Cheaper Drugs Don’t Come from Breaking the System That Creates Them

By Stephen Ezell  and Kirsten Axelsen

When a person can’t afford medicine, especially for a chronic condition, it is a loss to both the patient and the economy. Competition can make drugs more affordable. Indeed, after the U.S. Food and Drug Administration (FDA) approved multiple glucagon-like peptide-1 agonist (GLP-1) medicines in 2022, competition produced manufacturer net price discounts of 48 to 79 percent in 2023 from list prices exceeding $1,000. Today, direct-to-consumer prices for GLP-1s that treat obesity have fallen to as low as $149, and $25 co-pay cards are available for people with insurance. These already large price reductions effectively undermine the validity of calls made by consumer rights advocates for the government to invoke a special pathway to circumvent patent protections, Section 1498, to get lower GLP-1 prices.[i]

The Hatch-Waxman Act established the framework that makes competition in the drug industry possible. It created a pathway that balances incentives for innovators to develop medicines with the ability for generic manufacturers to obtain approvals for  lower-cost generic medicines after a period of regulatory exclusivity and a framework to challenge patents covering the innovator medicines. Two types of property protection allow for a drug to have exclusive market access. The first, regulatory data protection, is a length of time after a drug is approved (5 years for a small molecule, 12 years for a biologic, with additional years for orphan drugs and other special circumstances) that does not allow FDA to approve an application for a generic or biosimilar that relies on the innovator’s clinical data. The second, a drug patent, is established for 20 years, but much of that time is taken up by clinical trials before a drug is FDA-approved; the patent can also be challenged, whereas regulatory exclusivity is typically not challenged.   

Once exclusivity expires, generic competitors can attempt to get drugs approved and enter the market by demonstrating bioequivalence and relying on FDA’s prior findings of safety and effectiveness, rather than repeating costly clinical trials. Generic competitors typically enter the market 13 to 14 years after the approval of a non-biologic, or small molecule medicine like a GLP-1. With generic entry, the inventor can be expected to lose 90 percent or more of the market, as patients, subject to state substitution laws, are usually automatically switched.

Section 1498 provides for the federal government or its authorized agents to use or manufacture a patented invention without permission of the patent holder. Section 1498 provides a pathway for patentees to receive compensation for their losses caused by the government’s infringement of their patents. However, such an award excludes the patent holder’s fees and costs if the court finds the government’s actions were “substantially justified.” In these circumstances, suggesting that Section 1498 could be used as a tool to lower drug prices is asking the government to authorize a generic company to manufacture copies of the patented GLP-1 invention, presumably get those copies approved by FDA, and then sell them at a low price for the government’s use. This effectively asks the Secretary of Health and Human Services (HHS) to enable generic manufacturers—often from China or India—to copy the patent-protected GLP-1 drugs of the same U.S. companies now committing billions in domestic manufacturing.

It could be argued that a generic GLP-1 would be even cheaper than the discounted brands because approval for generic medicines can be faster and less expensive than for branded drugs due to their reliance on FDA’s findings of safety and effectiveness from the clinical data for the brand name drug in an abbreviated new drug application. As a result, some generic medicines can cost patients only a few dollars per month after insurance. Thus, in theory, using Section 1498 to circumvent the exclusive right of the innovator to market the medicine to others could save patients money. However, Section 1498 does not allow FDA to bypass regulatory exclusivity, another hurdle to its application. 

Using Section 1498 in this way comes with two sizeable costs: the compensation that would be paid to the inventor for their losses—even without costs and fees—and the damage to incentives for investment in the next generation of innovative medicines. For these reasons, invoking Section 1498 is infeasible, unlikely to save the government money, and in direct opposition to the America First agenda.

First, consider the cost paid to the innovator for their loss: Section 1498 allows the patent holder to sue the government for damages—albeit not their costs and fees if the action is deemed “justified”—but not to block the government’s actions to procure their invention. It provides that the patent holder(s) are entitled to “reasonable and entire compensation” that, according to legal scholars, should include compensation for lost profits—which could be considerable in the case of GLP-1s. Thus, if the government were to use the patented invention, get sued, and pay damages, then taxpayers would end up paying the drug companies for their losses.

Second, consider the downstream impact on competition: undermining patent rights would disincentivize investment in medicines and their manufacturing in the United States, including for some of the most widespread chronic conditions that GLP-1s are intended to treat. Without the expectation of market exclusivity for a period of time, the expenses required to develop such medicines would be unlikely to be recovered. IP protection motivates investment in the long, risky, and expensive process of drug development and manufacturing, while also creating competition.

Competition motivates price discounts to health plans for formulary access. The prices after discounts for GLP-1 drugs are now well below the value-based price range of $691–$1,341 estimated by health economists at the Institute for Clinical and Economic Review. Or, in other words, the prices, after discounts, reflect an amount that is worth their health benefit. Price discounting is common in therapeutic classes with the choice between various medicines. For example, competition in the Medicare market had already achieved discounts of 50 percent or more on medicines for heart disease and diabetes, well before they were selected for federal price setting via the Inflation Reduction Act in 2026.

This system has encouraged investment in new drugs and resulted in an environment where more than 90 percent of drugs are dispensed as generics. Although various reasons relating to the market, the drug itself, or the approval process can result in no generics entering the market, this typically occurs in small markets or for harder-to-manufacture drugs. The current, highly competitive market for obesity treatments with declining prices is a result of that pathway; companies invested in these drugs on the expectation that successfully approved inventions would have a period of market exclusivity before another company could copy their invention. The popularity of the GLP-1 drugs is not justification to undermine the intent of Hatch-Waxman.

Indeed, no U.S. government agency has ever used Section 1498 with respect to drug pricing, despite being asked to do so regularly. There have been 14 petitions made publicly available in the last 10 years asking for the Secretary of HHS or the Director of the National Institutes of Health to limit intellectual property (IP) protection for critical medicines by invoking Section 1498, asserting march-in rights, or issuing compulsory licenses to allow generic drug manufacturers to make cheaper versions. But these requests have never been granted, and the government has upheld laws protecting IP for medicines. In cases where there has been a call to invoke Section 1498—such as procuring Cipro due to the risk of anthrax in 2001—a deal was reached with the manufacturer for discounted medicine.

Moreover, in the case of GLP-1s specifically, manufacturers have already committed to discounts and price reductions, including for uninsured people, in an effort to meet the public need for more affordable obesity treatments. Suggesting that this type of remedy is needed for affordability ignores the sizeable effort already made by the administration and private companies to bring down prices and make these drugs more affordable, even to people without insurance.[ii]

America’s leadership position in drug development is neither guaranteed nor assured. Policies that signal willingness to override IP rights, even for purposes that benefit patients or society as a whole, would fundamentally alter the risk calculus for pharmaceutical investment, not only in the United States but throughout the world. For example, China has built its leadership in drug development in part by emulating aspects of U.S. IP protections.

The instinct to act boldly in the face of patient suffering is admirable. But bold action that ignores innovation incentives, IP rights, legal precedent, and practical constraints is not sound health policy; it is wishful thinking with potentially severe consequences. The path to affordable medicines runs through competitive markets, sustained innovation, and insurance coverage, not through counterproductive attacks on the IP system, and it is this system of competition that has made American pharmaceutical leadership possible.

 

[i] https://www.citizen.org/wp-content/uploads/1498-Letter_Semaglutide_Tirzepatide_2026.2.12.pdf

[ii] Semaglutide and Tirzepatide for Obesity: Effectiveness and Value Final Report DECEMBER 16, 2025, Institute for Clinical and Economic Review

 

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