Generic Drugs, an Endangered Commons

The point of patents for drugs is to give pharmaceutical companies a chance to recover their significant research costs, and turn a profit, before a drug enters the equivalent of the public domain. At that point, under a 1984 law that authorizes generic drug-making, any company who satisfies basic safety standards can also manufacture and sell the drug — usually at significant savings to consumers.

The bad news is that proprietary drug makers are using all sorts of subterfuges to extend the life of their patents in order to prevent their high-cost drugs from entering the generic marketplace. It is a rank ripoff of consumers that reneges on the patent-monopoly deal that the public makes with drug makers in the first place: the patent term is limited, after which it belongs to any safety-certified competitor.

There are many ways that big drug companies use to thwart generic competition. They make some modest alterations to an existing drug in order to obtain a new patent. They try to require that generic manufacturers submit generic drugs to new rounds of clinical testing, ostensibly because of the safety risks to consumers. (Funny thing, Big Pharma isn’t in favor of stricter testing for first-time approval of new drugs.) Proprietary drug makers also make sure that the brand-name drug has an easy-to-remember name, while the generic is invariably a tongue-twister that only a linguist can pronounce.

Generic drug makers, for their part, are no longer as scrappy and competitive. The industry is consolidating, which means that competition in the generic marketplace is decreasing. Generic companies are also mimicking their proprietary adversaries in lobbying for legal privileges that are hugely profitable. For example, the first maker of a drug that has “gone off patent” has a six-month right to be the exclusive generic marketer. During this time, the price remains close to the brand-name price, so that the consumer savings are minimal but the profits are huge. Generic price savings generally don’t kick in until that six-month period of exclusivity expires.

The latest example of the enclosure of the generic commons involves Lipitor, a cholesterol drug made by Pfizer. It made quite the splash in the news a few days ago. Pfizer announced that it had struck a deal with the Indian generic drug maker Ranbaxy Laboratories Ltd. to delay the sale of a generic version of Lipitor by 20 months. Since Pfizer is making about $13 billion a year from Lipitor, this privately negotiated delay is a boon for the company — and a unmitigated ripoff of consumers.

It’s against the law for a proprietary drug company to make payoffs to stifle generic competition, of course, but that’s what lawyers are for: to meet the strict letter of the law while avoiding its intent. The prohibited practice is called “reverse payoffs.” A Pfizer antitrust lawyer primly called the deal with Ranbaxy “simply a compromise on the time of the patent.”

The Federal Trade Commission has said it will “take a very close look at this deal,” but nudge, nudge, wink, wink, we already know the likely result. In this second Gilded Age, don’t expect our government, and especially this administration, to protect consumers from corporate predators. The fix is in.

The whole generic drug marketplace illustrates how government-managed commons are vulnerable to the stealth corruption of corporate influence. There’s the political contributions and lobbying of Congress. There’s the arcane language of the law that only insiders can decipher, let alone take action against. There’s the murky regulatory review process by antitrust officials, who are themselves creatures of politics. And there are the generic manufacturers, who are adept at gaming the system to maximize their returns, as well.

At the retail level, this is what proprietary meddling with the generic drug market means: Lipitor now costs from $2.50 to $3 a day, while the generic equivalent could cost one-tenth of that sum. Another anti-cholesterol drug, simvastaitin — a generic version of Zocor — went off patent in 2006. It now costs 75 cents to $1 a day. At some discount pharmacies, it sells for as little as 10 cents a day.

Now that Pfizer has struck a deal with the leading would-be generic maker of Lipitor, other generic makers will likely fall into line and wait their turn to compete. That should come six months after Ranbaxy starts selling a generic version of Lipitor in November 2011 — 26 months after the drug will have gone off-patent.

In the meantime, just pray that you don’t have high cholesterol and need to take the Pfizer drug. You’ll be coerced into paying a kind of privately imposed tax to Pfizer, a small portion of which Pfizer will then use to buy a round of gauzy, feelgood advertisements extolling its deep concern for human health and well-being. It’s time for our legislators to bolster the generic drug commons so it can deliver the benefits it was intended to provide.