Secret Reason Rx Drugs Cost So Much: Global Web of Patent Laws Protects Big Pharma

Patents and other intellectual property rights allow the multinationals to evade competition for years on end, writes Faisal Chaudhry.

Advocates for lower drug prices held a vigil on Sept. 5, 2019, outside of Eli Lilly in New York City, honoring those who have lost their lives due to the high cost of insulin. (Eric McGregor/LightRocket via Getty Images)
Faisal Chaudhry
The Conversation 

The high price of insulin, which has reached as much as $450 per month, has raised outrage across the country. Senator Bernie Sanders (I-Vt.) has called it a national embarrassment, wondering why U.S. residents should have to drive to Canada to buy cheaper insulin.

As a legal scholar who focuses on the contradictory role of property rights on economic well-being, including through the role of intellectual property rights, my research makes it clear that drug pricing is far more complicated than any candidate on the debate stage has time to explain.

To fully understand these complexities requires looking at a web of international patent law and trade agreements.

Insulin was discovered almost 100 years ago, saving the lives of many people with diabetes. Its soaring costs in recent years has brought outcries from patients and politicians. (John Fredricks/NurPhoto via Getty Images)

 Why No Generic Insulin?

Scientists working in Canada’s public sector discovered insulin nearly a century ago. The first techniques for synthesizing the compound, which should have more readily allowed for the production of generic versions, emerged some four decades ago. Yet today insulin remains unavailable in any significant generic version.

One of the three companies that control 90 percent of the world insulin market, Eli Lilly, recently did bow to public pressure by announcing a forthcoming “authorized generic” version called Lispro. But that could still run some people $140 per prescription.

U.S. consumers are not alone in facing high prices of insulin and other life-saving drugs. For the last two decades, intense controversy has raged around multinational pharmaceutical giants being able to monopolize access to vital medicines the world over. A key means of doing so is through the legal power of patents, and the monopoly-like profits – or what some experts call unearned economic rents – they guarantee.

Think of rent as a windfall gained for making little effort of one’s own. Being “unearned,” rents are thus usually distinguished from ordinary business profits. In this way, they are comparable to the fees a medieval lord would charge for access to cropland on a vast estate.

To fully explain the problem of economic rents and access to medicines, however, we need to look still further: to the controversies that have swirled around pharmaceutical patents in countries far less wealthy than the U.S.

  Hidden Worldwide Problem

For more than 20 years, in various parts of Africa, Asia and Latin America, countries have been battling a global system of rent-taking, or “rentierism” for short, that disproportionately benefits Big Pharma.

This state of affairs could not exist without the government officials whom Big Pharma has lobbied successfully in wealthy countries. Patents and other intellectual property rights allow the multinationals to capture rent by evading competition for years on end.

This global battle around pharmaceutical patents began in earnest with the founding of the World Trade Organization(WTO) in 1994. This included an annex agreement on intellectual property rights known as the Trade-Related Aspects of Intellectual Property Rights.

Many countries already allowed for patents before 1994, but only on “processes” of manufacture or synthesis. After 1994, WTO member countries were required to extend patents to the vital end products of such processes as well.

For inhabitants of developing countries, whose greatest public health problems at the time derived from diseases like malaria, tuberculosis and HIV-AIDS, this crystallized various questions of great import. Should the agreements enable Big Pharma’s monopoly-like patent rights to trump the ability of the sick and dying to obtain generic versions of life savings medicines? And if so, to what extent?

By 2001, all WTO member states officially had conceded the rights of developing countries to take measures to increase access to lifesaving medicines. But Big Pharma and its allies have never relented in pressing for more, not less, stringent intellectual property protections around the world.

Shaky Justifications

Since 1994, Big Pharma has imposed ever more severe requirements around patent rights. They have insisted that patent rights are necessary to “incentivize” the availability of drugs for conditions like tuberculosis and malaria that, having no markets in the developed world, require guaranteed premiums from whatever countries they are sold in.

