Meghan Magennis, Seon Hwang, Kristy Choi, Minsoo Park
http://www.washingtonpost.com/wp-dyn/content/article/2006/04/24/AR2006042401508.html
It turns out that the drug-dealer in the back alley isn’t the only one who has spent some time in court. In 2006, the Federal Trade Commission challenged brand-name pharmaceutical companies in Supreme Court for cutting deals with generic companies to delay the sale of cheaper drugs. The Federal Trade Commission discovered at least seven cases where brand-name drug companies paid generic drug manufacturers not to challenge their patent after it expired. The Washington Post explains that “the agreements allow the branded companies to maintain their patent exclusivity for longer periods, while the generic company receives money, for, in effect, dropping its challenge.”
In one case, Cephalon, Inc. convinced four generic companies to drop challenges to the patent of the sleep-disorder drug Provigil. All four generics agreed to steer clear of the market until 2011, and together they will receive licensing payments of $136 million from Cephalon.
This case illustrates that market power carries a multi-million-dollar price tag. Cephalon, and many other brand-name companies, are willing to pay others not to enter the market. By restricting the number of firms in the market, pharmaceutical companies can implement monopoly-like pricing schemes- pricing way above marginal costs. In other words, Cephalon is aiming to keep its Lerner Index high.
As long as big pharmaceutical names continue to cut deals with generic makers, consumers will have to pay brand-name prices. The Federal Trade Commission recognizes that these big-name agreements are making prescription drugs unaffordable for many citizens. The future of prescription drug prices lies in the hands of the Supreme Court, who will decide if these types of arrangements are legal.
1 comment:
The battle between the FTC and the courts will have a major impact on the future availability of cheaper generic prescription drugs. This post presents a good summary of the current situation that has arisen in the courts due to the rise in the tendency for brand name pharmaceuticals to cut million dollar deals with generic drug companies. The generic drug companies are able to offer cheaper versions of the brand name drugs, and when they agree to stay out of the market, they allow the major pharmaceutical companies to effectively extend their patents allowing them to keep their prices and profits exorbitantly high. As both big-name pharmaceuticals and generic drug companies benefit, the public loses and is forced to pay higher prices for the drugs. This situation implies that monopoly-like profits are being earned at a sacrifice of social welfare. The Washington Post article also references that ten cases of these agreements occurred in the past two years, while no cases like this had been found for years before 2005. The steep increase in this practice should be of concern to the public. Ultimately, this situation will not be resolved until the FTC and the courts can agree on the legal guidelines that pharmaceutical companies will have to follow in the future.
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