Molly Ratty Finally Writes A Post On Drug Patents, And It's Fantastic

Molly Ratty (@molratty on Twitter) has an excellent, excellent post on the Popehat blog about patent reform as applied to pharmaceuticals. Excerpt:

Since Hatch-Waxman passed, we’ve experienced an explosion in the number and size of generic drug companies and the availability of generic drugs. But there’s a problem if generic drugs cannot get to market because of patents, particularly in the case of patents that were never worthy of being granted in the first place. That’s what we have now. We have a patent system skewed toward granting and upholding patents that never should have issued. What’s worse, branded companies erect thickets of multiple patents on a single product that have the effect of extended the patent life cycle of the product. (Any readers in the tech industry should be familiar with the problem of “patent trolls”.)

The New York Times ran a dreadful op-ed full of horrible ideas, including patent seizure (why not just limit patent eligibility, and rescind patents no longer adhering to the new standard?), price fixing, and incredibly, using the FTC to undo what the USPTO has done. The whole thing is a stew of basic failures to understand how significant parts of the government actually work.

Update 2021-05-15: Some months ago, Molly took down her Twitter account, and apparently also the post at Popehat as the result of a threatened doxing. The Internet Archive of her piece can be found here.

The USPTO Enabled The Theranos Scam

Ars Technica today reports on the USPTO's role in Theranos' con job. Enabled in very large part by Elizabeth Holmes' never-reduced-to-practice patent of a "microfluidic patch that could test blood for infectious organisms and could deliver antibiotics through the same microfluidic channels", the thing metastasized:

 The provisional application, filed in September 2003 when Holmes was just 19 years old, describes “medical devices and methods capable of real-time detection of biological activity and the controlled and localized release of appropriate therapeutic agents.” This provisional application would mature into many issued patents. In fact, there are patent applications still being prosecuted that claim priority back to Holmes’ 2003 submission.

...

...[M]ore than a decade after Holmes’ first patent application, Theranos had still not managed to build a reliable blood-testing device. By then the USPTO had granted it hundreds of patents. Holmes had been constructing a fantasy world from the minute she started writing her first application, and the agency was perfectly happy to play along.

An appalling story.

NYT Discards The Right Cause For "The Insulin Wars"

The New York Times somehow recognized that patent protection is behind the whack-a-mole madness of insulin prescriptions, yet mostly elides that as causal:

There are several reasons that insulin is so expensive. It is a biologic drug, meaning that it’s produced in living cells, which is a difficult manufacturing process. The bigger issue, however, is that companies tweak their formulations so they can get new patents, instead of working to create cheaper generic versions. This keeps insulin firmly in brand-name territory, with prices to match.

But the real ignominy (and the meat of the lawsuit) is the dealings between the drug manufacturers and the insurance companies. Insurers use pharmacy benefit managers, called P.B.M.s, to negotiate prices with manufacturers. Insurance programs represent huge markets, so manufacturers compete to offer good deals. How to offer a good deal? Jack up the list price, and then offer the P.B.M.s a “discount.”

Minus spurious patents, this kind of tomfoolery wouldn't happen. Patent reform as it applies to medicine, is absolutely a precondition to fixing pharma pricing.

The Supreme Court Blesses Inter Partes Review, And The Possibilities For Pharma Reform

One of my big complaints about medicine is the ongoing problems with patents (general complaints here, a more specific example here) needlessly driving the costs of pharmaceuticals higher. The Supreme Court recently delivered some good news on this front in the case of Oil States Energy Services v. Greene's Energy Group. Essentially, the 7-2 decision said that the USPTO can revoke its own granted patents in a process called Inter Partes Review.

The basic idea behind the IPR process was an admission that the USPTO is historically bad at properly reviewing patents before granting them. It grants a lot of bad patents. The IPR process allows anyone to present evidence to the PTO that it made a mistake and granted a patent that should never have been granted. If the PTAB is convinced, it can invalidate the patent. Seems pretty straightforward. Except that the usual patent lovers (mainly patent trolls and big pharma) insisted that this was some sort of unconstitutional taking of property, without the review of a court. This is wrong for a whole bunch of reasons -- starting with the incorrect view of patents as traditional "property."

