by Michael A. Carrier, Charles Duan and S. Sean Tu
Carvedilol could be the poster child for how to lower drug prices. Since 2007, more than 20 million patients with cardiovascular conditions have enjoyed generic versions of the popular beta-blocker, which cost 2 cents a dose compared with $4.81 for the brand-name product. Patents on the drug Coreg, dating back to 1978, have long expired, enabling these price-saving generics.
Yet this year, a federal jury deemed one generic carvedilol maker in violation of a patent to the tune of $235 million. The possibility that a patent can cut off a 15-year-old generic market on a half-century-old drug and raise prices by nearly 24,000% is an alarming development at a time that health care costs are already skyrocketing.
Many have debated the role of patents in the present drug pricing crisis, but the carvedilol case highlights a certain type of problem patent, one that exploits safety regulations and federal drug laws to block competition. Brand-name drugmaker GlaxoSmithKline’s patent in the case was a “method of use” patent, which covers not the drug itself but its use in treating a disease or condition. These can pop up years after the initial patents on a drug have expired.
Congress knew this could happen and created a pathway called “skinny labeling” that, for decades, has allowed generics to bring low-cost drugs to consumers, avoiding method-of-use patents without fear of liability. A skinny-labeled generic drug is one with instructions on the drug label that omit diseases or conditions listed in the method-of-use patent. The skinny label would list only other conditions. Instructions on dosage, administration and safety must remain identical to preapproved FDA text.
Generic carvedilol manufacturer Teva Pharmaceuticals followed the skinny labeling pathway to a T. Yet a federal appeals court said that Teva violated the patent. That decision leaves the skinny labeling law so meaningless that it might as well not exist, calling into question the legal status of potentially thousands of widely used generics.
Worse yet, the basis for Teva’s violation was the packaging label text on the dosing and use of the drug. Changing that text would potentially have rendered Teva’s carvedilol product less safe for use, and most likely unfit for approval. Thus Teva was placed in a catch-22. It could comply with federal drug labeling mandates but only by infringing the patent. This is the exact situation that skinny labeling was designed to prevent.
This “mandatory infringement” strategy — comply with a regulatory body and face patent liability — is far from new. In the early 2000s, 3M patented a new type of albuterol inhaler and convinced the FDA to ban the generic alternatives. The essential asthma medication became so expensive that some patients could no longer afford it. Similarly, a decade earlier, Unocal persuaded a California environmental agency to adopt standards for cleaner-burning gasoline, and then announced it had patented the standard, demanding royalty payments that raised prices at pumps across the nation. Mandatory infringement works to place competitors between Scylla and Charybdis, forcing them out of the market and thereby harming consumers.
Should this theory of mandatory patent infringement stand, other brand-name firms will use the Teva case as a roadmap to block generics from competing in the U.S. market. We should expect a flood of skinny-label cases. The number of method-of-use patents has increased more than sixfold between 2001 and 2019, while the number of corresponding drugs has not increased at anything close to the same rate.
The risks for generic firms are staggering. Teva has had $74 million in revenue from carvedilol, but now risks being forced to end sales in the U.S. and pay a penalty of more than $150 million. Other generic makers are unlikely to take the same risk against patent holders, leaving patients paying monopoly prices on what ought to be off-patent drugs. These results harm the most vulnerable patients who may not be able to afford high-priced brand drugs.
To prevent this outcome, the first step is to correct the law. The appeals court in GlaxoSmithKline v. Teva erred by ignoring the skinny labeling and drug safety laws in determining what counts as infringement. Teva has asked the Supreme Court to reconsider the case; the court should do so.
Policymakers also need to address mandatory infringement overall, by better understanding how patents interact with Food and Drug Administration regulations and other regulatory agencies. The FDA and U.S. Patent and Trademark Office already announced their intention to work together on drug prices, part of the Biden administration’s competition initiatives. How patents and skinny labels affect generic drug approvals should be prominent on the agencies’ agendas. Drawing attention to these problems will ensure that patents and safety regulations do not become tools that powerful firms can anti-competitively exploit, but instead serve their intended purposes of enhancing public welfare.
