Generics And Antitrust: Will Andrew Sullivan finally get a break on the price of his AndroGel?


One of the big changes in my lifetime has been the slow undermining of antitrust law due to the triumph of econ majors. Back in the lefty/populist 70s when I was in college, the conventional wisdom was that the only thing keeping big corporations from conspiring to raise prices were the anti-trust laws (for the benefit of non-American readers who are baffled by the historical relic word “trust:” anti-monopoly/cartel and anti-price-fixing laws).

As I majored in economics at Rice U., however, I learned that the need for anti-trust laws all just a big myth, and the magic of the market would take care of all but the most egregious cases. A true believer, I quickly came to scoff at at lawsuits cases such as the “Notorious Utah Pie Case” in which the courts upheld antitrust laws despite obviously being Bad for the Economy.

Then I got into business myself, and discovered that competition wasn`t perfect like in the Econ textbooks. From the point of view of corporate employees, competition was awful, and that anybody with a brain in his head would negotiate a price-fixing deal or set up a cartel or monopoly with his competitors if the government didn`t ban it. 

But, as experience was teaching me the opposite of what I`d learned in college, enlightened opinion (driven heavily by people who got a good grade in Econ 101) was moving toward what I had believed so whole-heartedly in 1978.

Thus, in recent years, huge pharmaceutical firms have been fairly openly bribing their would be generic rivals to stay out of the market, and the courts have been upholding this. Now, a Supreme Court case will decide this:

From the NYT:

The case, Federal Trade Commission v. Actavis, No. 12-416, centers on whether the maker of a brand-name drug can pay a generic-drug company to keep the generic version off the market. Based on antitrust law, the obvious answer would seem to be no, the view voiced by the government and most recently upheld by a federal appeals court. 

At least three other federal appeals courts have previously said those payments are legal, however, when made under the settlement of a patent infringement lawsuit. Those courts sided with drug company arguments that the payments are what Congress intended in setting up guidelines to encourage the production of generic drugs. 

The question before the justices pits a company’s constitutional right to protect its intellectual property — through reliance on a patent that excludes competitors — against antitrust law, which holds that a company cannot unfairly exclude others from legitimately entering a business with a rival product. 

When the court rules later this year, its answer could have a sweeping effect on one of the largest segments of the nation’s economy and an industry that touches the wallets of nearly every American. 

“Everybody wants to believe that the big drug companies are bad, that they’re giving us these piles of money to stay off the market,” said Paul M. Bisaro, chief executive of Actavis, whose generic version of AndroGel, a testosterone replacement therapy, is the subject of the case. “But these payments have saved consumers billions and billions of dollars.” 

The agency says in its court briefs that the opposite is true: the payment “allows the brand-name manufacturer to co-opt its rival by sharing the monopoly profits that result from an artificially prolonged period of market exclusivity.” 

The stakes in the dispute are huge. Pharmaceutical sales in the United States totaled roughly $320 billion in 2011, according to IMS Health, a research company whose statistics the agency cites in its arguments. 

Brand-name drugs accounted for only 18 percent of the total prescriptions written by doctors in 2011 but 73 percent of consumer spending, IMS reported. When a generic version of a brand-name drug comes onto the market, the F.T.C. said, it costs about 15 percent of the original, causing the brand-name drug maker to quickly lose about 90 percent of its market share.