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Price-Fixing Case Reveals Vulnerability of Generic Drug Policies

By ANDREW MULCAHY

A massive lawsuit filed in May by 44 states accuses 20 major drug makers of colluding for years to inflate prices on more than 100 generic drugs, including those to treat H.I.V., cancer and depression. If true, the alleged behavior is not just a violation of antitrust law, but also a betrayal of the government policies that created and defended the entire generic drug industry. 

Most prescriptions in the U.S. today — 9 in 10 — are filled with generics, which are just as safe and effective as their brand-name equivalent. And yet generics account for only 22 percent of U.S. prescription drug spending. These prices are so low because of competition between makers of different versions of the same generic drug. The more competing generic alternatives, the lower the price, theoretically right down to the marginal cost of manufacturing the pill. 

This success is the result of decades of careful federal and state policymaking, all geared towards introducing competition in prescription drug markets. The entire generic industry has its origins in the Hatch-Waxman Act of 1984. Prior to Hatch-Waxman, a company that wanted to sell a competing version of a drug whose patents had expired had to conduct lengthy and expensive clinical trials to get approval from the U.S. Food and Drug Administration. Hatch-Waxman established a quicker, less-expensive path to FDA approval that leans on the scientific research supporting the already approved brand-name drugs.  

Hatch-Waxman also created incentives for generic drug makers to challenge drug patents that prevent competition. Successful challengers win a 180-day period of exclusivity during which their generic is the only one allowed to compete with the brand-name drug. The floodgates open and additional competition pushes prices down further after the 180-day period.  

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What Really Needs to be Done About the Critical Shortage of Cancer Drugs

Hospitals nationwide are experiencing shortages of critical generic intravenous drugs. We believe a fundamental reason for this national shortage is government price controls. With these limits there is little incentive to invest in new facilities and technologies, leading to equipment failures. Manufacturers have little economic incentive to prepare proactively for the quality assurance issues that routinely arise in the manufacturing of a sterile injectable compound. To reincentivize this process, the market needs to be free. spurring more manufacturers to produce these drugs, encourage reinvestment in facilities and the stockpiling of reserves.

The drugs in shortest supply include those used in critical care units such as norepinephrine for shock, antibiotics for infections, and cancer chemotherapy. Almost all are generics and manufactured by a just few companies. Among the oncology drugs in short supply are cytarabine and leukovorin. Cytarabine is the best single drug for acute myeloid leukemia. Leukovorin is used in childhood acute lymphoblastic leukemia.

These are older “off patent” drugs. As generics, they are far less expensive that newer drugs. They have stood the test of time, are still used extensively and are necessary for optimal patient care. Individual patients need exactly the right drugs on precisely the right schedule – no substitutes; now, not later. As pointed out in Congressional testimony and a Wall Street Journal editorial, these shortages are having a major negative impact for ongoing clinical trials designed to improve cancer treatment results. Another critically needed cancer drug is Doxil, a drug used for the treatment of many cancers. It is sold by Johnson and Johnson (J&J) and until recently it had been manufactured on contract for J&J by Ben Venue Laboratories. Unfortunately, Ben Venue is exiting the contract drug business. Thus, Doxil is not currently available. Prior to 2003, Medicare paid for cancer chemotherapy injectables based on the average wholesale price. But with no transparency, some distributors or physicians could reap huge profits. To combat this and with the best of intentions, a new system was developed as part of the Medicare Modernization Act of 2003, based instead on the average selling price updated quarterly.

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