Why Patent ‘Shenanigans’ Share Blame for High Cost of Drugs

By and Cynthia Koons | December 29, 2017

Bob Kelsey can’t afford a cancer drug that could save his life.

The retired firefighter, 53, needs Revlimid to stay healthy. Celgene Corp. has raised the price 88 percent over the past seven years. The drug doesn’t have substantial competition from a less expensive generic version, and probably won’t for another eight years. Celgene has worked hard to make sure of that.

Drugmakers typically have exclusive rights to sell brand-name medicines for 12 or 13 years. After that, cheaper copycats can hit the market. Celgene and a growing number of other pharmaceutical giants are taking advantage of an array of loopholes to extend the exclusivity period, keeping less expensive alternatives away from needy patients like Kelsey.

“Revlimid is the quintessential example of the way in which a pharmaceutical company can use a variety of tactics to extend their monopoly and then exploit that monopoly to increase revenues,” said Ameet Sarpatwari, a Harvard Medical School instructor.

The expiration date for the main Revlimid patent will be 2019. But Celgene’s business tactics, also used by other drugmakers, could allow the company to put off unrestricted competition from generics until 2026. That would cost Americans an extra $45 billion just for Revlimid, according to I-MAK, a consumer advocate.

Scott Gottlieb, commissioner of the U.S. Food and Drug Administration, is so fed up with a range of different drugmakers’ machinations he delivered a sharp rebuke last month: “End the shenanigans.”

Never-Ending Profits

Drugmakers use obscure rules and intellectual-property law to extend their patents and keep cheaper versions of drugs from patients.

Among the shenanigans: Securing new patents that extend old ones. Keeping brand-name drugs under wraps so generic makers can’t copy them. Filing so-called citizen petitions that gum up the FDA approval process for rivals. Negotiating restrictive deals with drug plans that crowd out less expensive drugs.

  • New Patents on Old Drugs: Celgene got 61 patents on Revlimid, many granted years after the drug was first approved. They could make Celgene the dominant manufacturer for 20 years.
  • Patient (and Profit) Safety: Jazz Pharmaceuticals has used an FDA safety program to keep generic-drug makers from being able to move forward with cheaper versions of narcolepsy drug Xyrem, critics said. As of a recent settlement, Jazz will most likely be the exclusive maker until 2023.
  • Citizen Petitions: The FDA lets the public petition it with concerns about the drug approval or testing process. Drugmakers can file them, too — which ViroPharma did 24 times between 2006 to 2012 for its antibiotic Vancocin, delaying a generic competitor, according to a lawsuit.
  • Restrictive Deals: Johnson & Johnson’s exclusive contracts kept its drug Remicade on pharmacy shelves instead of Pfizer’s less costly version, according to a lawsuit.

Over the past year, Bloomberg has been looking into the price of pharmaceuticals, cataloging how drugmakers have been able to use a series of tactics to retain profits for years, undermining the deal they made more than three decades ago to allow generics on the market.

Celgene “has legitimate safety concerns” about generic companies’ use of its products, spokesman Brian Gill said in a statement. The company is “committed to helping patients access Revlimid” and has given aid to 75,000 people through its support program, Gill said.

The expectation of more exclusivity fuels investment in drug companies, potentially leading to future breakthroughs—even as some patients have trouble paying for the drugs, said Craig Garthwaite, a professor at Northwestern University’s Kellogg School of Management. “It’s just a fundamental tradeoff,” he said.

Under a 2015 deal with Celgene, one generic company will be allowed to sell generic Revlimid in 2022, although with restrictions on its market share.

Bob Kelsey has sold his house and moved into an RV to try and make ends meet. He says that he couldn’t get through this without the help of his friends and family. Photographer: Jayme Gershen/Bloomberg

Bob Kelsey used to stand 6 feet tall. His blood cancer has so weakened his spine that his back is bent at a sharp angle. He’s unable to completely lift his head. At last measurement, he was 5-foot-3.

He’s gotten so self-conscious about how he looks, he shied away from photos at his daughter’s wedding, according to his wife, Tammie.

But if his photo could help people afford medications, “he would pose for a thousand pictures,” Tammie Kelsey said.

Bob Kelsey said Celgene is providing him with free doses until a charity comes through for him. But even if he does get the grant, he’s worried the money won’t last a year and he’ll have to reapply elsewhere.

Revlimid is $662 a capsule, and it can come to $180,000 a year. Celgene spent $800 million on research and development for all its products over the 14 years it prepared Revlimid for sale, regulatory filings show. The drug exceeded $1 billion in annual sales in 2008, its third full year on the market, and last year had sales of $6.97 billion.

Today, a year’s worth of 10-milligram Revlimid doses costs about $240 to produce, according to a University of Liverpool researcher. Under Kelsey’s Medicare plan, his annual out-of-pocket cost would be more than $10,000, too steep for him to pay.

“I want to be here to see my grandchildren,” he said.

Health Hostage

Jennifer Drake, 38, also could face a prohibitive price tag for her narcolepsy treatment.

For most of her life, Drake was tired all the time. Even 18 hours of sleep wasn’t enough. It got so bad she quit her job as a computer-database manager in 2015. Her mother took over care of her teenage daughter.

This spring, a doctor diagnosed her with severe narcolepsy and she started on Jazz Pharmaceuticals Plc’s Xyrem. It changed her life. She said she needs only six hours of sleep and she’s ready to return to working full-time.

