Brand name drugs are protected by patents, which are government-granted monopolies. Federal enforcement of such patents prohibits anyone else from making or producing the patented product or process during the period the patent is in force.
The U.S. Constitution specifically provides for patents, to encourage innovation. Abraham Lincoln thought the Constitution’s Patent Clause was one of the most brilliant innovations in human history, responsible for widespread American prosperity.
But precisely because patents are anti-competitive government monopolies, they are limited in time to a period currently of 20 years. After the patent expires, competitors are free to produce the exact same drug, which can be marketed and sold to the public as a “generic.” Because generics are produced in competitive markets rather than under government monopolies, they cost a lot less, providing substantial savings for consumers.
This is why the big pharmaceutical companies so desperately try different tricks to extend the effective life of their patent monopolies. In one especially egregious example, the drug company Allergen tried to extend its patent for the eye-drop medication Restasis by transferring the patent to the St. Regis Mohawk tribe, which as an Indian tribe has a special sovereign status under U.S. law, making it difficult to even sue.
Another trick is to cut off generic manufacturers from access to the original patented drug. For generics to be approved for marketing and sale even after a patent expires, the generic manufacturer must show its drug is equivalent to the brand name drug. To do that, generic manufacturers need access to the brand name drug to determine its exact chemical formula.
Big drug manufacturers cut off the generics by establishing a restricted distribution system for their most sensitive and potentially profitable drugs. This is what Turing Pharmaceuticals did for its drug Daraprim (which counters parasites in the body), requiring orders for the drug to be specifically approved by the company.
The Turing Company official responsible for such approvals was quoted as saying, “If the request was from a generic maker, most likely I would block that purchase.” After successfully blocking generic alternatives to Daraprim through this practice, Turing increased Daraprim’s price 5000 percent in 2015, from $13.50 a pill to $750. Industry estimates suggest anti-competitive practices such as this delayed the approval of 40 generics, costing consumers $5.4 billion annually.
Another big drug manufacturer trick applies when regulations require the drug to be sold under a distribution safety protocol (Risk Evaluation Mitigation Strategy, REMS, with Elements to Assure Safe Use, ETASU). The manufacturer simply refuses to allow potential generic competitors to participate in the safety protocol, which cripples their ability to gain FDA approval.
As Rutgers Law Professor Michael Carrier recently explained in The Wall Street Journal, “Whatever the industry’s excuses, shenanigans like these cannot be justified as aiding innovation. Instead, they are anticompetitive abuses that lead to higher prices for millions of patients in need of vital drugs. What can Congress do?” he asks.
What Congress can do is pass the bipartisan CREATES Act, with cosponsors ranging from Sens. Patrick Leahy, D-Vt., Dianne Feinstein, D-Calif., and Amy Klobuchar, D-Minn., on the Left to Sens. Ted Cruz, R-Texas, Mike Lee, R-Utah, Rand Paul, R-Ky., and Chuck Grassley, R-Iowa, on the right. The act grants generic manufacturers the right to sue big drug manufacturers for such anti-competitive practices as described above, and if necessary to get a court injunction barring the practices.
The Congressional Budget Office scores the bill as saving billions in federal spending, with even more for consumers and their health insurers. The Act is endorsed by the AFL-CIO, AARP, Consumers Union, American College of Physicians, American Hospital Association, and Blue Cross Blue Shield, among many others.
Critics say that the bill would encourage even more litigation, when our economy is plagued by too many lawsuits already. But conservatives see a private right to sue as preferable to still more bureaucratic regulation. The right for generic manufacturers to sue and obtain injunctive relief are the essential teeth of the bill. What is being proposed is a targeted response to a real problem that allows for disputes to be settled in the marketplace and the courts, not by government fiat.
In this time of extreme partisanship in Washington, this is a change all Americans can support.
Peter Ferrara formerly served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush. He is currently a Senior Fellow at the Heartland Institute and a Senior Policy Advisor to the National Tax Limitation Foundation.
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