Recent news detailing enormous spikes in prices for some drugs has brought the issue of prescription drug access back into focus with leading presidential candidates calling for reform in the midst of public outrage.
High prices are not just plaguing a few medications with limited applications — nationwide spending on drugs increased 12 percent in just the last year. One reason for climbing prices might be a lack of generic competition for some drugs.
When the US introduced a regulatory pathway in the 1980s to speed generic drugs to market, it ushered in a new era for medicine. Now, more than 80% of drugs have a generic equivalent, and consumers save hundreds of billions of dollars each year through generic prescriptions. However, as drugs face patent expiration or the threat of generic competition, pharmaceutical companies have long taken drastic measures to keep generic versions of their drugs off the market.
A new paper by UC Hastings Professor Robin Feldman and Research Fellow Evan Frondorf follows the evolution of strategies used by pharmaceutical companies to delay the entrance of generic drugs, revealing clever “games” being played out in courts, conference rooms, and laboratories across the world.
The paper — titled “Drug Wars: A New Generation of Generic Pharmaceutical Delay” — is forthcoming in the Harvard Journal on Legislation. A draft is available at http://ssrn.com/abstract=2659308.
“Even a few months of generic delay for one drug can prevent consumers from realizing hundreds of millions of dollars in savings,” says Feldman. “In turn, that additional period of exclusivity — an extended monopoly period — is extremely valuable to a pharmaceutical company.”
Early strategies focused on making deals with prospective generic manufacturers to stay out of the market, commonly known as “reverse payments” and “pay-for-delay settlements.” But as these settlements have come under intense government and public scrutiny, Feldman and Frondorf show how companies have moved away from these “Generation 1.0” settlements, employing ever-more complex strategies.
“Generation 2.0” strategies employ the pay-for-delay model while obscuring the monetary payment behind side deals and other considerations, and include what the authors call “boy scout clauses” — agreements to behave honorably that actually mask anticompetitive collusion. And the newest generation moves from collusion to obstruction. “Generation 3.0” makes use of complicated administrative processes, regulatory schemes, and minimal drug modifications to prevent generics from getting to market. They include the following:
The paper ends with a call for reform, exploring ideas for how a new generic entry pathway might be structured.
“To incentivize continued drug development, pharmaceutical companies must have a chance to recoup their research costs,” says Frondorf. “But the patent system is built on inventions eventually reaching the public domain, and actions meant to block generic entry are contrary to the interests of Congress, the patent system, and, importantly, consumers who would otherwise benefit from lower-cost generics.”