When pharmaceutical companies create a new drug, they can usually receive a patent, which allows them to operate with patent exclusivity for the life of the patent. This exclusive period allows drug companies to recoup their massive research and development expenses and eventually become profitable. Without some amount of patent exclusivity, it becomes economically irrational for a biotechnology company to invest the huge amounts of time and money required for the development of a drug. More recently, costs for pharmaceutical research and development have skyrocketed as traditional methods of small molecule drug development are starting to appear more “tapped out.” As a result, drug companies are forced to turn to more cutting-edge and expensive methods of development.
After a pharmaceutical company’s period of patent exclusivity elapses, generic companies can enter the market and offer essentially the same drug for a fraction of the price. Before obtaining the approval of the U.S. Food and Drug Administration (FDA), a generic company must certify that the branded drug: (1) has not been patented, (2) the applicable patents have expired, (3) the patents will expire on a given date and the generic will not be marketed before that date, or (4) the listed patents are not infringed or invalid.
Generic companies do not have the same up-front research costs that branded companies face. Additionally, since the introduction of the Drug Price Competition and Patent Term Restoration Act of 1984 (“Hatch-Waxman Act”), generic drug companies may undergo a shortened FDA approval process. Studies show that due to these limited upfront expenditures, generic drug companies may undercut the prices of branded drugs, thereby dropping the branded drug price as much as ninety percent within the first 2.5 years of generic entry.
To combat these extreme price drops, some branded pharmaceutical companies may choose to raise the price on branded drugs while they are still patented to get the greatest value from their patent protection period. Others have developed strategies to achieve a greater period of patent exclusivity. These strategies effectively extend the patent protection for the products, which may minimize the damage from the drastic generic entry price drop or prevent generic entry to the market altogether. Tactics such as developing new formulations, creating new routes of administration, making changes to molecular structures, and finding new uses for products have all been used in some ways by branded pharmaceutical companies.
One new strategy that this article will examine in depth relates to patents on combination medicine and delivery device products. Frequently used combination products include pulmonary inhalers, injection systems, or infusion systems. This strategy presents a new set of challenges for lawmakers to navigate, since drug companies can attain patent protection on both the device and the underlying drug. After examining the ways in which this strategy is employed, this article will explore impacts of this strategy on patients and regulatory solutions that can mitigate its negative effects. Lastly, one mitigation scheme will be identified as the best regulatory pathway for future legislation in the United States.