FTC Report Shows Consumers Pay Too Much for Generic Drugs

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We previously blogged about the high prices consumers pay for their medications and explained how the cost can drop significantly once a generic version is available.  The FTC’s August 31, 2011 final report on authorized generics, entitled “Authorized Generic Drugs—Short-Term Effects and Long-Term Impact”,  sheds new light on the high cost of drugs.  The FTC’s study of generic drugs was spurred by the requests  of Senators Grassley, Leahy, and Rockefeller, and Representative Waxman in 2005.

The FTC report has four main findings:

  1. Competition from authorized generics (generic prescription drugs produced by the brand pharmaceutical company and marketed under a private label) during the 180-day marketing exclusivity period has led to lower retail and wholesale drug prices.
  2. Authorized generics have a substantial negative effect on the revenues of competing generic firms.   
  3. While authorized generics have a substantial effect on the competing generic companies’ revenues (as much as 52% during the 180 day exclusivity period),  that hasn’t dissuaded  the generic firms enough to significantly reduce the number of challenges they have made to  branded drug patents.  
  4. There is strong evidence that branded firms use non-compete agreements with generic firms (where the branded firm agrees that it won’t launch an authorized generic in exchange for a commitment from the first-filed generic to defer entry into the market) as a means of compensating generic firms for delaying the introduction of their generic drugs.

In other words, the branded firm “buys” time to continue selling  its drug until the non-compete expires. During that time, consumers continue to pay the high cost for the branded drugs rather than the lower cost of generics.

After the report was released FTC chairman, Jon Leibowitz, said in an interview that it’s a “Win-win for the companies, but lose-lose for consumers.”  Mr. Leibowitz explained that “Instead of saying, ‘Here’s $200 million, go away,’ they’re saying they could penalize them $200 million, but they won’t so go away.” 

Abbey Spanier, LLP is located in New York City, is a well recognized national class action and complex litigation law firm.