The Real Reason the EpiPen and Other Off-Patents Are So Expensive

The FDA’s unique position

Published: Tuesday, September 13, 2016 - 16:18

The rising price for the EpiPen, a drug delivery system that is crucial for persons experiencing potentially life-threatening allergic reactions, has resulted in outrage. The price increase, from about $94 for a two-pack of injectable epinephrine to more than $600 in just nine years, has members of Congress calling for investigations regarding how Mylan, the drug’s manufacturer, can justify this increase. In the last year alone, the price has climbed by $200.

The company does offer a savings program that applies to some consumers. Those with high-deductible insurance plans, which includes a growing number of U.S. citizens, don’t get much relief, however.

This is hardly the first example of steep price increases for drug treatments. Turing Pharmaceuticals, and its then-chief executive Martin Shkreli, raised the price of the drug Daraprim from $13.50 to $750 per tablet. Used to treat infection due to the parasite Toxoplasma gondii and AIDS with Toxoplasmosis, among other conditions, the price hike put people’s health at risk and cost them hundreds of thousands of dollars. Daraprim, FDA-approved in 1953, was not covered by a patent. Shkreli, unsurprisingly, was vilified (and, for unrelated reasons, ultimately indicted on fraud).

This conduct was outrageous, but it wasn’t illegal. Any pharmaceutical company is free to set the price for its drug at any level the market will bear that maximizes its profits. Other drugs with higher prices include treatments for hepatitis C, cancer, and high cholesterol.

Why such a rapid price increase for a drug that has been around for decades? As a patent lawyer with particular experience in the pharmaceutical industry, I think it’s important to look at the role of patents and also FDA approvals in drug discovery and sales. Currently, there is a backlog of about 4,000 generic drugs awaiting FDA approval. Patents and FDA approval play a role in rapid price increase for rare and common drugs and medical devices, such as EpiPens, an autoinjector of measured doses of epinephrine (adrenaline).

Patents encourage innovation

High prices for medications are nothing new. They are often expected, given the role of the patent system in fostering innovation in the pharmaceutical industry.

Patents create incentives for persons to innovate by giving them a limited period of exclusivity, currently from the date the patent issues until 20 years after its application date. During the patent’s term, the owner can stop others from making, using, or selling the patented invention.

Without this period of exclusivity, companies would have little incentive to engage in research and development. Pharmaceutical research and regulatory approval is a costly endeavor. The average cost to bring a drug to market is $2.6 billion, according to the Tufts Center for the Study of Drug Development.

Imagine the world of pharmaceuticals without patents. The National Institutes of Health predicts drug development would greatly diminish. Once a company put a drug on the market, others could purchase it and figure out how to synthesize a competing version, without incurring all of the research and development costs to identify that particular chemical entity. When competitors entered the market, they would be able to undersell the drug developer, whose pricing must reflect research and development costs. It wouldn’t be profitable to engage in the drug development to begin with.

Patents help stimulate innovation by temporarily avoiding this dynamic.

Playing monopoly

During the patent term, particularly for pharmaceuticals, the patent holder may effectively have a monopoly, enabling the company to charge prices higher than a competitive market would allow. As a society, we largely have accepted this elevated price because we believe it helps pharmaceutical companies to recoup their research and development costs and to perform future research for the next generation of drugs.

Once the patent expires, however, others can enter the market, creating competition and lowering the price for the drug.

There are opponents to the power of patents, however. Critics claim patents deny patients access to drugs. However, the patent system is not to blame for many of these price hikes. For example, the EpiPen is off-patent, suggesting that generic competition should help keep prices lower.

If it isn’t the patent system, then what is at play? It’s conceivable the cost of producing some drugs has gone up. There could be surging demand that drives up prices as well. But increased cost and demand does not account for the abrupt, dramatic price hikes of some of these medicines.

At the simplest level, there is simply a lack of competition for these drugs, even absent patent protection. Some of this dynamic could be the well-recognized consolidation in the pharmaceutical industry, which may lead to reduced competition. The low profit margins on some of these drugs may have led some companies to leave the market altogether, leaving only one company.

But even absent consolidation, remember there is another component at play: the huge backlog of drugs requiring FDA regulatory approval. Even generic drugs need regulatory approval to be sold, which makes sense. We don’t want fly-by-night companies selling impure or otherwise harmful drugs.

But obtaining approval adds to cost and time for competitors attempting to enter the market. One potential EpiPen competitor, Teva Pharmaceuticals, failed to obtain regulatory approval of its epinephrine delivery device, which delayed its entry into market. Another competitor, Sanofi, recalled its autoinjector because it may be delivering an incorrect dosage. That leaves Mylan alone in the market with the power to raise prices, which it did.

Congress and the FDA are well aware of the backlog, even though the FDA says it is picking up the pace, thanks to fees charged to the drug companies seeking approval.

In theory, some of these are just short-run problems. Eventually exorbitant prices will draw other competitors to the market and prices will come down, or so goes the thinking of basic supply and demand. FDA regulations, however—if unduly onerous—could continue to create long delays, resulting in higher prices and loss of access to medications.

It may be time for the FDA to reconsider some of its regulations governing well-known generic drugs to reduce the cost of approval and to facilitate competition. For example, the FDA may need to consider some sort of accelerated approval for importing drugs already sold in countries with regulatory systems comparable to our own. In that way, competition for these unpatented drugs could return more quickly.

As famed economist John Maynard Keynes noted: In the long run, we’re all dead. But even if these price hikes are only in the short run, some of these patients may be dead in the short run, too.

At present, companies will charge prices that the market can bear for drugs. There are few levers the government has to affect these prices. Thus, the FDA is in a unique position to act. It should revisit its role in this regulatory structure to ensure it is striking the appropriate balance between protecting patients from flawed drugs and ensuring that safe drugs get to market quickly to effectively hold the line on prices.

This article was originally published on The Conversation. Read the original article.

About The Author

Timothy Holbrook

Timothy Holbrook is a professor of law at Emory University.