 The reaction of the pharmaceutical business, which is often predicated on shabby patents, is highly negative, but it’s unclear whether there’s enough momentum behind the process, as “Pfizer, Merck, Novartis and Sanofi are among the companies to have used the IPR process” to invalidate patents. Unfortunately, because IPR is a strictly bureaucratic creature, it is also subject to regulatory capture, i.e. if Big Pharma (say) gets hold of it, it will actually result in worse outcomes than appeals before Article III judges. A study by BiologicsHQ shows that “despite widespread concerns about the PTAB operating as a patent death squad in IPRs, ‘such concern is not justified for drug patents.’” The study found that

According to the March 2017 IPR statistics issued by the PTAB, 53 percent of IPRs resolved as of March 31, 2017 were instituted; the rest were either denied institution or reached some other resolution prior to the institution decision. 35 percent of all resolved IPRs resulted in final written decisions and 23 percent led to findings of all claims unpatentable. Only 7 percent of all resolved IPRs led to final written decisions finding that no claim was unpatentable, and 5 percent led to mixed claim findings.

This suggests that only the most obscenely obvious patents will end up invalidated, and even among those patents that do go through the process, not all of them end up being instituted! But the numbers are even worse for pharmaceutical patents:

By contrast, drug patents fare better under PTAB scrutiny in terms of having claims upheld. Of the 4,563 resolved IPRs, BiologicsHQ reports that 222 petitions (5 percent) involved patents covering drugs listed in the Orange Book. Focusing on just the IPRs involving Orange Book patents, 44 percent were instituted and 38 percent reached a final written decision, but only 16 percent led to final written decisions where all claims were found unpatentable. No instituted claim was found unpatentable in 50 percent of final written decisions (19 percent of the total number of resolved Orange Book IPRs).

 (The Orange Book is the list of FDA-accepted drugs.) Far from being a salvation, IPR might prove to be an industry Trojan Horse. To be clear, there’s no immediate evidence that regulatory capture is currently running rampant at the USPTO,  but the outcomes certainly point in the same direction.

How An Idiotic Patent Turned $20 Worth Of Generic Drugs Into $5,430

So I went to see the surgeon today for a followup appointment following my knee surgery, a routine arthroscopy. He recommended I take an anti-inflammatory, 800 mg of ibuprofen, three times a day. Doses that large are not always well-tolerated; they have been known to cause gastric upset. Consequently, we get this:

Meet Duexis, a product of Horizon Pharma. Duexis consists of 800 mg of ibuprofen, and 26.6 mg of famotidine. Ibuprofen was patented in the UK in 1961, and expired in 1984; the US patent (3769425A) was granted in 1970, and would have expired in 1987. Originally sold under the trade name of Pepcid, famotidine has been off patent for 20 years, with generics appearing in 2001.

I checked at Sam's Club, and 200 count 20mg famotidine is currently $8.76, and 1,200 200 mg ibuprofen is available for $10.88. Assuming I take three 800 mg ibuprofen doses daily and three of the 20 mg famotidine, that would mean the latter is the limiting factor, and I could go about two months (66 days, plus two doses the next) on that. (The 1,200 ibuprofen would take me 100 days, a little over three months.)

A one month prescription of Duexis (30 days @ 3x/day) is $2,715 (per the Sam's Club pharmacy). Two months is $5,430.

Duexis is covered by US patent 8,501,228, which I assume is the reason for this insane pricing. (Horizon also granted Par Pharmaceutical a license to make a generic starting in 2023 as a result of a patent suit settlement.) This kind of apparently frivolous patent grant is disturbingly common:

When the patent reaches its expiry date, the comfortable monopoly evaporates, replaced by cut-throat competition. Incumbents have three ways of defending themselves. Marketing can create brand-specific demand, dulling the temptation to switch to low-price products. Ibuprofen illustrates this. Developed by the chemists at Boots itself in the 1960s, the patent expired in 1984. But a year earlier Boots had created Nurofen, branded ibuprofen. The clever mix of packaging and advertising protected its profits. The lucrative Nurofen brand was sold in 2006; Boots still stocks the product, which costs five times more than its generic equivalent.

