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State-run drug company can’t fix a broken patent system

May 29, 2026

Healthcare costs figure strongly in California’s affordability crisis, with nearly 1 million Californians going to Mexico each year to purchase more affordable medical care and prescription drugs. To help ease prices, Gov. Gavin Newsom launched CalRx, which, in 2020, opened its doors as a state-run prescription drug label to provide medications at prices set by the state.

Yet this public intervention into the pharmaceutical market only expands government interference without addressing the root cause of high drug prices. Fixing the problem requires more than a state-run generic company because CalRx faces the same patent gamesmanship by brand manufacturers that plagues generics in the private market.

CalRx products are already on the market, including a low-cost nasal spray form of naloxone — the generic version of Narcan — used to prevent opioid overdoses. More recently, CalRx provided $50 million in funding to the non-profit drug manufacturer Civica to produce insulin pens, which are now available for $11 each, or $55 for a five-pack.

While this benefits the uninsured and those with high deductibles, critics questioned the program because, soon after, the three major manufacturers — Eli Lilly, Novo Nordisk and Sanofi — slashed insulin prices by 75% in response to federal Medicare changes under President Joe Biden’s Inflation Reduction Act. This was not in response to CalRx.

For all its good intentions, CalRx’s impact can only be limited, at best. CalRx produces older drugs whose patents have expired. It can do little to affect the prices of new blockbuster drugs like GLP-1s for weight-loss, more targeted cancer treatments or advanced gene therapies that treat everything from congenital blindness to sickle cell disease. Real reform requires putting a stop to pharmaceutical companies exploiting the patent system to keep lower-cost generics from entering the market. Even a state-run drug company cannot work around roadblocks with roots going back 40 years.

In 1984, Congress launched the generic drug industry by passing the Hatch-Waxman Act. The act provided generic companies a faster pathway for drug approval, allowing them to more effectively challenge brand-name drugs. By all measures, the legislation was a success. Before the law, generics had just a 13% market share; today, they fill 90% of U.S. prescriptions while accounting for just 12% of drug spending, generating $467 billion in savings in 2024 alone. And generic competition saves consumers and taxpayers money, with prices falling 15% to 40% when three to five generics enter the market, and as much as 90% once 10 or more enter.

But blockbuster drugs are big money, and brand-name pharmaceuticals exploit the patent system to keep monopoly profits flowing. Not only do they patent the active ingredient, but they also create what is commonly called a “thicket” of secondary patents covering aspects such as formulation, dosage and devices. For example, Humira, a popular anti-inflammatory drug, received 132 patents. This wall of patents was effective in protecting its monopoly, as seen by the fact that the generic version of Humira was available in Europe five years earlier than in the United States.

Companies also market reformulated versions of a drug to shift the market before generics enter, earning fresh patent protection in the process. AstraZeneca’s move from Prilosec to Nexium is the classic example of such a “product hop.” As Prilosec’s patent was about to expire, the company launched Nexium with a $500 million marketing blitz. Studies found little real difference, but the new patent was an effective tool for keeping generics at bay and continuing to collect monopoly profits.

Keeping drugs affordable requires Congress to address anticompetitive tactics by brand manufacturers to stifle competition. The bipartisan Eliminating Thickets to Increase Competition (ETHIC) Act (co-sponsored by California’s Rep. Darrell Issa) would limit the number of related patents a brand-name company can assert against a single generic in an infringement lawsuit, making it cheaper and faster for generic providers to challenge “patent thickets” and reach the market.

While CalRx may help a narrow slice of the market, a state-run drug label will not fix the broader challenges that limit access to more affordable generic drugs. The problem is not a shortage of generic manufacturers, it is the fact that brand-name companies exploit the patent system through patent thickets, product hops, and lawsuits.

Affordable medicine is important for Californians and all Americans, but only Congress can address these particular issues. The ETHIC Act is an important first step for pruning patent thickets and curbing the endless litigation that keeps lower-cost drugs off the shelf. Wayne T. Brough is a resident senior fellow with the R Street Institute’s technology and innovation team

Orange County Register

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State-run drug company can’t fix a broken patent system

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