Yet for just as long, critics have alleged that Big Pharma typically uses inflated, misleading or otherwise opaque cost data to tout the billions of dollars it claims to spend on drug development. Likewise, critics have continuously called attention to the way that most drug development is built on publicly funded research.

And, finally, critics have never stopped highlighting the fact that Big Pharma long ago largely abandoned research and development for drugs for infectious ailments in developing nations, and increasingly switched to spending on blockbuster noninfectious disease drugs.

Yet as diseases such as cancer and heart disease begin to take an even greater toll in the developing world, patents will extract an ever greater toll on patient populations across the world.

In a developing world where public health problems increasingly look similar to the developed world’s, in fact, multinational pharmaceutical corporations could become better – not worse – placed to expand their profits by tapping new markets for drugs like insulin and beta blockers.

Convergence Among the Sick Across Globe

One unexpected lesson from this is that ordinary people around the world will increasingly find themselves in the same boat when it comes to accessing the medicines they need.

Therefore, if countries in the developing world are forced to give up the fight against patent rentierism, it should be a concern both to their own residents and to residents of wealthy countries too.

Just this past September, for example, Indian Prime Minister Narendra Modi signaled that his country – which has a robust generic drugs industry that supplies low-cost medicines to people around the world – was ready to concede to the demands of Big Pharma by moving toward abdicating his country’s vital role as “the pharmacy of the world.” India has now signed an interim trade agreement with the Trump administration that will require it to more strictly enforce the patent rights of pharmaceutical multinationals, with the latest news reports indicating it may even now be finalized.

Over the course of the current battle for the Democratic nomination, many will have heard about the plight of residents of Michigan who are left asking how insulin costs 10 times in the U.S. what it costs 10 minutes away across our northern border.

Given the larger conversation about patent rents and access to medicines that we should be having, however, it behooves those of us who live in places like the U.S. to look not only to Canada but to what is happening around the world, where the sick and dying face increasingly similar ailments – and fights – as our own.

Faisal Chaudhry is professor of law at University of Dayton.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The views expressed are solely those of the author and may or may not reflect those of Consortium News.

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6 comments for “Secret Reason Rx Drugs Cost So Much: Global Web of Patent Laws Protects Big Pharma

  1. Marc Freeman
    February 1, 2020 at 14:31

    Insulin is the big headline drug. But consider that Brilinta which is life-saving must take drug for people with heart disease costs $518 (last quote I got) in the US without a drug plan. You can buy it in Canada mail order for $115. Many doctors won’t prescribe other much cheaper drugs of the same family, such as Plavix, which costs $7 at many big Pharmacy chains. Monopoly pricing is rent extraction by any name.

  2. January 31, 2020 at 13:19

    The government cries and whine about social programs such SNAP and Medicaid etc.
    On the other hand they are just fine working for the big pharm for free and hanging out exclusive patents for free with no royalties on price control.
    But let’s not forget we live in the greatest country in the world NOT.

  3. Brian James
    January 30, 2020 at 14:11

    Then add in all of the propaganda to scare folks for Big The Pharma.

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  4. AnneR
    January 29, 2020 at 09:18

    From personal experience (my late husband was a Type 1 diabetic, the condition developing in middle age rather than when he was young, as is increasingly being recognized by *some* in the medical profession, though dreadfully not all as I found out too late for my husband), I am (we were) only too aware of the cost differences of insulin (and also, horrifically, Glucagon, the life-saving emergency kit when the diabetic falls into a hypoglycemic coma which can all too easily end in death) between the rest of the world and the USA. And that holds true even for those on health insurance and Medicare. For not only do the big Pharma companies charge unimaginable prices for these absolutely essential, life-saving medicines, but also the pharmacies themselves tack on their own “charge/costs.”

    While we lived in Germany, Morocco, Turkey we were able, for instance (and *without* insurance coverage in the latter two places) able to purchase the insulin and syringes (then needles for pens) for a few dollars. In Germany and Turkey Glucagon cost about $35.00 per kit (and in the latter place no prescription needed).

