CALPIRG Blog

The Federal Trade Commission has just released its annual report on anti-competitive, anti-consumer agreements struck between the makers of brand-name and generic pharmaceuticals. The agreements all hinge on when a generic version of a brand-name drug can appear -- at first, brand-name drugs are protected by patents, making a lot of money for their corporate makers, but the money stream dries up when the patent expires and other companies are allowed to make far cheaper, generic versions of the drugs.

That's how it's supposed to work, at least. But what the big drug companies have figured out is that they can buy off the generic manufacturers to squeeze out a few more years of exclusive profits. They start by suing the generic drug-maker alleging that they're infringing the brand-name patent. They're unlikely to win these lawsuits, but the amount of money needed to defend against them is enough to bring the generic companies to the bargaining table -- talk about frivolous litigation!

And then the companies hash out an agreement -- typically, the brand-name manufacturer pays the generic company, which in return promises to delay bringing out a generic competitor to the brand-name drug whose patent is expiring. The generics companies get paid money to do nothing -- it's like the worst kind of farm subsidies, except for drug manufacturers.

If this was just a matter of big corporations dividing money between themselves, that would be one thing. But of course it's the consumer who ultimately winds up suffering -- especially seniors, and underinsured working Californians. By keeping generics off the market, these agreements force Californians to pay inflated brand-name prices when by all rights safe, affordable generic versions should be available. It's these excess profits -- brand-names can cost ten times as much as the corresponding generic -- that the companies divvy up.

According to the FTC, there were 14 such agreements last year, each one representing millions of dollars in windfall profits extracted from consumers. Patents are meant to reward innovation, but the idea behind these settlements is a very old one: buying off your competition to create a de facto monopoly.

There's no question these deals hurt consumers. There's federal legislation pending that would end the practice, but Pharma has so far kept it at bay -- to the detriment of consumers throughout the country.