Pharmaceutical companies invest billions of dollars in research and development to find new medications to treat diseases and hopefully save lives.

Given the fact that on average only one in 5,000 compounds ever discovered comes to market, the companies try to balance their investment with profit from those drugs that do become blockbusters. Once they have recovered their overall costs, and made a profit for their shareholders, they should be able to look forward to new discoveries and work on finding new ways to treat illnesses and make people’s lives better, right?

Well, not so fast. The latest in pharmaceutical magic to avoid the loss of patent protection and discourage the use of generics is to transfer the patent to an Indian tribe, considered a sovereign nation within the United States.

The longer drugmakers keep the exclusive right to make their products, the more money they can make.


In this case Allergan has paid the Saint Regis Mohawk Tribe in northern New York state $13.5 million with annual royalties expected to amount to $15 million a year to hold the patent of its dry-eye drug Restasis.

How does this help Allergan? Well, Restasis was given an exclusive patent in October 2002. Since then it has made billions of dollars for the company and shareholders. But that patent is about to expire, and once it does, generic manufacturers are legally allowed to make the same product and sell it at a lower cost, eliminating the monopoly that the brand drug has on the market.

Although this is the first time a pharmaceutical company has boldly utilized a tribe to protect its patent, it’s not the only way that branded drug companies manipulate the market, albeit legally, to protect their profits.

With so much money at stake, many pharmaceutical companies work hard to get their medications sold without prescriptions. Claritin, one of the first allergy medications to require a prescription, is now heavily marketed on television and in ads as an easy over-the-counter way to treat allergies without having to see a doctor. Allegra, Zyrtec, Flonase and others have all followed suit.

Prilosec came next, with the original approval for prescription only and then subsequently sold at a lower dose over the counter, and now at full prior prescription dose without any physician approval needed at all.

While the cost of health care increases, and payments to hospitals and providers are lowered in an attempt to rein in spiraling costs, the one area that seems to be slipping through the cracks is the pharmaceutical industry.

Each of these have generics available, even store brands like Costco’s Kirkland. But still, the original-brand medications are in demand.

Coupons are another way the pharmaceutical companies keep their money coming in. Go to the website of many branded medications and copay coupons are readily available. Some are even in magazines and newspaper inserts.

The idea is that if the copay is the same for the branded medication versus the generic, patients will want the fancier option, and yet the total cost of the drug to the insurance company can be hundreds or thousands of dollars different for a one-month supply. The pharmaceutical company keeps its money coming in and patients are none the wiser.

Who pays the higher cost? Well, eventually the consumers paying for their insurance or taxpayers paying for the federally run programs like Medicare and Medicaid.

Another common tactic is the development of longer-acting medication or sustained-release formulas. Many medications are initially approved for use based on the research done that shows improvement of a medical condition when the drugs are taken. However, rarely are all formulations presented with the initial application.

This allows for the slightly altered versions to be introduced later in the patent cycle, with the hopes of extending the monopoly the brand name drug has on its compound. Often the longer-acting medication is promoted as superior because of a greater duration of action, but these formulations do not have to prove clinical superiority in order to be brought to market.

Once a patent expires, another mechanism brand name drugmakers employ to retain their profit producing pharmaceuticals is to pay the generic companies to delay the production of their medication. The FDA already has a several year backlog, and often generic drugs have to wait for their approval. But in addition, some companies have chosen to pay the makers of the cheaper drugs to delay even longer.

The overall cost of this practice to consumers and taxpayers is upwards of $3.5 billion. However, the cost to the pharmaceutical companies is much less given their longer patent exclusivity that results.

When all else fails, the pharmaceutical companies can just purchase the generic manufacturers for their drugs. After all, the original company may be in the best position to continue to make the same medication, and if they hold the rights to the generic formula, then they can also determine its price. This may help explain the rising costs of generic medications as well.

The latest move that Allergan has made to protect its billion-dollar drug Restasis is just one of the many egregious ways that pharmaceutical companies legally protect their monopolies on profits from medications. Until the law undergoes closer scrutiny, it’s unlikely to change.

While the cost of health care increases, and payments to hospitals and providers are lowered in an attempt to rein in spiraling costs, the one area that seems to be slipping through the cracks is the pharmaceutical industry.

As more drugs come to market, one can only wonder when the spotlight will shine on one of the highest costs in health care: pharmaceuticals. Time will tell if this or any administration in power will change what’s becoming one of the best-performing industries on Wall Street — drug companies.

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