As the rich worlds governments struggle to contain the costs of health care,they are starting to scrutinise the price of drugs. This may seem unfair,when pharmaceuticals account for less than a fifth of their countries health-care costs,and misguided,because innovation will wither if not rewarded. However,a noisy chorus argues that the drug industry is making the prices of its products needlessly high by suppressing cheap generics. Governments from Canada to Japan are looking into this. And,in this case at least,the critics are on to something.
The most egregious offence is the pay-for-delay deal,under which a patent-holder pays a maker of generic drugs to delay its launch of a cheap copy. Americas Justice Department has called such deals presumptively unlawful and has vowed to prosecute them with vigour. The Federal Trade Commission estimates they cost Americans $3.5 billion a year.
American officials are examining other tactics. One is a law intended to encourage generics that grants the first copy of a patented drug to win regulatory approval in America a six-month monopoly. Often,however,the first generic does not have a free run,because patent-owners have taken to selling authorised generic versions of branded pills. The big drug firms point out that authorised generics drive down the price of copies. Fine; but they also erode the value of the six-month prize and hence generics firms incentive to win it.
Regulators in the European Union are also concerned. The European Commission calculates that generic drugs arrive seven months after the relevant patent expires a delay it says costs consumers more than $4.3 billion a year. Competition authorities have pointed disapprovingly not only at pay-for-delay deals,but at other tactics used by big drug firms,including the filing of hundreds of patents on just one drug to thwart potential generic rivals. Neelie Kroes,the EU competition commissioner,has declared that something is rotten in the industry.
A pill for your thoughts
The big drugmakers have two responses: first,that the story is more complicated than antitrust officials claim; and second,that pay-for-delay deals in fact benefit consumers. Well,yes,the whole truth is complicated. Its not all the big drugmakers fault. But on the second point,the industry is dead wrong.
In the EU,generics have been delayed by red tape. Unlike America,Europe is a patchwork of smallish markets with varying regulatory and economic barriers to entry,including a requirement to register new drugs in each EU country. Evidence suggests that a unified European patent and litigation procedure,a longstanding wish of innovative companies,would give generics a boost. Generics firms often seek to gain entry by challenging existing patents rather than by waiting for them to expire. A single patent,and hence a single challenge,would make that easier.
In America generics firms should also take some blame. They are happy to be paid for delays. They also claim that these deals help consumers,by reducing legal uncertainties and hence the time it takes to bring generics to market.
Phooey as the latest deals between drugmakers show. Some generics firms are now agreeing to delay their launches not for cash but for a promise from the patent-holder to delay or cancel the launch of its authorised generic. Such machinations may suit brand-owners and generics makers whose old enmity is fading in other ways too. But they do little good for consumers physical or financial health.
© The Economist Newspaper Limited 2009