Medical Patents: Why Prescription Medications Cost So Much

Being diagnosed with a chronic illness can mean a death sentence for many, even if the illness is treatable. Life-saving drugs for chronic conditions such as diabetes, arthritis, and cancer are often set at extremely high prices, setting a cost for survival that many cannot afford. In most cases, the prices of drugs like these are set by one company that controls all production of the drug, preventing market competition and eliminating any incentive to lower prices. The secret tool behind these market monopolies: medical patents. 

Medical patents are exclusive property rights granted to inventors that prevent others from producing and selling the invention, which usually apply to drugs, medical devices, or related processes. Once a pharmaceutical company obtains a patent, other companies cannot sell its invention, meaning that the pharmaceutical company with the medical patent dominates the market with zero competition. Although medical patents only provide protection for 20 years and are not legally renewable, that doesn’t mean there aren’t any loopholes. Controlling that drug’s market leads to high profit streams for companies, so companies find such loopholes to extend, or evergreen, patent life.

Evergreening is the practice of obtaining new patents on existing drugs by making minor changes to the product. Companies are legally allowed to file for a new patent after making small tweaks to their drugs, such as adding one inconsequential ingredient, changing the delivery method, or developing an almost identical formulation. Even a dosage change can lead to a new patent. For example, Humira is an arthritis drug that currently has 165 patents related to it, most of which were filed after its release. Humira’s early patent was set to expire in 2016, but AbbVie, Humira’s manufacturer, received a new patent by simply changing the dosage and labeling the drug as a treatment for another type of arthritis. This provided AbbVie with an extra 11 years of exclusive protection from competition. Pharmaceutical companies like AbbVie use evergreening to accumulate dozens or hundreds of patents for just one drug, expanding patent protections for far over 20 years. This is exemplified in how insulin, a lifesaving diabetes drug that was discovered in the early 1900s, is still patented due to evergreening tactics. 

Along with evergreening, companies often use patent rights to sue rivals that attempt to produce biosimilars–drugs that are highly similar to an existing drug–to eliminate any competition. Amgen, the brand name company for Enbrel, a drug used to treat rheumatoid arthritis, immediately sued pharmaceutical company Sandoz on patent rights in 2016 after Sandoz obtained an FDA approval on an Enbrel biosimilar. The courts ruled in favor of Amgen, eliminating biosimilar competition until 2029. This decision secured Amgen’s revenue stream, adding to the $38 billion it has already made from Endrel sales. Sandoz later moved its biosimilar supply to Europe, where the drug’s price has plummeted while Amgen continues to increase the price of Endrel in the US. It’s now priced at around $44,000 for just one year of treatment. Notably, Amgen didn’t develop Enbrel itself; it acquired the original developer, Immunex, primarily to gain control over Enbrel’s patent rights, using the acquisition to further limit competition and gain revenue. 

But how do medical patents lead to higher drug prices? Patents essentially allow companies to build a monopoly on a drug because when there are no competitors in the market, they have no incentive to lower drug prices. With no surprise, most companies choose to price life-saving drugs at thousands of dollars per month to maximize revenue streams. We can look towards Keytruda as a case in point. This cancer drug costs more than $150,000 a year for patients, and it’s not expensive because of the ingredient cost. Its only active ingredient, pembrolizumab, costs just around $51 to produce per gram, meaning that each 400 mg dose of Keytruda costs only $20.40 to manufacture. As a result, the drug has already generated more than $146 billion in sales. With the American median per capita income being less than $38,000, this price is unaffordable for most Americans. 

When medical patents allow companies to raise drug prices without control, Americans feel the burden. To minimize drug costs, many Americans often cut dosages or skip medications altogether. According to the CDC, in 2021, 9.2 million adults aged 18–64 who took prescription medication reported not taking medication as prescribed. Not sticking to treatment plans can lead to serious consequences. Depending on the drug, smaller dosages may have no effect at all, leaving the patient essentially untreated. This can be deadly: the West Health Policy Center reported in 2020 that more than 1.1 million medicare patients could die this decade because they cannot afford their prescription medication. Massive profits for drug companies come at the cost of the health, lives, and finances of millions of Americans. 

In a market without medical patents, competition continually drives drug prices down. When patent protections cease, and any company is permitted to produce and sell a drug, generic drugs—drugs that are chemically equivalent but sold at a lower price—flood the market and increase competition. To visualize real-world effects, we can look at what already happens when patents expire. A meta-study of over 505 drugs undergoing patent expiration in Australia, Canada, France, Germany, Japan, Switzerland, the UK, and the US showed that drug prices decreased significantly eight years after patent expiration, with the US showing the most drastic decreases: 32 percent in the first year after patent expiration and 82 percent within eight years after patent expiration. An 82 percent decrease in the prices of drugs can mean that more Americans take their medicine as prescribed, so their treatment plans actually work. This can be life-saving for many Americans. 

While medical patents undoubtedly allow companies to skyrocket drug prices, eliminating them poses different challenges. Researching and developing (R&D) a brand new drug can cost up to $2.23 billion, and without medical patents to guarantee an immediate stream of high income, companies have no incentive to develop new life-saving drugs if they’ll be the ones gaining less profit due to initial R&D costs. Companies will have no incentive to even start new R&D in the first place, which hinders scientific innovation and can be deadly in the long run. Without innovation, new life-saving drugs will potentially take many more years to develop. 

As the system of medical patents in the status quo continues to lead to high drug prices, legislators need to remember that we don’t have to choose between banning medical patents or keeping them. As with many policy issues in the healthcare industry, gradual reform is the best route. Passing new legislation to address problems like patent evergreening can be the next step in reducing drug prices for Americans.