    Here, on the other hand, here in the USA without insurance Glucagon can cost well over $100 (and if the purported “full cost” printed on the receipt is believed, probably more yet) and a prescription is essential.

    In Mexico we could not obtain Glucagon at all and had to have some sent from Canada to my late husband’s family in the US and we would pick up the kit(s) when we visited. The price differential was quite marked, although I’ve forgotten what the cost from Canada was.

    As the writer wonders, so have I since my husband’s diabetes developed: why are there NO generic forms of insulin? This life essential has been around for many, many decades. Yes, it has been tweaked and improved (no longer pig or cattle derived, for instance) and a greater variety of forms (24 hr; rapid acting etc.) have existed for the latter decades. But in essence it is the same as it was back when first discovered.

  5. January 29, 2020 at 00:08

    I am gratefully to Prof. Chaudry for bringing this topic here. However, while carryon eaters feed around the world, the fattest picking by far are in USA. I made a quick check comparing USA and Russia. In USA, the annual spending is ca. 20 dollars per (each) person, and in Russia, 1.5. In USA, market analysts project doubling of the spending in the next 5 years. I did not read about projections in Russia except that domestic insulin producers has 25% of the market, with two Western companies having most of the rest, but the domestic producer is energetically investing in increasing the production, one may expect competition driving prices down.

    The brutal reality in countries like Poland and Russia is that there exists something close to “single payer system”, parliament allocates how much it can spend and the authorities have to choose which drugs will be allowed to be reimbursed and which not. Companies compete on cost, effectiveness and lobbying efforts, but because the pie to divide has a fixed size, to a degree they lobby against each other. In a more “gentle” American system, insurance companies try to exclude drugs that are too expensive, but drug companies lobby doctors and patients to exercise pressure to eliminate the exclusions. Thus the total drug expenditure have no hard growth limits, and so there is no hard limit (from above) on the prices. Thus patents are merely a part of a more complex picture.

    Incidentally, USA being most lobby driven country in the world, it suffer about half global spending on insulin (perhaps the same for other drugs, if not worse) and about half global spending on the military, both lobbies being particularly robust. And both lobbies wreck havoc around the globe.

    Now one can start to ponder what the trade apparatus of USA is doing in the recent decades. It takes care of “intellectual property” companies, of weapon sales, legal immunity of our military and military-related personnel from the crimes they commit, nice treatment of Israel, and last, and truly last, American jobs in manufacturing. Environment, human rights (like not using slave labor, not forcing workers to work in self-combustible factories, not killing labor organizers) seem not on the list. (Un)Surprisingly, whether we have “free trade campaigns” or trade wars, the order of priorities seems the same. Trump has a certain knack for novelty, so he is defending steel and aluminum producers plus the poor, miserable companies like Google, Amazon, Facebook and Apple.

  6. Dosamuno
    January 28, 2020 at 18:45

    Thanks for this article.

    I suffered from Hepatitis C for many years and the damage it was doing to my liver and my esophagus was life threatening.

    Sometime around 2015, Gilead Sciences, Inc. developed a drug called Harvoni which was highly effective in eliminating the virus completely.

    A one gram Harvoni tablet cost $1,250—about 30 times the price of gold at the time. My gastroenterologist put me on a six month program of one tablet daily. That meant costs of approximately $225,000.

    Medicare didn’t come close to covering costs and the only reason I’m not a victim of medical bankruptcy is that a friend, whose brother had suffered from Hepatitis C, connected me with a support group, The Co-Pay Relief Program. This wonderful organization paid all costs not covered by Medicare.

    I’m grateful to my friend Judy and very grateful to The Co-Pay Relief Program; but what kind of a country is this? President Obama found trillions of dollars to bail out corrupt investment bankers but our government doesn’t seem interested in assisting people like my friend Maria, who oldest son has diabetes, or people like me, who face an early death from chronic diseases.

    I’m also grateful to Gilead Sciences for developing Harvoni; however, $1,250 for a one gram tablet is extortion.

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