Biden Administration Launches Drug Price Negotiation Bill Amid Strong Opposition from Pharma CEOs: Will U.S. Prescription Drug Prices Finally Drop?

“At the beginning of 2021, manufacturers decided to raise prices on over 300 drugs in the United States; on the first day of 2020, 250 medications saw price increases, averaging approximately 5%; and in the first 10 days of 2019, 490 prescription drugs in the US underwent price hikes...” Increasing prescription drug prices appears to have become the pharmaceutical companies' "New Year's gift."

Recently, U.S. Department of Health and Human Services (HHS) Secretary Xavier Becerra unveiled the Biden administration’s implementation strategy for lowering prescription drug costs. According to The Wall Street Journal, the 29-page document is structured around three broad principles: supporting price negotiations with pharmaceutical manufacturers and capping drug price increases; reducing regulatory barriers to foster industry competition; and supporting research into new therapies in both the public and private sectors.

The bill has sparked strong opposition from the pharmaceutical industry, with CEOs of companies including AbbVie, Bristol-Myers Squibb, Eli Lilly, and GSK expressing concern or even opposition to the measures aimed at tightening control over drug pricing.

As one of the countries with the highest prescription drug prices globally, successive U.S. administrations have consistently sought ways to lower prescription drug prices, and drug pricing advocates have continuously called for reform. Despite numerous proposals being put forward for consideration, they have yet to bring about significant prescription drug pricing reform...

01 Patents No Longer Evergreen

A lack of competition is a key factor contributing to the excessively high prices of these prescription drugs.

Under the plan, legislation could be enacted to prohibit pharmaceutical companies from paying generic drug manufacturers to delay the market launch of competing drug versions. Concurrently, the implementation of this plan will reduce regulatory barriers in the approval process for new prescription drugs and incentivize manufacturers to develop competing drugs already available in the U.S. market, thereby ensuring robust market competition that will compel pharmaceutical companies to lower prices.

Patent protection is regarded as the lifeline of pharmaceutical products. To this end, pharmaceutical companies employ various patent strategies to safeguard their drug patents, such as patent portfolios, patent pools, patent thickets, and even evergreen patents. Legal experts note that evergreening typically refers to the practice wherein patent holders strategically file a series of secondary applications based on existing core patents to improperly exploit patent laws and related regulations, thereby extending their patent monopoly rights. This practice particularly targets highly profitable, blockbuster-level existing patented drugs.

Pharmaceutical patent evergreening, on one hand, objectively delays the market entry of generic drugs and increases healthcare costs for consumers; on the other hand, excessive and sustained patent evergreening also leads to fewer new drugs in the market, which is detrimental to the overall innovative capacity of the pharmaceutical industry and undermines incentives for the research and development of drugs targeting certain complex diseases.

Scholars maintain that addressing pharmaceutical patent evergreening requires coordinated regulation across legislative, administrative, and judicial authorities.

India is the first country in the world to statutorily prohibit the granting of patents for derivatives of known substances, aiming to curb the "evergreening" of pharmaceutical patents. Section 3(d) of the Indian Patents Act stipulates that the following shall not be considered inventions within the meaning of this Act: the mere discovery of a new form of a known substance that does not result in the enhancement of its known efficacy... For the purposes of this provision, salts, esters, ethers, polymorphs... and other derivatives of known substances shall be considered to be the same substance, unless they differ significantly in properties with regard to efficacy.

Administratively, the FDA and the United States Patent and Trademark Office (USPTO) will develop solutions to prevent drug manufacturers from unfairly exploiting the patent system to stifle competition. Recently, FDA Acting Commissioner Janet Woodcock wrote to Andrew Hirshfield, Under Secretary of Commerce for Intellectual Property and Director of the USPTO, seeking cooperation across all relevant areas, from the Patent Trial and Appeal Board (PTAB) and patent term extensions to the "potential abuse of the patent system."

Woodcock pointed out that patent "thickets" created by filing continuation patents for inventions disclosed in earlier patents could delay generic or biosimilar competition. In her letter, Woodcock stated, "The existence of multiple patents increases the litigation burden and may delay the approval of generics, as well as the launch of generics, biosimilars, and interchangeable biologics." Product "evergreening" is achieved through post-approval patenting of formulations, delivery mechanisms, or other methods of use.

When it comes to building a patent protection fortress through the strategy of continuously securing patents for different functions or indications of the same product to extend the patent protection period, achieve patent evergreening, and expand the market monopoly of the originator drug, one cannot help but mention AbbVie’s global best-selling drug, Humira.

