Patent settlements, not lawsuits, are lowering drug costs

Michael Busler
4 min readJun 20, 2019

Pharmaceutical drugs are expensive, both to produce and to consume. The average cost to develop one new drug is approximately $2.6 billion, and those expenses are reflected in the drug’s brand-name price tag. In addition, less than 14 percent of newly discovered drugs ever make it to the approval stage and reach the market.

According to a 2017 study by the AARP, the average cost of therapy for a brand-name prescription drug was roughly $6,800 per year.

Following the introduction of generic alternatives into the market, drug costs have been shown to have declined by an impressive 85 percent. Overall, the use of generics, in combination with the innovation from brand name drugs, has produced tremendous savings — $1.67 trillion from 2007 to 2016 alone. This shows the positive benefits of competition.

However, for prices to remain low and quality to remain high, it is critical that the incentives for everyone to innovate and compete remain preserved. While some believe that the government can achieve this balance through new rule-making processes, the empirical data shows that no one knows how to best strike this stability than the private companies themselves.

For example, within Congress and state governments, there is an ongoing push to limit name brand and generic drug manufacturers’ ability to reach private agreements, known as patent settlements, which allow them to negotiate a timeline for the release of generic drug alternatives.

This ensures that the brand name companies are deservedly compensated for their innovative medical advancements and that permanent monopolies over treatments do not arise. When analyzing the current framework of the industry, it is clear that limiting these agreements will only serve to reduce consumer access to innovative medicines, all while imposing upward pressure on costs.

Under the current law regarding pharmaceutical patent s — the Hatch-Waxman Act of 1984 — generic drug companies have the right to sue their brand name counterparts before their patents’ expiration.

In many respects, Hatch-Waxman has been a boon to the U.S. medical industry. The U.S. now develops 57-percent of all new medicines compared to just 31 percent before the law’s…

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Michael Busler

Dr. Busler is an economist and a public policy analyst. He is a Professor of Finance at Stockton University. His op-ed columns appear in Townhall, Newsmax.