Rx Patent Reform Gets Renewed Interest From GOP As Alternative To Price Negotiation
Executive Summary
A Republican congressman and witness discuss shortened IP protections while criticizing Nancy Pelosi's drug price negotiation plan.
Usually staunch defenders of intellectual property rights, at least a few Republicans now seemed interested in considering changes as an alternative to the explicit price capping legislation now advancing in Congress.
The most recent GOP politician to broach the idea was Tom Rice of South Carolina, who asked about patent reform during the 17 October hearing in the House Ways & Means Committee to discuss HR 3, House Speaker Nancy Pelosi's bill to allow the government to directly negotiate the prices of drugs in Medicare.
Rice said to Arnold Ventures Executive VP of Health Care Mark Miller, one of the hearing witnesses, that the negotiation provisions in the Pelosi bill seemed to penalize companies that take advantage of the current IP system as it is constructed.
"Now we're saying we encourage you to innovate, so we give you this intellectual property protection, but because you take the very preference that we give you, this encouragement that we give you, well that's bad and we're going to punish you for that," Rice said of the bill.
The argument focused on requirements in the bill that the Health and Human Services Secretary attempt to negotiate a price, and if no deal can be reached, companies would be taxed 65% and eventually 95% of annual gross US sales.
Several Republicans on the committee argued that true negotiation is not possible with the potential penalty. But Rice added to the conversation that if drug prices were too high, as most at the hearing agreed, then maybe there was an easier solution to the problem.
"If the intellectual property protection we've given is too broad and resulted in this system that's bad, shouldn’t we look at the underlying intellectual property protection rather than trying to set up this government price control that is going to lead to misallocations, is going to lead to less innovation, is going to lead to all kind of unintended consequences?" Rice asked. "It would seem to me that this is just an illogical way to attack this."
The comment likely was an attempt to shift the focus away from the Democratic idea that the federal government should be empowered to lower prices, but the direction was interesting for a member of a party that tends to be pro-business and repeatedly has pushed policies that reward innovation such as market exclusivity and IP protections.
Sentiments similar to Rice's idea on patents have also been expressed by Sen. John Cornyn, R-Texas (Also see "From Pricing To Patents: Hearing Signals A Potential New Focus" - Pink Sheet, 27 Feb, 2019.) and Rep. Jim Jordan, R-OH (Also see "Reducing Patents Gets Attention From House Freedom Caucus At Pricing Hearing" - Pink Sheet, 29 Jan, 2019.).
That's not exactly a groundswell, but it does suggest a growing interest by Republicans in a fundamental reform that could leave the drug industry market-based, just less lucrative.
If patent tightening does get any momentum behind it, it likely won't be until the next round of legislation development. HR 3 appears to be on a brisk pace in the House, even as it faces dim prospects in the Senate. The Ways and Means Committee is expected to mark-up the bill next week and it could hit the floor soon after that.The Education & Labor and Energy & Commerce committees already marked up the bill on 17 October, the latter in a marathon session that paused at one point for prayer service for the recently deceased Rep. Elijah Cummings, D-MD.
Would Industry Prefer Shorter IP Protections Over Price Negotiation?
During the Way & Means hearing, American Enterprise Institute Research Fellow Benedic Ippolito, another witness who received the bulk of GOP questions, also raised IP changes as a potentially better avenue for dealing with high drug prices.
The pharma industry wants certainty in any drug pricing bill. Government negotiation or using an international index of prices to set them in the US would create the opposite, Ippolito said.
"That uncertainty element is really expensive because you don't know what draw you're going to get," he said.
"If you really are worried about drug prices being too high, for example, well maybe we should shorten exclusivity," Ippolito added. "It's very easy to understand what we're talking about and you can have an open discussion about exactly what that would mean. I would prefer that much more strongly to something like this where we kind of say 'HHS Secretary in 10 years go get them.'"
The brand drug industry consistently has fought against proposals that would lessen IP protections for its products. (Also see "BIO Stalwart Greenwood Announces Departure" - Pink Sheet, 8 Oct, 2019.)
Encouraging Second-To-Market Rather Than First-To-Market?
Republicans also hammered the point that allowing price negotiation could stifle innovation, and create perverse incentives against being the first product to treat a disease.
When asked whether the bill could make it less economically feasible to cure diabetes than a disease far fewer American suffer from, Ippolito agreed. He said the rate-setting process in the bill is much less likely to be triggered by a drug that is of low value, i.e. treats a small number of patients, as compared to diabetes, which afflicts millions.
Ippolito also said that drugs with no competitors would be of the highest value and subject to price controlling efforts, unlike the second product to market.
"The seventh treatment for gout is not going to trigger the rate-setting system at least as HR 3 is written," he said. "The first treatment for Alzheimer's does."
US Food and Drug Administration officials have argued that more options, including me-too drugs, are needed in many spaces (Also see "Q&A With US FDA Commissioner Scott Gottlieb" - Pink Sheet, 9 Nov, 2017.), but it is likely many would question the trade-off if Ippolito is correct.
Pelosi's bill sets at least 25 drugs for negotiation each year beginning in 2021 and allows a maximum fair price to go into effect in 2023. (Also see "US House Drug Pricing Bill Amended To Target Launch Prices, Set For Swift Advance" - Pink Sheet, 16 Oct, 2019.) Manufacturers consider the idea a serious threat to their business models, but a major industry trade organization recently said sponsors are willing to help reduce costs in other ways. (Also see "PhRMA Willing To Contribute To Drug ‘Affordability’ – But Mum On How Much" - Pink Sheet, 10 Oct, 2019.)
Miller argued that innovation will not be snuffed completely because once industry understands the criteria for price negotiations, some of the perceived effect on research and development will be muted. He also said there was room across the industry for revenues, say from marketing costs, to shift into R&D if prices and revenue decrease.
The Congressional Budget Office, in a preliminary score of the bill, predicted that fewer new drugs would come to market in part because of the revenue decline for industry, but also said that the bill could save billions. (Also see "Pelosi Rx Pricing Bill Offers Big Savings, Big Drop In Drug Development – CBO" - Pink Sheet, 12 Oct, 2019.)