A second strategy nudges customers towards newer drugs that are still protected by patent. Omeprazole, a drug to reduce stomach acid developed by AstraZeneca in the 1980s, shows how it works. Branded as Losec in Britain and Prilosec in America, it became one of the world’s bestselling drugs in the mid-1990s. With the patent set to expire in 2001 AstraZeneca faced a drop in profits. So the company took its drug and adapted it, creating a closely related compound, esomeprazole, which it sold as Nexium. Though a clear offshoot of the original medicine, this counted as a new drug and was given a patent. A big marketing campaign and attractive pricing helped shift demand away from Losec and towards Nexium. With the help of this strategy, sales between 2006 and 2013 amounted to almost $40 billion.

A third approach is to "pay the makers of generics not to compete". None of these are in the customer's interest.

Ironically, the surgeon pointed me at a manufacturer program that was going to cut me a break if I used their particular pharmacy — oh, joy! — I only have to pay a $10 copay! But this made me wonder if my insurance was going to pay it or some part of it. In which case, am I not indirectly paying for this usuriousness?

Martin Shkreli, Poster Boy For Regulatory Capture And Patent Abuse

The New York Times has an article about a hedge fund operator named Martin Shkreli, whose firm, Turing Pharmaceuticals, has the apparent sole purpose of running up the cost of certain drugs. Since buying out the manufacturer of the drug Daraprim (a 62-year-old drug developed by Gertrude Elion to combat malaria, but now the only drug licensed to treat toxoplasmosis), the price of the drug has gone up from $13.50 a tablet to $750.

Martin Shkreli, the founder and chief executive of Turing, said that the drug is so rarely used that the impact on the health system would be minuscule and that Turing would use the money it earns to develop better treatments for toxoplasmosis, with fewer side effects.

“This isn’t the greedy drug company trying to gouge patients, it is us trying to stay in business,” Mr. Shkreli said. He said that many patients use the drug for far less than a year and that the price was now more in line with those of other drugs for rare diseases.

“This is still one of the smallest pharmaceutical products in the world,” he said. “It really doesn’t make sense to get any criticism for this.”

And yet. And yet. As always, the invaluable Techdirt has much, much more background on this than the NYT piece, which includes a look at the long-expired patents, and what Shkreli's actual plans are:

Turing, of course, defends the increased price by claiming the exorbitant profit margin will result in increased R&D. But let's take a closer look at what its spokesman is actually saying.

Rothenberg defended Daraprim's price, saying that the company will use the money it makes from sales to further research treatments for toxoplasmosis.

Translation: this money will be dumped into finding another variation to patent, thus locking out potential competitors and allowing Turing to continue charging whatever it wants for the medication.

They also plan to invest in marketing and education tools to make people more aware of the disease.

Translation: we will market the hell out of this new drug.

This sort of thing isn't exclusive to Turing. It's standard MO for all pharmaceutical companies. Rather than engage in meaningful competition, these companies are awarded lengthy monopolies on drugs and treatments by the US government. Turing is no different than Amedra -- part of the holding company acquired by Turing along with the Daraprim rights. But when Amedra acquired the rights from GlaxoSmithKline, it somehow managed to keep its price hike to a couple of dollars, rather than several hundred.

The FDA has built a regulatory moat around pharmaceutical companies which con artists like Shkreli use to their advantage, and to the detriment of everyone else. Patents are surely part of the story (they figure large in Turing's future plans for keeping the price of Daraprim high). The argument favoring patents is that without them, inventors wouldn't invent, but it's unclear that's ever true. The reverse, an endless stream of arbitrary restrictions and high prices for very old drugs, seems to be playing out almost every month now. Similar problems exist for regulating drug makers; why was there only one manufacturer of an elderly but still useful drug?

Update 2015-09-23: Techdirt once more has a useful followup; apparently Shkreli will do something good in the future about the price, but we don't know how much it will go down or when. Sounds great to me!

