Drug Wars: A New Generation of Generic Pharmaceutical Delay
64 Pages Posted: 11 Sep 2015 Last revised: 20 Jun 2016
Date Written: 2016
Thirty years ago, Congress ushered in a new and miraculous era in medicine, with the creation of the Hatch-Waxman system for approval of generic drugs. The progress, however, has not been without resistance. Our paper presents an overview of three generations of games pharmaceutical companies play to keep generics off the market and maintain monopoly pricing. In “Generation 1.0,” branded companies simply paid generics to delay entering the market, reaping billions of dollars of benefit. “Generation 2.0” involves paying for delay through multiple side deals that camouflage the value of the payment. Generation 2.0 also includes what we call “boy scout clauses” — agreements to behave honorably that actually mask anticompetitive collusion. The newest generation, however, moves from collusion to obstruction. Generation 3.0 uses administrative processes, regulatory schemes, and drug modifications to prevent generics from getting to market. Some of these schemes have now made the news as debates rage over pharmaceutical pricing. Society, however, cannot necessarily blame companies for engaging in behavior that is strongly in their economic self-interest. One cannot expect mice to run in the appropriate direction if the cheese is located at the other end. Thus, our goal in this paper is two-fold: first, to shine light on the complex behaviors as they are unfolding and second, to explore the contours of how new approaches could be structured. To paraphrase one former FDA commissioner, we do not want the most creative activity at pharmaceutical companies to take place in the legal department. And after 30 years of experience with Hatch-Waxman, it is time for the next phase.
Keywords: generic pharmaceuticals, pay-for-delay, antitrust, reverse payment, generic delay
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