Big Pharma's delaying tactic costs consumers $3.5 billion a year

I've always had ambiguous feelings about the pharmaceutical industry. On the one hand, there's no denying all the breakthroughs and life-saving drugs they've researched and developed. Let's not forget all the medicines that simply make our lives easier.

On the other hand, Big Pharma is sometimes found to be dealing in murky waters. Perhaps because of the nature of their products, we hold them to higher standards. Still, there's no denying that the pharmaceutical sector -- just like any other -- has its occasional bad apple and questionable practices.

One such practice is the "pay for delay" one, which ends up costing U.S. consumers $3.5 billion a year -- $1.2 of which is paid by the government, so says Federal Trade Commission chief Jon Leibowitz.


What's pay-for-delay? Well, when a drug patent is about to expire, generic companies challenge the patent in court and are then allowed to market their generic equivalents of the drugs. Generics, on average, sell for 85 percent less than their branded counterparts, according to FTC research.

Branded drugs would then have to come down in price as well to remain competitive, meaning quite the loss in revenue for the company. What Big Pharmas do then, is actually pay the generic companies to delay their entry into the market. It is more profitable for the generic to take the payment rather than compete. If this doesn't sound anti-competitive, and definitely not in the best interest of consumers, I'm not sure what does.

No doubt, some would say that the companies are acting in the best interest of shareholders, but they shouldn't do it at the expense of consumers. Of course, the drug companies offer a different view, saying "a ban on settlements could dissuade generic drug companies from challenging patents in the first place, resulting in a slower rate of generic treatments entering the market."

But as Seth Bloom, the general counsel of the Senate Judiciary Committee's antitrust subcommittee said, "These are agreements between competitors designed to exclude one competitor from entering the market." Pretty clear cut, I'd say.

I'm also not sure what took so long, but finally someone woke up and Leibowitz on Tuesday urged Congress to pass legislation that would ban such deals. To be fair, the FTC has challenged the deals in court before, but with mixed results. It seems that sneakiness knows no bound, however, and the FTC said some patent settlements were actually used as a payoff that kept generic versions of drugs off the market.

Next on the agenda to reduce drug costs might be working on allowing biosimilars, or biogenerics, which are copies of expensive biotechnology drugs (as opposed to chemical ones) that are often injected rather than taken orally. That would further reduce drug costs, although the reduction is not as drastic, about 20 to 30 percent less.


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