An Unhealthy Advantage for Generic Medicines; Long Drug Trials Are Harming Patent-Holders
Byline: Paul Howard, SPECIAL TO THE WASHINGTON TIMES
Have we tipped the pendulum too far in favor of generics?
On March 25, the Supreme Court heard oral argument in a closely watched case, FTC v. Actavis, Inc. The case involves a branded drug company's settlement with a generic patent challenger in which the patent-holding company paid the challenger not to launch a generic version of the branded drug until an agreed-upon date. Generics are much cheaper than branded drugs and the Federal Trade Commission objects when competitors agree to delay competition in return for cash. Consumers, private insurers and the government pay higher drug prices for the remaining duration of the drug's patent.
The FTC's concern is understandable, but it overlooks a broader issue for health consumers: the importance of striking a balance between incentives for innovation on the one hand, and encouraging faster access to more affordable medicines on the other.
Evidence suggests we've tipped the scales too far in favor of generics, resulting in less innovation and poorer health. The pharmaceutical industry is by definition somewhat monopolistic. Patents are necessary to promote innovation in research-and-development-intensive industries with enormous sunk costs and very high regulatory barriers to market entry. Shorten patent life and you also diminish incentives for new research.
With the Hatch-Waxman Act of 1984, Congress encouraged generic drug companies to challenge drug patents. Under the law, the first generic company to successfully file an abbreviated new drug application with the Food and Drug Administration gains duopoly rights to sell its drug as the sole competitor with the branded product for the first six months after the application is filed, or after the patent is overturned or expires. Hatch-Waxman exclusivity can be worth hundreds of millions, or even billions of dollars, depending on the market for the original drug. In 2012, for instance, three generic drugs were in the top 30 for total sales (worth about $6.47 billion).
Generic companies have little to lose from challenging patents of top-selling medicines and lots to gain. Innovator companies must robustly defend against every patent challenge, and losing a single case can result in billions of dollars in lost revenues.
When a branded company faces high litigation costs and uncertain outcomes and the generic one has relatively little to lose, settlements become a rational option. In effect, both parties agree to split the monopoly profits remaining under the patent rather than litigate the case to an uncertain conclusion.
The FTC's concern is that reverse payments protect some weak patent claims. Outlawing reverse settlements, however, might lead to fewer patent challenges or longer patents (if the patent is upheld) - the opposite of what Hatch-Waxman intends. …