Drug Prices After Patent Expirations in High-Income Countries and Implications for Cost-Effectiveness Analyses

Abstract

Importance: Understanding how patent expirations affect drug prices is crucial because price changes directly inform accurate cost-effectiveness assessments. This study investigates the association between patent expirations and drug prices in 8 high-income countries and evaluates how the changes affect cost-effectiveness assessments.

Objective: To analyze how the expiration of drug patents is associated with drug price changes and to assess the implications of these price changes for cost-effectiveness evaluations.

Design, setting, and participants: This cohort study performed an event study design using data from 8 high-income countries to assess the association between patent expiration and drug prices, and created a simulation model to understand the implications for cost-effectiveness analyses. The simulation cost-effectiveness model analyzed the implications of including or ignoring postpatent price dynamics.

Exposure: Drug patent expiration.

Main outcomes and measures: Change in drug prices and differences in incremental cost-effectiveness ratios when considering vs ignoring postpatent price dynamics.

Results: The sample comprised 505 drugs undergoing patent expiration in Australia, Canada, France, Germany, Japan, Switzerland, UK, and US. Price decreases were statistically significant over the 8 years after patent expiration, with the fastest price declines observed in the US: 32% (95% CI, 24%-39%) in year 1 after patent expiration and 82% (95% CI, 71%-89%) in the 8 years after patent expiration. Estimates for other nations ranged from a decrease of 64% in Australia to 18% in Switzerland in the 8 years after expiration. The cost-effectiveness simulation model indicated that not accounting for generic entry into the market may produce biased incremental cost-effectiveness ratios of 40% to -40%, depending on the scenario.

Conclusions and relevance: The findings of this cohort study demonstrate that drug prices were reduced substantially after patent expirations in high-income countries. Therefore, incorporating information on patent status and pricing dynamics in cost-effectiveness assessment analyses is necessary for producing accurate economic evaluations of new drugs.

Figure 1.. Difference-in-Differences Dynamics Estimates, by Country

Confidence intervals are not displayed for comparison purposes and are available in eFigure 1 in Supplement 1.

Figure 2.. Cost-Effectiveness Simulation Scenarios With and Without Postpatent Expiry Prices for the New Originator Drug

Parameters for the simulation: price of annual new treatment, $200 000; nontreatment annual cost, $50 000; and price of comparator, $1000. Scenarios A, B, and C present different survival (effectiveness profiles). Hazard ratio for scenario A was 0.58; for B, 0.44; and C, 0.89. Different columns present different times of patent expiry with relation to the investment assessment timing. The first column presents a scenario where the patented drug loses patent 2 years after introduction. The second column presents a scenario where the patent is lost 8 years after, and the third 14 years afterwards. The last column represents the survival profile of each treatment arm compared. For effectiveness, in scenario A, assuming constant prices vs dynamic ones produces an underestimation in the incremental cost-effectiveness ratios (ICERs) of 33% for the first case, 8% for the second case, and 1% for the third case; in scenario B, assuming constant prices vs dynamic ones produced an underestimation in the ICERs of 45% for the first case, 19% for the second case, and 5% for the third case; and in scenario C, assuming constant prices vs dynamic ones produces an overestimation in the ICERs of 40% for the first case, 12% for the second case, and 2% for the third case.

Figure 3.. Cost-Effectiveness Simulation Scenarios With and Without Postpatent Expiry Prices for the New Originator Drugs and Their Control Arms

Parameters for the simulation: price for annual new treatment, $200 000; nontreatment annual costs, $50 000; and price of comparator, $180 000. Scenarios A, B, and C present different survival (effectiveness profiles). Hazard ratio for scenario A was 0.58; for B, 0.44; for C, 0.89. Different columns present different times of patent expiry with relation to the investment assessment timing. The first column presents a scenario where the comparator is set to lose patent protection 2 years after the introduction of the new drug, while the new drug patent expires 8 years after introduction. The second column presents a scenario where both are set to lose patent 8 years after time 0. The third column presents a scenario where the comparator will lose patent 8 years after time 0 and the new drug, 14 years after time 0. The last column represents the survival profile of each treatment arm compared. For effectiveness, scenario A, assuming constant prices vs dynamic prices produces an overestimation in the cost-effectiveness ratio (ICER) of 19% for the first case, an underestimation of 13% for the second case, and an overestimation of 1% for the third case; for scenario B, assuming constant prices vs dynamic prices produces an overestimation in the ICER of 7% for the first case, an underestimation of 30% for the second case, and an overestimate of 2% for the third case; and for scenario C, assuming constant prices vs dynamic prices produces an overestimation in the ICER of 125% for the first case, an underestimation of 18% for the second case, and an overestimation of 39% for the third case.