Drug Pricing and Pharmaceutical Patents: What Each Position Is Protecting

In 1921, Frederick Banting and Charles Best isolated insulin at the University of Toronto. They sold the patent to the university for one dollar each — on the explicit principle that a life-saving medicine should not become a monopoly profit. The university licensed the discovery to Eli Lilly and Connaught Laboratories at minimal cost. By 1923, insulin was widely available. Banting won the Nobel Prize. He gave half the prize money to his research partner. The patent, he said, should not have been his to sell.

A century later, a vial of Humalog — Eli Lilly's brand-name insulin — listed at $274 in the United States. The same vial sold for $21 in Canada. Ratney Smith, a twenty-six-year-old in Minnesota who aged off his parents' insurance and could not afford his copays, rationed his insulin. He died of diabetic ketoacidosis in June 2017, three days before his next paycheck. His story became a landmark in a debate that had been brewing for decades but erupted in the 2010s with a fury that surprised almost everyone — including the pharmaceutical industry, which had expected the political and regulatory environment to remain as it had been.

The gap between $274 and $21 is not simply explained by greed, or by innovation costs, or by regulatory failures. It reflects a specific institutional architecture: patent exclusivity, drug benefit design, pharmacy benefit managers, Medicare's historical prohibition on negotiating drug prices, and the absence of a national health technology assessment body. Each element of that architecture was built by specific actors, for specific reasons, in response to specific political pressures. The debate over drug pricing is really a debate about all of it — who should profit from medicines, who should pay for them, and whether the incentive system we have built is still serving the purpose it was designed to serve.

Within the broader healthcare cluster, this is the pricing-side version of the same market-versus-obligation split that appears in access, financing, and ownership. Drug pricing is where the contradiction gets especially stark: medicines are discovered, patented, marketed, and reimbursed as private assets, but they are experienced by patients as infrastructure they may die without. That is why the argument keeps oscillating between innovation rhetoric and moral shock. People are not only disputing what a pill costs. They are disputing how much profit a healthcare system can legitimately extract from dependency.

What innovation-first advocates are protecting

The incentive architecture that produces new medicines — and the recognition that the cost of a drug is not what it costs to manufacture, but what it cost to discover, prove safe, and bring to market across the full portfolio of attempts that failed. The Tufts Center for the Study of Drug Development estimated in 2016 that the average cost to bring a new drug to market is approximately $2.6 billion, including the capitalized cost of failures. The drug approval process requires Phase I, II, and III clinical trials — often involving thousands of patients over a decade — before the FDA will authorize a treatment. Nine out of ten drug candidates that enter clinical trials fail. The ten percent that succeed must cover the sunk cost of the ninety percent that did not. A pharmaceutical company pricing a new oncology drug is not pricing the pill; it is pricing the entire research program.

The specific case of rare diseases and neglected conditions — where only the promise of exclusivity and premium pricing has produced therapies that would not otherwise exist. The Orphan Drug Act of 1983 created tax incentives and seven-year market exclusivity for drugs treating diseases affecting fewer than 200,000 Americans. Before 1983, fewer than ten orphan drugs had come to market in the prior decade. After 1983, more than 600 orphan designations were granted in the first twenty years of the act's existence. Critics note that orphan drug designation has been used strategically — companies have pursued rare-disease indications to gain exclusivity for drugs with much broader potential markets. But the underlying logic holds for genuinely rare conditions: without guaranteed premium pricing, no company would invest in developing a treatment for a disease affecting ten thousand people. Innovation-first advocates are protecting the insight that the choice is not between expensive drugs and cheap drugs, but between drugs that exist and drugs that don't. The Alzheimer's drug that was never developed is invisible in the pricing debate.

The argument that price controls would disproportionately reduce investment in transformative, high-risk innovation while doing relatively little to reduce investment in incremental, low-risk work — shifting the drug pipeline away from exactly the difficult problems where the incentives are most needed. The Congressional Budget Office's estimates still point in this direction, but its newer 2025 drug-development model also makes the uncertainty more explicit: lower expected revenues do reduce expected entry, yet the exact size of the effect depends heavily on assumptions about pipeline quality, financing conditions, and how firms reallocate investment across therapeutic areas. PhRMA argues the effects will be larger. Critics argue they will be smaller or negligible, given that a drug company cannot sell a medicine it hasn't developed to a patient who dies before it exists. Innovation advocates are protecting not the pharmaceutical companies specifically, but the specific mechanism — patent-backed return on investment — through which most major medicines of the last fifty years were produced. Their worry is not this drug or that company; it is the next generation of treatments that might not exist if the expected returns are reduced below the threshold required to attract capital.

