard to enforce, maybe you shouldn’t be banking on it. But in the world of corporatist sociopathy, where externalising your costs on others isn’t just a good idea, it’s your fiduciary duty to your shareholders, Pfizer’s actions are practically inevitable.
And this brings us back to the problem discussed at the very top of this article. The entire pharmaceutical industry has built its business around the idea of artificially reducing supply — rather than about providing more benefit (health). That’s really screwed up. A good business focuses on expanding the benefit to users, not limiting it to charge more. Our patent policy has created incentives for exactly the opposite — and that is having a massive impact on the health and well-being of people around the globe.
