GLP-1 drugs are having a major impact on the pharmaceutical industry. This class of drugs, which includes Ozempic, were used primarily to treat type 2 diabetes; the discovery that a side effect is appetite suppression led to their use in weight management. The demand for these drugs has exploded and is projected to continue to grow at a rapid pace in coming years.
Eli Lilly and Novo Nordisk hold multiple patents for different GLP-1 drugs. In recent years they could not produce enough of the drugs to meet demand. The Food and Drug Administration (FDA) approved production of the drugs by chemical compounders to meet the demand. The FDA recently determined that a shortage of the drugs no longer exists and lifted that approval. The drug compounders have filed suit against the FDA to allow them to continue producing the drugs.
The patents for GLP-1 drugs held by Ely Lilly and Novo Nordisk are set to expire in different countries in coming years. In China alone, more than a dozen companies are developing generic versions of the drugs. As pharmaceutical firms in China and other countries bring generics to the market, competition is becoming fierce. Meanwhile generic producers of the drugs are challenging the patent rights held by these companies.
Thus far Ely Lilly and Novo Nordisk have been successful in protecting their multiple patent rights for GLP-1 drugs through the legal system. For example, Novo Nordisk recently reached a legal settlement with producers of generic GLP-1 drugs that resolved their patent dispute. While details of the settlement are not available, they likely include entry dates for bringing generics to the market, and royalty agreements that are standard in settling patent disputes. Resolving patent disputes through the legal system provides the fundamental protection of intellectual property rights in the pharmaceutical industry, but that is about to change.
One of the most serious challenges to pharmaceutical companies in protecting their patent rights is contained in legislation being considered by Congress. The Ethic Act S.2276 would bar pharmaceutical firms from litigating more than one patent in a defined group in patent disputes. Proponents claim that the Act would increase competition in the pharmaceutical industry. In fact, it will have the opposite impact. The Act ignores the complexity of GLP-1 drugs that have multiple uses requiring multiple patents and will seriously handicap Ely Lilly and Novo Nordisk in patent disputes. While Ely Lilly and Novo Nordisk have a competitive advantage as the innovators in producing GLP-1 drugs, we should expect more patent disputes as China and other countries bring generics to this fiercely competitive market.
The Ethic Act ignores the success that pharmaceutical firms have had in resolving patent disputes through the legal system. Ely Lilly and Novo Nordisk have resolved patent disputes regarding GLP-1 drugs through the legal system, but the Ethic Act undermines their ability to protect those patent rights. Asking these firms to defend only one patent ad seriatim in a defined group of drugs in which they have multiple patents is like sending a boxer into the ring with one hand tied behind his back.
The economist Ludwig von Mises warned against overreach by politicians enacting legislation that fails to reflect the complexity of markets. This is especially true in the pharmaceutical industry, which is undergoing rapid technological change. At a time when pharmaceutical firms such as Ely Lilly and Novo Nordisk face fierce competition from firms in China and other counties, they must be free from arbitrary restrictions on their ability to defend their patent rights in the courts. Von Mises called the tendency for politicians to assume that they can make better decisions than private firms in a market economy the ‘Fatal Conceit.’
Barry W. Poulson is professor emeritus at the University of Colorado, Boulder Colorado, and on the Board of the Prosperity for US Foundation. Bob Carlstrom is Executive Director of the Prosperity for US Foundation.
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