Monday, September 04, 2006

Financial Times Editorial - Colluding drugmakers

Financial Times Editorial - Colluding drugmakers
Copyright The Financial Times Limited 2006
Published: September 4 2006 03:00 | Last updated: September 4 2006 03:00

America's system for regulating competition between branded and generic drugmakers is not working - and the result is higher drug prices. Increasingly, big pharma is finding ways to protect its monopoly profits by paying generic manufacturers to stay out of the market, at the expense of American consumers. The Federal Trade Commission is struggling hard to fight this practice but has had only limited success in the courts.

One such deal - involving Plavix, the world's second largest selling drug - has recently focused public attention on such arrangements. The circumstances surrounding the Plavix deal - struck between the branded makers Bristol-Myers and Sanofi, and Canadian generic manufacturer Apotex - are unusual, and are the subject of a criminal investigation. But the problem is much larger than that. The FTC says such carve-up-the-market deals are a big factor in driving up American drug prices: it estimated recently that 11 top-selling drugs, with annual sales of $25bn (£16.8bn), could be involved.

The FTC has become increasingly sceptical about such settlements, in which branded drug companies pay generic rivals to drop lawsuits challenging their patents - potentially leaving the branded manufacturer in sole control of the market for years, even if his patent is bad. The incentives to cut such deals are enormous: big pharma, which often charges several multiples of generic prices, can easily afford to pay off competitors; and generics often make more from settling such lawsuits than from selling their own product. These deals are win-win for drugmakers; only the consumer loses out.

Since most drug patents that are challenged in court are eventually thrown out, settling such suits out of court may well stifle competition: branded manufacturers should not be allowed to protect weak patents by sharing monopoly profits with should-be competitors.

To make matters worse, the FTC is feuding with the Department of Justice - its rival federal antitrust regulator - over how to handle such settlements. The FTC assumes most such deals are dodgy, but the justice department says not all settlements are bad, just ones that involve a bad patent. It argues that such deals can sometimes stimulate competition: forcing branded companies to litigate rather than settle all such lawsuits is not in the public interest either, it says.

The Supreme Court has a chance to step in to quiet the warring regulators - and decide under what conditions branded companies should be allowed to pay rivals to settle patent lawsuits. The justices dodged the issue earlier this year, but by November they will face another appeal that could settle this question. They should not avoid it: drug manufacturers need to know whether it is safe to strike such deals - and consumers need to know whether it is good for them if they do.


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