Although highly controversial, Humira's patent protection strategy has indeed successfully transformed the drug into an evergreen cash cow. From the filing of its first patent in 1994 to 2018, a total of 386 patents related to Humira were filed in the United States, Europe, and Japan, of which 247 were US patents. Of these 247 relevant US patents, 89% were submitted after Humira's market launch, with nearly half filed by AbbVie in 2014 following the expiration of the drug's initial patent. In 2018, Humira lost patent protection in Europe, leading to the approval and launch of at least six biosimilars. Stripped of its patent exclusivity, Humira's sales market in Europe has been continuously shrinking.

The letter from the FDA Commissioner also serves as a wake-up call for the industry: is the FDA formulating reform plans to address patent issues? If original patents expire, similar drug versions can be produced and low-cost alternatives promoted. Consequently, blockbuster drugs with extended patent protection periods, such as AbbVie’s Humira, will inevitably confront a patent cliff.

02 The Game Between the Pharmaceutical Industry and the Government

The pharmaceutical industry is one of the largest sectors in the United States. Pharmaceutical companies leverage their substantial resources to shield the industry from the impact of regulatory policy changes. "Because once regulatory policies change, it could erode their market share. This self-protective approach by pharmaceutical companies indirectly drives up prescription drug prices," a U.S. pharmaceutical analyst once noted.

Analysts widely agree that opposition from the pharmaceutical industry and congressional Republicans will make this proposal a tough battle. According to Fierce Pharma, multiple PhRMA members have expressed concerns over the Biden administration's intensified efforts to lower drug costs. In an open letter to Congress, CEOs of major biopharmaceutical companies, including Eli Lilly, AbbVie, BMS, Biogen, and GSK, wrote that allowing Medicare to negotiate drug prices would "threaten patient access to medicines and sacrifice future medical advances."

Although Cowen analyst Rick Weissenstein noted that with Democrats now holding majorities in both the Senate and the House of Representatives, legislation aimed at controlling drug costs is more likely to pass than it was in 2010 and 2020, a greater number of analysts believe that the prospects for success in this Medicare drug price negotiation remain slim.

It is worth noting that while the likelihood of the bill passing both the Senate and the House of Representatives is low, it has clearly been taken seriously by the pharmaceutical industry and is viewed as a threat. Pharmaceutical CEOs warned in a letter that the proposal under consideration would cut $1.5 trillion from corporate innovation and R&D spending over a decade, which would result in a reduction of 90% or more in the number of new drugs developed by biotechnology companies.

Previously, Merck’s former CEO Frazier stated at a PhRMA conference, “The congressional proposal will destroy the industry,” Frazier said. “Although large companies like Merck will survive, research conducted by pharmaceutical companies will be significantly reduced.” According to the proposal, Merck would cut its R&D by nearly 50%.

In fact, the bargaining between pharmaceutical companies and the U.S. government over drug pricing has a long history.

During his 2016 presidential campaign, Donald Trump made lowering prescription drug prices a core campaign promise. Whether through the introduction of the "American Patients First Blueprint," hospitals establishing generic drug companies, or signing executive orders aimed at reducing drug costs... However, numerous executive orders designed to lower prescription drug prices have yielded minimal results due to legal constraints and strong pushback from the pharmaceutical industry.

President Biden has also pledged to lower drug costs and allow the U.S. government's health insurance program "Medicare" to negotiate drug prices.

Just last month, President Biden's call for lawmakers to draft legislation aimed at lowering prescription drug prices met with opposition from the pharmaceutical industry. The Pharmaceutical Research and Manufacturers of America (PhRMA) criticized the Biden administration's plan to implement drug price negotiations under Medicare, warning that it would reduce funding available for the development of new therapies. David Ricks, Chairman and CEO of Eli Lilly, stated, "This is a smoke screen to implement government price controls on prescription drugs. We cannot and will not support any policy that harms the interests of patients who actually rely on these medications."

Additionally, the U.S. House Committee on Ways and Means is preparing to vote on a bill that would require price negotiations for the 125 brand-name drugs accounting for the highest Medicare expenditures, with a price cap set at 120% of the average price paid in six other countries. In 2019, a similar bill was passed by the House but failed to secure majority support in the Senate.

Analysts have indicated that the negotiations on Medicare prices may still face opposition from the Senate.

Senate Finance Committee Chairman Ron Wyden is drafting a relatively moderate alternative proposal. Reportedly, the proposal would allow the government to negotiate prices for drugs that have been on the market for years but have not yet seen price reductions. Wyden indicated that pharmaceutical companies would likely find this approach more acceptable.

The U.S. Congressional Budget Office (CBO) has previously stated that the pharmaceutical industry is projected to lose over $300 billion by 2029 due to drug price reductions.