Protecting generic pharma competition is necessary now
© Getty Images

American brand and specialty drug prices are among the highest anywhere despite the fact that the U.S. pharmaceutical market is the largest in the world. Some of that problem may stem from public healthcare program fraud and an inefficient medical insurance system, but much more is the result of a long pattern of anti­competitive tactics in this highly concentrated industry.

Since 1999 the Federal Trade Commission has been fighting against anticompetitive patent litigation settlements between branded pharmaceutical manufacturers and generic drug competitors. Three years ago the U.S. Supreme Court affirmed that some of those patent deals can indeed violate the federal antitrust laws. Today, however, the pharmaceutical competitive landscape faces an even more existential threat in the efforts of brand drug companies to foreclose generic entry in the first place by denying would-be competitors the tools and resources required to meet Food & Drug Administration (FDA) safety rules.

ADVERTISEMENT
These foreclosure strategies take two forms. First, refusing to sell wholesale products and samples to generic firms wanting to establish to the FDA that the products they are developing are essentially the same as (“bioequivalent” or “biosimilar” to) an approved branded drug. Second, the refusal to enter into risk-mitigation sharing agreements for certain drugs with potentially serious risks, like testosterone gel, for which distribution is restricted by regulation for safety purpose. The latter aims to prevent generic competitors from satisfying the legal requirement to participate in what the FDA terms a Risk Evaluation and Mitigation Strategies (REMS) program. According to a July 2014 study conducted by Matrix Global Advisors, ongoing REMS abuse cost the U.S. health system $5.4 billion annually — $1.8 billion to the federal government alone.

These twin tactics are a predictable result of the monopoly power often resulting from pharma patents and the parallel incentive of brand manufacturers to protect that power after patent expiration. For example, Turing Pharmaceutical — which in 2015 controversially increased the price of its anti-parasitic drug Daraprim from $13.50 to $750 per pill overnight, an increase of some 5,000% — has indicated it plans to shelter those extraordinary profit margins (after its patent protection ended) by restricting the product’s distribution so that generics cannot obtain samples needed to manufacture a lower-priced version of the drug. As Senators Patrick LeahyPatrick Joseph LeahyAvalanche of Democratic senators say Franken should resign America isn't ready to let Sessions off his leash Your tax dollars fund Afghan child rape MORE and Amy KlobucharAmy Jean KlobucharFranken resignation could upend Minnesota races Avalanche of Democratic senators say Franken should resign Trump-free Kennedy Center Honors avoids politics MORE observed recently, as of January 2016 the FDA had already received more than 100 complaints from generic product developers that were unable to obtain access to samples of an innovator drug to compare and test their generic products. And nearly 40% of new FDA approvals are subject to REMS mandates.

Antitrust practitioners and scholars typically prefer competition to regulation, as the former is more efficient and less susceptible to gaming. Where access to product and REMS programs are concerned, though, the antitrust laws are toothless, since as currently construed by the federal courts those statutes are not viewed as imposing a duty on monopolists to do business with competitors. Right or wrong, that’s the reality today, meaning the FTC is precluded from bringing antitrust prosecutions against brand manufacturers for these price-protecting schemes.

That’s what antitrust law calls a “market failure.” And when the competitive market cannot be protected through antitrust enforcement, the only possible and rational response is regulation. Ironically, 2007 amendments to the FDA Act passed by Congress state that brand manufacturers may not “block or delay” generic drug applications, but provided no enforcement powers to the FDA or any other federal agency.

Now is the time to fix that multi-billion dollar oversight. In July, new legislation, dubbed the CREATES Act (an acronym for Creating and Restoring Equal Access to Equivalent Samples), was introduced by Senators Mike LeeMichael (Mike) Shumway LeeSupreme Court takes on same-sex wedding cake case House approves motion to go to tax conference — with drama Trump really will shrink government, starting with national monuments MORE, Chuck GrassleyCharles (Chuck) Ernest GrassleyGrassley blasts Democrats over unwillingness to probe Clinton GOP and Dems bitterly divided by immigration Thanks to the farm lobby, the US is stuck with a broken ethanol policy MORE, Leahy and Klobuchar. The draft bill clarifies that branded pharmaceutical manufacturers’ product denial — declining to “provide sufficient quantities” of a branded drug to a generic developer “on commercially-reasonable, market-based terms” — or refusal to utilize a “single, shared” risk distribution system warrants a judicial injunction and monetary damages. It authorizes both administrative remedies and a civil cause of action by generic competitors.

There is absolutely no virtue, benefit or pro-competitive explanation for the actions of branded manufacturers that block or delay generic pharma competition and maintain bloated prices for drugs in the United States. The CREATES Act is a straight-forward solution to a market failure created by exploitation of legal loopholes in pharmaceutical industry regulation. It is a solution that should be enacted now by Congress.

Glenn Manishin is a Washington, DC antitrust attorney who served as counsel of record for competitors in both the US v. AT&T and US v. Microsoft antitrust cases.


The views expressed by authors are their own and not the views of The Hill.