“A ll good things must come to an end” is a proverb that brand-name drug makers have trouble taking to heart. Just look at the strategies used to prevent competitors from bringing less-expensive generics to market.
Pharmaceutical research has led to tremendous advances in medicine. Because of the extraordinarily high cost of bringing new drugs to the market, our intellectual property system is designed to ensure that drug companies recoup their investment and earn a profit. After a period of time, though, generic competitors are supposed to be able to enter the market and bring down prices through competition.
But they are often blocked by the makers of brand-name drugs who try to hold off competition and wring out as much profit as possible. Indeed, drug companies are increasingly using complex strategies to elevate prices and keep generic competitors off the market. Lawmakers have trouble finding the schemes; the public has difficulty understanding them. But everyone sees the end results — shockingly high prices and patients unable to afford their medications. With that in mind, a colleague and I set out to trace the modern strategies and tactics that are fueling the astounding rise in the price of medications.
Eighty percent of the growth in profits in 2015 among the 20 largest drug companies resulted from price increases, rather than from the addition of new products. Between 2010 and 2014, prices for the 30 best-selling drugs in the U.S. rose eight times faster than inflation. Americans bear the brunt of these increases. For example, the liver failure drug Syprine, which costs less than $400 a year in some countries, has a list price around $300,000 in the United States. As an executive at the drug company Sanofi (SNY) noted bluntly, “Everybody has to make money. Should it be surprising? We do serve different stakeholders.”
The temptation to avoid generic competition can be overpowering. Delaying generic competition for as little as six months can be worth half a billion dollars in sales for a blockbuster drug. As pharma executive and bad boy Martin Shkreli once tweeted in 2012, “Every time a drug goes generic, I grieve.” Given the value of holding off generic competition, drug companies string out a variety of delay games, one after another, each adding a little more time for the brand-name drug to flourish without generic competition. As I noted when testifying in Congress about such strategies, “a billion here, a billion there, that adds up to real money, and the taxpayers are paying.”
One tactic that my colleague Evan Frondorf and I describe in our book, “Drug Wars: How Big Pharma Raises Prices and Keeps Generics Off the Market,” involves petitions to the Food and Drug Administration asking that the agency not give the green light to generic versions of a drug. Our research on 12 years of FDA data shows that in some years nearly 1 out of every 5 petitions filed on any topic — including food, tobacco, dietary supplements, and devices — was related to delaying generic entry. The FDA denies 80 percent of these petitions, but the process takes time, even for silly petitions, such as one asking the FDA to declare that a generic must provide information that the regulations already require. The time it takes to respond to these petitions delays the entry of the generic.
Other tactics include blocking generic companies from getting samples of the brand-name drug so they are unable to show the FDA that the generic is equivalent, or refusing to cooperate with generic companies on safety plans. Here’s another: making slight modifications to a drug’s dosage or delivery mechanism just before the patent expires and then shifting the market to the new version, protected by shiny new patents. Although the patents may be weak — and FDA studies show that when generics challenge patents, they win most of the time — the challenge process can take years.
Pharmaceutical companies also carve out competition-free zones with one of 13 regulatory exclusivities. Pharmaceutical companies can obtain exclusive rights related to a drug by doing things like undertaking new clinical studies or starting trials in children or applying for orphan drug status. (Orphan drugs treat conditions affecting fewer than 200,000 Americans. They have an average annual price tag of $99,000 and can command that price for treating diseases outside the orphan designation.) These exclusivities were set up for very appealing reasons, such as helping forgotten patient populations, but are now being exploited in ways Congress never intended.
But wait, there’s more: downright collusive agreements between brand-name companies and initial generic companies to keep out other generics; profoundly absurd behavior, such as a challenge to the type of orange juice used to test the safety of a generic drug; truly puzzling patents, such as one for an ineffective and unnecessary capsule coating; and a struggle over a single sentence such as one on the label for generic metaxalone (Skelaxin), claiming that the medication is better absorbed when taken with food — a protracted dispute that kept consumers from enjoying up to $3 billion in cost savings.
Generics gamesmanship is entering a new realm with the introduction of biologics — complex medical products such as antibodies or proteins made from various natural sources. One-third of the new drugs approved in 2015 were biologics. A biosimilar is highly similar to its biologic, a relationship much like that of brand-name drugs and generics. During 11th-hour negotiations over the Affordable Care Act, Congress created a system for approving biosimilars.
For those who value complexity, the biosimilars system is a garden of delights. New games and disputes are already bubbling up through the courts. Last month, the Supreme Court heard oral arguments in Sandoz v. Amgen, the first biosimilar case to make its way there. The opinion of the Federal Circuit Court, which led to the Supreme Court case, cited Winston Churchill in calling the Biologics Price Competition and Innovation Act “a riddle wrapped in a mystery inside an enigma.” Overall, not a great start for biosimilars. But, earlier this week, the Supreme Court ruled 9-0 in favor of reducing the time that companies will have to wait before putting their biosimilars on the market.
A key problem with the system for approving generic and biosimilar drugs is its byzantine complexity. A simplified, slimmed-down system would provide fewer opportunities for clever gamesmanship. Letting the sun shine in would also help. Markets and regulators work best when information is fully available — information that invites competition and exposes inappropriate behavior in a way that regulators and the public can respond to. Yet we seem to be moving in the wrong direction, with the FDA shifting aspects of reporting last year to provide even less information, not more, to competition agencies and the public.
You can’t fully blame companies for engaging in behavior that is strongly in their economic self-interest. But you can blame a system that rewards drug companies while consumers and society pay the price: overly expensive drugs, higher taxes to cover soaring Medicare costs, higher insurance premiums, and unnecessary suffering for those who can’t afford their medications. At the end of the day, “a billion here and a billion there” lands on the backs of patients and taxpayers. We can and should do better.
Robin Feldman is professor of law and director of the Institute for Innovation Law at UC Hastings College of the Law in San Francisco and co-author, with Evan Frondorf, of “Drug Wars: How Big Pharma Raises Prices and Keeps Generics off the Market.”