Sens. Trent Lott (R-MS) and Debbie Stabenow (D-MI) have introduced legislation that would help bring generic medications to market earlier. Of course that will make prescription drugs more affordable, won’t it?
No, but it’s a common misperception.
Shortening a drug’s patent life will actually increase its market price. In a world where patent lengths are compressed, pharmaceutical companies have less time to recapture their investments – unless they increase their costs.
Look at it this way. A company can enter a one-time agreement with a vendor and buy its product at an agreed-upon price. But if the company is willing to contract with the vendor to supply that product over a period of time, it can often get a lower per-unit price. That’s because the vendor knows it has more time over which it can recapture its fixed costs.
The same is true with prescription drugs. The patent life is 20 years (though certain actions can extend that period slightly). But it may take the company 10 years to create and test a drug, leaving roughly 10 years to actually profit from it.
Now suppose that instead of having 10 years to market the product, the company gets, say, five years. Simple math implies that could double the price of the drug.
Yes, people would have access to generics sooner, but those using the drugs while they are still on patent would have to pay significantly more.
Of course, instead of actually cutting patent life, the bipartisan Lott-Stabenow bill closes “loopholes” that, in Lott’s words, “have stifled that process.” But it is those “loopholes” that have helped keep prices down on drugs.
Just as shortening patent life increases the price of a brand name medication, delaying the introduction of a generic version lowers the price.
Isn’t that what Lott and Stabenow are trying to accomplish? So where’s their bill to do that?