What access and affordability advocates are protecting

The lives of people who cannot afford medicines that already exist — and the recognition that a drug priced beyond reach is, for the person who cannot afford it, functionally no different from a drug that was never developed. Alec Raeshawn Smith, the young man who rationed his insulin, did not die because insulin didn't exist. He died because he couldn't afford the insulin that existed. The insulin patents had expired decades earlier. Three companies — Eli Lilly, Novo Nordisk, and Sanofi — controlled the market for analog insulin formulations they had developed subsequent to the original patents. The price of insulin in the United States increased by more than 1,200 percent between 1996 and 2019. Nothing in the drug changed. What changed was the pricing strategy. Access advocates are protecting the recognition that the innovation justification for high prices applies to the original discovery — not to sixty years of subsequent rent extraction on a medicine that has been manufactured at low cost for three generations.

The specific claim about public investment: most foundational drug research is funded by taxpayers through the NIH, and the current pricing system allows private companies to collect monopoly profits from discoveries they did not fully pay for. A 2018 study published in the Proceedings of the National Academy of Sciences found that every one of the 210 drugs approved by the FDA between 2010 and 2016 benefited from NIH funding — totaling more than $100 billion in public investment. A later 2023 JAMA Health Forum analysis extended the picture through 2019 and found NIH funding connected to 354 of 356 approvals, with estimated public investment per approval that was not clearly lower than reported industry investment once basic science, applied research, failed candidates, and cost of capital were accounted for. Humira, the best-selling drug in the world for much of the 2010s, was built on research into tumor necrosis factor that originated in publicly funded academic labs. Sovaldi, Gilead's hepatitis C cure, was developed from research at Emory University; Gilead licensed it and priced a twelve-week treatment course at $84,000 in 2013. The access argument is not that drug companies don't add value — they do the clinical trials, the regulatory work, the manufacturing scale-up — but that they are claiming monopoly rents on discoveries that were already substantially paid for by the public. The patent system was designed to balance incentivizing disclosure against restricting access. Access advocates argue the balance has tipped too far toward restriction.

The global equity dimension: high drug prices in wealthy countries translate directly into unavailability of medicines in low- and middle-income countries, and the patent system as currently structured actively prevents developing countries from producing generic versions of drugs that would save millions of lives. During the HIV/AIDS crisis in the late 1990s, antiretroviral drugs that could keep patients alive were priced at $10,000 to $15,000 per patient per year — far beyond the reach of the governments and patients most affected, who were concentrated in sub-Saharan Africa. MSF's Access Campaign and the work of activists like James Love and Zain Rizvi documented how TRIPS (Trade-Related Aspects of Intellectual Property Rights) provisions in WTO agreements constrained governments from using generic competition to lower prices. The 2001 Doha Declaration confirmed that developing countries could issue compulsory licenses for public health emergencies — but the fight to establish that right took years of advocacy and the deaths of hundreds of thousands of people who would have survived had generic antiretrovirals been available. Access advocates are protecting the principle that patent rights were never intended to function as a mechanism for distributing survival along lines of wealth.

What government negotiation and price regulation advocates are protecting

The purchasing power of the public as a single large buyer — and the recognition that every other wealthy country exercises this power routinely, producing drug prices two to three times lower than in the United States for the same medicines. The Veterans Health Administration has been permitted to negotiate drug prices directly with manufacturers since its formation. VA drug prices are significantly lower than Medicare Part D prices for the same drugs — not because VA patients receive inferior drugs, but because VA bargains. Medicare, which covers more than 67 million Americans and accounts for roughly a third of all drug spending in the United States, was explicitly prohibited from negotiating drug prices by the Medicare Modernization Act of 2003. That prohibition was not a technical or economic judgment. It was a political decision, influenced by pharmaceutical industry lobbying, that was called out by its own chief actuary at the time as likely to increase costs. The Inflation Reduction Act of 2022 allowed Medicare to negotiate a limited number of drugs for the first time. The first ten drugs subject to negotiation included some of the highest-cost drugs in Medicare — diabetes, heart disease, blood clots. The negotiated prices, announced on August 15, 2024 and effective beginning January 1, 2026, represented discounts of 38 to 79 percent from list prices according to CMS. CMS has since published maximum fair price explanations for a second cycle of fifteen Part D drugs that will take effect on January 1, 2027, which matters because the policy argument is no longer hypothetical. Negotiation is now part of the system's actual operating logic, not only a reform proposal.