Four Things That Almost Nobody Is Talking About That Need Fixing In Medicine

Obamacare is a farce, but its proponents frequently pull out the fact that it was, in large strokes, derived from a 1993 Heritage Foundation proposal. Significant in that Politifact piece is the following graf:

"The Chafee plan did not spell out how increased coverage would be financed," [Clinton adviser Paul] Starr said. "It was more of a symbolic bill than an actual piece of legislation."

This confirms a sense I've had of the Heritage plan: it always seemed like a half-baked idea that was intended more as a negotiating counter to Hillarycare, i.e. a delaying tactic, rather than a serious proposal. The Heritage plan was always a thing-on-a-thing, scaffolding erecting the next story on an already ungainly building. And of course, therein lay the trouble; its flaws were the flaws of ad hoc tax law manipulations that originated in World War II as a consequence of wartime pay restrictions.

All of which is to say, of course, that the solution for such problems has nothing to do with adding more mandates or subtracting restrictions on insurance, as Avik Roy sadly did, or more recently, John C. Goodman's proposal. Both retain the deep ties to the insurance industry that have done so much to degrade health care in this country, a reality limned by David Goldhill in The Atlantic, an article he later expanded into a book, Catastrophic Care. As I mentioned the other day, the most frequently mentioned repair for Obamacare from the Democratic side is single-payer, which for the reasons Megan McArdle recently outlined, is an economic non-starter (and with the Vermont failure, politically dead). Instead, I want to focus on four things that few people are currently discussing that need repair in medicine that could materially reduce costs. They all have in common the market, the one way we know best that works to reduce actual costs, not apparent costs.

1. End low-deductible insurance.  Goldhill outlines the problems with low-deductible insurance: by shielding prices from consumers, it saps power from and accountability to the patient, and eliminates meaningful cost comparison. This has all kinds of bad consequences, from steady cost inflation, deteriorating service, and adverse outcomes (even including death). The solution is to remove insurers from most transactions, and let people purchase directly their own medical care. The first step should be extending the medical income tax credit as a first-dollar deduction for individuals, rather than making the deduction so high that few ever qualify. The next would be to limit insurance to those things it truly does well: management of extraordinary expenses, i.e. risk.
2. Break the American Medical Association's cartel. It's a rare day when you'll see me agree with anything appearing on the pages of Mother Jones, but their analysis of why US physicians have such high compensation is both simple and spot on: because the US is in roughly the bottom third of OECD countries by physicians per 10,000 population. Their non-solution to this problem is to say, suck it, docs, which won't work; the real answer is that the AMA's ability to limit medical school slots and internships must end. Similarly, the AMA has succeeded in gaining a monopoly on the prescription pad and otherwise limiting practice options by registered nurses (who must attach themselves to a physician or practice for various legal reasons). California came very close to nurse practitioner liberalization just last year, only to have the AMA kill the idea.
3. Limit patents to 17 years, period. As it stands now, devices patented in the 1970's are still getting repatented for various uses that have the net effect of creating long-running monopolies counter to the interests of patients and consumers. An excellent example is the Epi-pen; created by the military for field use, it should have had no patent issued, ever. Instead, its 1977 patent continues to be renewed by various kinds of chicanery; this has the result of making the product in the US cost more than three times that in Canada, and that doesn't include the cost of getting the doctor's prescription.
4. Remove anticompetitive Certificate of Need state laws. Remember the Texas car dealers who bought a law in Austin to keep Tesla out of their state thanks to a business model that dispenses with independent car dealers? Something very like that is in play with Certificate of Need laws, which amount to a "government permission slip" for new competition. By creating a moat around existing hospitals and other medical facilities, governments retard actual competition and thus raise prices:

Studies of the COPN system around the country have confirmed what seems intuitively obvious. A joint examination by the Justice Department and the Federal Trade Commission found that COPN regulations hurt competition, fail to contain costs, and “can actually lead to price increases.” Restricting supply raises prices? Imagine that.

I do not claim this list is complete or even exhaustive. It does seem to me, however, that all are obvious flaws of the current system. Some will require cage-match fights to the death — patent reform particularly is unlikely without it — but all address actual, underlying costs, unlike Obamacare or even the Republican repair proposals.