NEW BRUNSWICK, NJ- Yesterday, the U.S. Food and Drug Administration (FDA) issued a news release that appeared to target the pressing issue of price gouging in the pharmaceutical industry. By publishing a list of over 200 branded drugs that lack a generic counterpart, the FDA exposed the monopolistic business behavior of several pharmaceutical giants. Along with this list, the agency introduced a new policy to expedite the process of reviewing generic drug applications, in an attempt to “increase competition” and “facilitate the entry of lower-cost alternatives.”
How U.S. drug laws work
In order to understand the recent actions of the FDA it is important to know how prescription drug laws operate in America. The modern system of drug regulation was established by the government back in 1984, with the Drug Price Competition and Patent Term Restoration Act. This piece of legislation carried two primary objectives: First, Congress wanted to encourage manufacturers to be innovative and develop new drugs. In order to do so, lawmakers knew that they had to find a way to offset the high risks and costs that were involved with such a process. What they came up with was the concept of patent protection, or in other words, “a period of marketing exclusivity” where manufacturers would be able to hold a temporary-monopoly on the market in order to recoup from their investments. The second goal of Congress was to ensure that generic versions of brand-name drugs would become readily available, after the period of marketing exclusivity for the original manufacturer was over. Thus increasing competition and driving down prices for the consumer, in the long run.
Why U.S. drug laws haven’t been working
While Congress has been successful in meeting its’ first objective of incentivizing medical research and advancements - as American pharmaceutical companies have consistently produced more than half of the world's new prescription drugs over the past decade - the law has struggled to regulate healthy competition within the pharmaceutical market. As one could expect, brand-name companies are reluctant to give up their hold on the market and have found ways to discourage competition and experience market exclusivity long after their patent protection has expired. It seems that these brand-name pharmaceutical companies have resorted to two main methods of preventing generics from reaching the market: they either pay the generic company to withhold their product from the market altogether (if the company is willing to cooperate), or they make it really hard for that generic to launch (if the company is not interested in a bribe).
The Federal Trade Commission (FTC) has coined the term “pay-to-delay” to describe the first method listed above. This sneaky legal tactic essentially consists of multiple companies “agreeing not to compete”. Late last year, Maine Attorney General Janet T. Mills spoke out against these questionable business tactics, explaining that drug price hikes were the result of nothing more than pharmaceutical salespeople getting together and making deals to make as much money as possible. “It is unconscionable for anyone to manipulate the system in order to line their pockets at the expense of people who need access to affordable medications in order to remain healthy,” she added.
According to the FTC, these secret deals alone have cost consumers and taxpayers $3.5 billion in unnecessarily high drug costs every year. When brand-name manufactures aren't able to wine and dine their generic counterparts at country clubs and fancy NJ restaurants, they often resort to more inconspicuous methods of inhibiting the competition. They'll rebrand the exact same drug under a different name, in turn extending their market exclusivity. They’ll file civilian petitions against the applications for generic versions of their drug, thus delaying the FDA’s approval of that drug. They’ll even deny other companies samples, oftentimes leaving generic drugs at risk of being dangerous to the consumer.
US prescription drug prices as they compare to Canada's
How does Shkreli play into this?
To explain exactly how they’re doing this, its hard not to mention the now-infamous, Martin Shkreli. Mr. Shkreli, who is the former CEO of Turing Pharmaceuticals, first made headlines back in 2015, when he directed his company to increase the price of its anti-parasitic drug Daraprim by %5,000 overnight. How’d he get away with this? First, he understood that Daraprim had a small market in the U.S. and that not many companies would go through the trouble of applying for regulatory approval through the FDA. He then started his scheme by buying the only existing U.S. rights to market and distribute the drug. This outright ownership allowed Shkreli to have almost complete control over the drug’s distribution. Consequently, he was able to restrict Daraprim’s accessibility to only patients, doctors and a handful of distributors, thus making it nearly impossible for a potential competitor to obtain enough samples of the drug to reproduce it. While Shkreli and others alike may claim that the extra revenue is being used to improve the drugs and benefit the consumer, that seems to be complete nonsense in most cases. The prices are simply too high to justify such a motive, and Daraprim, for instance, is a 60 year old drug that has shown no signs of defect.
So, now what?
As members of congress continue the debate on health care reform, it seems foolish to overlook the absurd prices that American’s are paying for American-made drugs. While Daraprim shot up from $13.50 to $750 and then back down to $375 in the U.S., it has remained $1 in the United Kingdom and many other nations alike. By reducing drug costs to their previous, more reasonable amounts, we could offer financial relief to tax-payers and consumers on both sides of the aisle. Although Trump has voiced his concern with the issue, and has offered very valid solutions such as the government negotiating prices with pharmaceutical companies, it remains doubtful that the current administration will follow through and hold big pharma accountable. Hopefully, the FDA’s recent actions will provide more manufacturers with realistic opportunities to produce generic drugs and compete with the big, brand-name pharmaceutical giants.
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