But Xyrem costs Drake more than $12,000 a month. Medicaid covers almost all of this, but if Drake started working she would have to switch to private insurance — with no way to tell how much it would cover, she said.

“I feel like I’m being held hostage” by Jazz, Drake said. “I don’t understand how it’s legal for them to monopolize the product like that. It’s so unfair.”

Critics said Jazz has blocked generics makers using an FDA program meant to ensure drug safety. Xyrem is a chemical variant of the so-called date-rape drug GHB.

Jazz not only patented the drug, it patented its Xyrem safety program, also called REMS for Risk Evaluation and Mitigation Strategies. By law, generics makers have to follow the same protocol that the branded companies use. A patent throws up barriers to compliance.

FTC Interest

The Federal Trade Commission may be considering whether Jazz deliberately thwarted competition, the company said in a regulatory filing.

Jazz spokeswoman Kristin Rogers said innovative research and development has led to patents on multiple inventions, including those pertaining to the Xyrem distribution system. Because some of that intellectual property is in litigation, the company declined to comment on it, but said, “We believe that all of our patents were properly issued by the patent office and should be upheld.”

As for the price of the drug, Rogers said it reflects many things, ranging from the costs associated with the REMS program, its investment in new drugs and support for patients.

Other Drug Firms

Other drug companies are trying similar REMS stratagems. Celgene is being sued by Mylan NV, one of the world’s biggest generic drugmakers, over its refusal to share samples of Revlimid, even after the FDA deemed Mylan’s safety program adequate.

Celgene denies Mylan’s allegations. The company has sold samples of Revlimid and related products “several times” to generic manufacturers for testing, Gill said. The Federal Trade Commission closed an investigation into Celgene’s REMS programs this year without taking action, he said.

Citizen petitions are another way brand-name drug companies delay approval of competitors’ products. The petitions were designed to elicit public concerns about the drugs. The FDA is required to divert resources to address each one.

From 2011 to 2015, brand-name drugmakers filed 108 citizen petitions during the approval process for cheaper versions, and 91 percent were denied, according to a paper by Rutgers University Law Professor Michael Carrier.

The petitions “can play a crucial role in delaying generic entry,” he wrote.

The introduction of cheaper generics can be delayed even after a brand-name patent has been invalidated in court.

In October, a federal judge shot down Allergan Plc’s patents on its dry-eye drug Restasis. According to the ruling, the patents were based on obvious knowledge and were an attempt to get a second wave of patent protection.

But a generic version of Restasis still doesn’t exist. One reason: Allergan has filed three citizen petitions arguing that the current framework for approving drugs doesn’t apply. The first two petitions have been denied. The FDA is still reviewing the third.

An Allergan spokesman said the drugmaker has raised “significant concerns” in an effort to ensure the agency’s approval process is “fully informed and scientifically sound.”

In an indication of just how far drugmakers will go to hang on to exclusive rights, Allergan transferred its Restasis patents in September to the Saint Regis Mohawk Tribe near Buffalo, New York, to avoid a legal challenge. The move didn’t stop a judge from invalidating the patents on scientific grounds. Allergan said it would appeal.

Critics’ focus shouldn’t be on Allergan or the Mohawk tribe, but on a system in which some patents can be invalidated and the “negative impact on life-science innovation,” Mark Marmur, an Allergan spokesman, said in an email.

Extend Exclusives

Drug companies also use new patents to extend their exclusivity. Nearly three-fourths of drugs associated with new patents were for medicines already on the market, according to Robin Feldman of the University of California Hastings College of the Law. She calls it a “pervasive problem endemic to the pharmaceutical industry.”

Humira, which brings in two-thirds of AbbVie Inc.’s revenue, also has more than 100 patents. Many of them were issued starting five years ago, when makers of copycat drugs started circling. Humira, a treatment for inflammation, is the best-selling drug in the world, with annual sales of $16 billion in 2016, expected to approach $21 billion by 2020, AbbVie said.

Even when rival products jump through all the proverbial hoops for regulatory approval, brand-name manufacturers can still make it hard for them to get to patients.

Johnson & Johnson’s top seller, arthritis drug Remicade, has more than 100 patents. Last year, Remicade had $7 billion in sales.

Pfizer, which introduced a biosimilar version of Remicade last year, is suing J&J in federal court. J&J signs “exclusive” drug contracts that bundle other J&J products with medicine such as Remicade, leaving buyers no choice but to shut out Pfizer’s cheaper version, the lawsuit said.

In a statement, J&J said the competition is working and “driving deeper discounts” on Remicade. In a legal filing, it blames Pfizer’s sales woes on its “unwillingness to compete” with its own bundled discounts.

“Discounting and rebates have been an important part of the industry for a while,” said Scott Hemphill, a New York University law professor. “It’s an open question whether courts end up drawing the line and saying, ‘Look, you can go this far and no farther.'”

Federal lawmakers have taken notice of drugmakers’ shenanigans, but legislation has consistently taken a back seat to other issues in Congress.

So Bob Kelsey waits, dealing with blood cancer while managing the stress of not knowing if a charity can get him Revlimid in the new year.

Drug-company owners are making millions “on the backs of sick people,” he said.

Topics Legislation Education Universities Drugs

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