A Simple Way to Lower Drug Prices

By Michael Carrier
June 24, 2016

Drug pricesConsumers suffer the scourge of high drug prices. Brand-name drug companies reap monopoly profits. But generic drugs, which promise lower prices, are often nowhere to be found. One reason is that brand firms have engaged in an array of conduct to block generics.

One particularly egregious practice involves denying samples of a brand drug to a generic that requests it. In 1984, Congress passed a law to speed generics to the market. At the time, consumers were paying monopoly prices for 150 drugs even though their patents had expired. Congress thus allowed generics to piggyback on the costly clinical trials run by brand firms.

Before generics can take advantage of this law, however, they need access to a sample of the brand drug. That access allows them to show that their version is bioequivalent, absorbed into the body at the same rate.

In short: A sample is crucial. Without it, there is no generic.

Brand firms have discovered a nifty trick. By denying a sample to the generic and ensuring that they cannot get it elsewhere, the generic is not able to enter the market.

For an example of this strategy, look no further than “Pharma Bro” Martin Shkreli. Shkreli is notorious for securities fraud allegations; spending $2 million on a Wu-Tang Clan album so he could “keep it from the people”; repeatedly refusing to testify during congressional testimony; and increasing the price of Daraprim, a drug treating the fatal brain infection toxoplasmosis, 5000 percent, from $13.50 to $750 per pill.

While this price increase garnered significant attention, Shkreli’s company, Turing Pharmaceuticals, initiated a less-noticed move, changing the distribution scheme for Daraprim from one in which the drug was widely available to one in which supplies could only be obtained from a single source, Walgreen’s Specialty Pharmacy.

If there were any doubt as to the reason for the change in the distribution system, it was dispelled by Turing itself. Jon Haas, the director of patient access, admitted that he “would block [a] purchase” if a generic firm tried to order the pill, and conceded that Turing “would like to do our best to avoid generic competition” and was “certainly not going to make it easier” for the generics.

This is not unique. The Food and Drug Administration has received more than 100 inquiries from generic firms unable to access samples of brand drugs. Sales of drugs for which samples are not available have totaled in the billions.

Brand firms have imposed similar hurdles in the setting of Risk Evaluation and Mitigation Strategies (“REMS”) programs, which the FDA imposes to ensure that a drug’s benefits outweigh its risks. Such a setting can serve as cover to block the generic from reaching the market, even where the generic has received government approval.

This behavior also could harm patients in the context of biologics, which are derived from living organisms and are more complex than traditional pharmaceutical drugs. The denial of samples here could have an even greater effect, as patients often pay hundreds of thousands of dollars per year for biologics.

On June 14, the Senate Judiciary Committee introduced the “Creating and Restoring Equal Access to Equivalent Samples Act of 2016” (“CREATES Act of 2016”). Co-sponsored by Senators Grassley, Klobuchar, Leahy, and Lee, the bipartisan bill would require brand companies to provide samples to companies that request them. And if they do not provide sufficient quantities on “commercially reasonable, market-based terms,” the product developer could, in addition to obtaining the sample, receive attorneys’ fees and other damages. In other words, the brand game of denying samples to block entry would be over.

Drug prices significantly affect public health. They could even mean the difference between life and death. Given the plague of high drug prices, the CREATES Act offers a simple, effective solution that should be enacted. There is no time to waste.

The Author

Michael Carrier

Michael Carrier is Distinguished Professor at Rutgers Law School, where he specializes in antitrust and IP law. He is co-author of the leading IP/antitrust treatise, IP and Antitrust Law: An Analysis of Antitrust Principles Applied to Intellectual Property Law, the author of Innovation for the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law, and the editor of Critical Concepts in Intellectual Property Law: Competition. He has written more than 100 book chapters and articles in leading law reviews, has been quoted more than 1200 times in the media, and has been cited in courts including the U.S. Supreme Court. Professor Carrier has testified before the FDA, FTC, National Academies, and Senate Judiciary Committee; is a past chair of the Executive Committee of the Antitrust and Economic Regulation section of the Association of American Law Schools (AALS); and served on the 2016 ABA Antitrust Section’s Presidential Transition Task Force.

You can view his scholarly works via his SSRN Author Page.

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Discuss this

There are currently 4 Comments comments.

  1. Anon2 June 24, 2016 8:59 am

    This raises a number of issues and sentiments which drug producers should consider carefully.

    Without going into detail, some options are:

    1. Get out of the business of producing and offering voluntarily for what amount people are willing to pay voluntarily, products which enhance health and save lives (which industry is heading towards complete State seizure anyway)

    2. Get out of the New Red America, find somewhere else where individual rights and free markets are strengthening rather than eroding, and produce drugs to sell from there… if other Statist countries permit its citizens to buy the drugs when they want to, they will… if America and the rest of the world decides to violate the freedoms of its own citizens .. health will not be the most life destructive force they should worry about.

  2. xtian June 24, 2016 10:57 am

    The author’s use of Daraprim is not a good example. There is no intellectual property rights that currently prevent a generic from filing an ANDA. If indeed there are restriction on trade in distributor contracts with pharmacies, then antitrust laws apply.

    If a brand is under REMS – what is at issue is that a REMS program is expensive to maintain, and the generics don’t want to set up a REMS program. Rather, the generics want to be able to use the branded REMs program, skirt any cost or liability, but still sell product. Drugs under a REMs program are in place because there is a substantial public safety risk of misuse of the drug. Another article on one of the other patent blogs mentions the REMs program with Revlimid (aka thalidomide, and we have first hand experience of the danger with thalidomide!). What the generic companies complain about is that they want samples of the branded drug, but don’t want to set up their own REMS systems to ensure public safety. I see no article that addresses or even mentions this aspect of the issue.

  3. Anon June 24, 2016 1:12 pm

    The REMS status is an artificial government imposed barrier.

    I have zero doubt that Branded drug companies will maximize the barrier, but make no mistake, it is not them that create that barrier in the first place.

    An academic’s article like this one does not really draw clarity to the issue and borders on the type of fear-mongering that does a disservice rather than a service.

    The answer is not this type of post-hoc legislation, but rather a review and revamp if necessary of the controlling REMS legislation.

    Generics are not necessarily the “saints” here and Branded companies are not necessarily the Devils, so articles that do not dive deep enough will have the tendency to be not helpful.

  4. Mr. V June 24, 2016 2:51 pm

    “One particularly egregious practice involves denying samples of a brand drug to a generic that requests it.” LOL

    Yea well this isn’t India where the brand-name manufacturers are subjected to “egregious” compulsory licensing by the Indian govt. I would hardly characterize denying a license to generics as “egregious.” Do they not know that the patents are listed in the orange book? God forbid they have to actually spend their own money to synthesize a bioequivalent without being liable for patent infringement (thanks to the safe harbor) so that they can later file an ANDA and free-ride off of 10-15 years and 3-4 billion dollars of research and development paid for by, you guessed it, the very same guys they’re trying to screw over. Ridiculous.

    And as Xtian pointed out, Shkreli is a bad example and an outlier but it’s not surprising that he would pop up in this article as he has recently become the “when in doubt” fallback argument and poster child for the anti-BigPharma lobby.

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