Are consumers getting a fair deal on generic drugs?

We’ve all heard multinational pharmaceutical companies claim that the cost of developing a single new drug is over $1.0 billion. Even though that cost includes all failed development efforts,  it’s still fair to say that taking a drug candidate all the way to market is a very costly process.

Once the orginator’s patents expire and the drug goes generic we should expect to see a big price drop, right?  After all, the generic drug company has only had to invest a tiny fraction of the pharma company’s total costs to bring their product to market.

If only that were true.  Over the past few years we have seen several schemes emerge that help ensure “post-patent” profits remain artificially high.  Some examples:

1. The European Commission investigates pharma-generic agreements that delay the launch of cut-price generics — see this news article and European Commission statement.  The good news here is that the EC scrutiny seems to be reducing the degree of brand/generic collusion.

2. A US legal ruling stated that pharma payments to block generic entry are not an Antritrust violation — see this commentary on ruling. However, the FTC has stated that, like the Europeans, it will scrutinize any pharma-generic agreements that may impact the launch of generic versions — see here.

3. Ontario recently stood up to payments from generic companies to pharmacies that helped keep generic drug prices high in the province — see this article.  The Government of Ontario (rightly) believed that its citizens were paying way above the standard rate for off-patent drugs.

The patent system already provides a 20-year monopoly to the patent holder.  Additional regulatory extensions are available to pharma companies such as Patent Term Restoration to compensate for the time it takes to navigate through the clinical and regulatory system.

Our current system is elaborate, confusing, costly and is clearly not benefiting the consumer.

I propose that we reward the drug innovators with 10 years post-approval regulatory exclusivity (and not a day more).  There would be less need to maintain enormous IP estates and defend them against the ferocious generics industry since exclusivity would be a regulatory function.

Goodbye Orange Book! Lowering the patent costs would benefit consumers and, strangely enough, stimulate more investment in innovation.

John McCulloch

John provides assistance to life sciences entrepreneurs in business strategy, management, intellectual property, financing and licensing. See more…