Published on -3/28/2013, 10:13 AM
Prescription drugs represent a rapidly expanding sector in the United States. Sales in this country almost doubled between 2001 and 2011, rising from $172 billion to $320 billion.
The figures likely surprise few, given advertising buys made across all media. You might not know what Lipitor does, for example, but most likely you know the name. You might also recognize the price differential between such brand names and their generic equivalents.
What might not be common knowledge is the breakdown of marketshare between name brand and generic pharmaceuticals. While name brands command almost three-quarters of consumer spending, generic drugs represent almost 80 percent of all prescriptions written. The premium price commanded by breakthrough name brands result from a 20-year monopoly awarded for the drugmaker's patent. Generic drugmakers regularly file lawsuits challenging the patent when they believe it to be flawed in any way. Countersuits follow. When there doesn't appear to be a clear winner, the sides settle. Generic drugmakers receive large sums of money while the brand names receive a set amount of time to continue the monopoly, although it's shorter than the original 20 years.
The high-stakes legal game has caught the attention of the U.S. Justice Department. Federal officials say the "pay for delay" deals or "reverse settlements" end up hurting U.S. consumers by forcing them to pay premium prices for longer than they should. And they're making their case in front of the U.S. Supreme Court, with brand-name and generic drugmakers joined together as defendants.
"It's clear what's going on here is that they're splitting monopoly profits," said Supreme Court Justice Elena Kagan, "and the person who's going to be injured are all the consumers out there."
The pharmaceutical companies and the generic competitors argue the end result is bringing cheaper drugs to the market quicker.
This will be an interesting suit to follow, and one that could affect your pocketbook. Having generic drugs, which are chemically equivalent products with identical treatment capability, in the market saves billions of dollars annually.
While we want the public to receive the best deal possible, we would hope the court protects the value of the original patent. Not necessarily all the promotion costs that excessive marketing and advertising adds to the drug, but there is real investment for drugmakers in pre-clinical studies, research and development, and the numerous clinical trials required. If generic companies aren't willing to make that investment, they shouldn't partake in the monopoly pricing.
The court also should examine the patent challenges themselves. If the challenge is legitimate, the monopoly should be lifted immediately. If the challenge is frivolous, suits should be dismissed. In either case, no deals should be allowed that harm consumers for no reason other than to pad corporate ledgers.
Editorial by Patrick Lowry