The health technology assessment model used by virtually every other wealthy country — in which an independent body evaluates whether a drug's clinical benefit justifies its cost, and uses that evaluation to inform pricing and reimbursement decisions. The UK's National Institute for Health and Care Excellence (NICE) evaluates drugs using cost-per-quality-adjusted life year (QALY) thresholds. Germany's AMNOG system requires manufacturers to demonstrate added clinical benefit before higher prices are negotiated. Canada, Australia, France, and Japan all have analogous systems. The United States does not. The result is a system in which manufacturers price drugs at whatever the market will bear, with insurers and pharmacy benefit managers negotiating rebates that reduce list prices but do not reliably appear at the pharmacy counter. Government negotiation advocates are protecting the principle that a society paying for medicines through public programs has both the right and the responsibility to ask whether the price reflects the value — and to negotiate on that basis. They point out that the US effectively subsidizes drug research and profits for the entire world by paying premium prices that no other government pays.

The argument from pharmaceutical marketing: drug companies spend more on marketing and distribution than on research and development, which undermines the claim that high prices are primarily justified by R&D costs. Marcia Angell, former editor-in-chief of the New England Journal of Medicine and author of The Truth About the Drug Companies (2004), documented that major pharmaceutical companies routinely spend more on marketing and administration than on research — a finding that has been confirmed repeatedly in subsequent analyses. A 2019 study in JAMA Internal Medicine found that among 35 large pharmaceutical companies, spending on sales and marketing consistently exceeded spending on R&D. The implication is not that R&D doesn't matter — it does — but that the R&D cost justification for premium pricing is significantly overstated when the same companies spend billions on direct-to-consumer advertising and on detailing to physicians for drugs already in widespread use. Regulation advocates are protecting the credibility of the innovation argument by insisting that it be tested empirically rather than accepted as a rhetorical shield.

What generic competition and patent reform advocates are protecting

The integrity of the patent system itself — the constitutional bargain that grants temporary monopoly in exchange for disclosure and the eventual entry of competition, and which is being systematically subverted by strategies that extend exclusivity far beyond the intended twenty-year term. The Constitution authorizes patents to "promote the Progress of Science and useful Arts." The patent term is twenty years from filing. But the pharmaceutical industry has developed a set of strategies — collectively called "evergreening" — that effectively extend exclusivity far beyond this term without producing commensurately innovative medicines. AbbVie's Humira, the anti-inflammatory drug that was the best-selling medicine in the world for over a decade, had accumulated 136 US patents by the time biosimilar competition became possible — patents on delivery devices, dosing formulations, manufacturing processes, and minor molecular variations, none of which represented the core therapeutic innovation. By the time US biosimilars entered the market in 2023, Humira had generated over $200 billion in global revenue. In Europe, where AbbVie chose not to file the same web of secondary patents, biosimilar competition arrived in 2018.

The specific practices of pay-for-delay — settlements in which brand-name manufacturers pay generic competitors not to enter the market — which are estimated to cost Americans billions of dollars annually and were found anticompetitive by the Supreme Court in 2013 but have continued under a standard that critics argue is inadequate. The Federal Trade Commission has documented that pay-for-delay settlements — also called "reverse payment" settlements — delay generic entry by an average of seventeen months per settlement and cost consumers approximately $3.5 billion per year in higher drug prices. In FTC v. Actavis (2013), the Supreme Court held that such settlements could be challenged under antitrust law, rejecting the argument that they were automatically lawful as settlement of a patent dispute. But the ruling's "rule of reason" standard has proven difficult to apply, and the FTC has continued to document ongoing settlement practices that delay competition. Patent reform advocates are protecting the competitive market that the Hatch-Waxman Act of 1984 was designed to create — in which generic entry at patent expiration drives prices toward marginal manufacturing cost, making medicines widely accessible without eliminating the incentive to invent.

The I-MAK analysis: pharmaceutical companies list far more patents per drug than would be needed to protect genuine innovation, and the patent review process at the USPTO lacks the resources and expertise to adequately evaluate pharmaceutical patent claims — resulting in approvals that would not survive adversarial review. The Initiative for Medicines, Access & Knowledge documented that the top twelve best-selling drugs in the United States had accumulated an average of 71 patent applications each, with an average of 38 patents granted — compared to the original base patent that represented the core therapeutic innovation. Priya Donti and Tahir Amin, two of I-MAK's principal researchers, argue that the US Patent and Trademark Office approves pharmaceutical patents at higher rates than patent offices in comparable jurisdictions, partly because it lacks the technical resources to mount the kind of adversarial review that would reject patents on obvious or incremental modifications. Robin Feldman's work, particularly her book Drugs, Money, and Secret Handshakes (2019), documents in granular detail how patent strategy — not pharmacological innovation — drives the length of brand-name exclusivity for most major drugs. Generic competition advocates are protecting the simple proposition that competition should arrive when innovation has run its course, not when patent strategy finally exhausts itself. Their frustration is sharper now because the pattern is no longer a niche pathology. Humira's 2023 U.S. biosimilar entry did eventually lower prices, but only after years in which the American market remained closed while Europe had already been living with biosimilar competition since 2018. That gap made the "competition will come" defense harder to take at face value.