Brand-name prescription drug prices in the U.S. have increased nearly 100 percent in the past six years. A major reason for the climbing costs is a lack of generic competition. Without competition from lower-cost, generic drugs, branded drug companies set their own prices and increase those prices as often and as much as they wish. The U.S. Food and Drug Administration cannot control the cost of drugs, but it has the power to approve generic versions of drugs, giving Americans cheaper options. Unfortunately, drug companies are abusing government processes to block generic competition and keep drug prices rising.

As David Mitchell stared at his full-body X-ray, he knew he could never look at such images again.

David Mitchell
David Mitchell, founder and president of Patients for Affordable Drugs

“It was too ugly,” Mitchell recalled. “I have holes in my bones — in my skull, in my pelvis, in my arms.”

Doctors diagnosed Mitchell with an incurable blood cancer called multiple myeloma in November 2010. Although there is no cure for multiple myeloma, the disease is treatable with very expensive drugs.

“Right now, I’m on a two-drug combination,” Mitchell said. “I get it in a five-hour infusion dose, and every time they give it to me, the retail price is $20,000. I will have this two-drug combination 22 times over the course of a year, which means that $440,000 worth of drugs — literally — is keeping me alive.”

But, drugs don’t work if people can’t afford them, said Mitchell, whose medication is currently covered by insurance.

“This experience of having multiple myeloma has brought me face-to-face with the challenges people confront trying to deal with high drug prices,” he said.

Mitchell and his wife, who is also a cancer survivor, launched Patients for Affordable Drugs on February 22, 2017. The national patient organization focuses on amplifying the voices of patients and mobilizing patients to support policy changes that will lower drug prices. In just six months, Mitchell and his team collected about 8,000 patient stories.


“These are stories that come from every region of the country — people with all sorts of different diseases. We hear this over and over again — people who are choosing between food and drugs, people who are choosing between paying rent and drugs.”

- David Mitchell, who has testified before the FDA and Congress regarding drug pricing


Across the nation, people who require daily medication are cutting their pills in half or skipping doses because they can’t afford to take the full dose, Mitchell said. People with Type 1 diabetes are trying to manage their disease with diet and exercise and waiting until their blood sugar spikes dangerously before giving themselves insulin. People with rheumatoid arthritis are in terrible pain and can’t take the full dose necessary to manage their pain because the drugs are too expensive.

“We had one woman who wrote a story and said, ‘I really have to consider whether I should just give up the fight and stop taking the drugs because if I keep taking the drugs, I’ll bankrupt my family,’” Mitchell said. “The stories are excruciating, and people are angry and upset, and they don’t understand how this could be happening to them in the United States of America.”

David Mitchell receiving IV treatment
David Mitchell receives an infusion as part of treatment for multiple myeloma, an incurable blood cancer

U.S. Drug Prices by the Numbers

More and more Americans are finding the cost of drugs to be unreasonable while less and less are saying prescription drugs have improved their lives, according to a 2016 Kaiser Health Tracking Poll. The poll also found:


In 2015, 62 percent of Americans said prescription drugs have made their lives better — down from 73 percent in 2008.


An estimated 77 percent of Americans in 2016 said drug prices were too high compared to 72 percent in 2015.


And a large majority (78 percent) of Americans say there should be a limit on the amount drug companies can charge for high-cost drugs for illnesses like hepatitis or cancer.

(As of May 2017, a 30-day supply of Gilead Sciences hepatitis C drug Harvoni cost $87,800, an increase of $13,800 from 2016.)


Overall, brand-name drug prices in the U.S. have increased 98.2 percent since 2011, with the average price of prescriptions climbing 16.2 percent in 2015 alone, according to Express Scripts.

And patients with commercial health insurance are paying 25 percent more in out of-pocket expenses for branded prescriptions than they did in 2010, according to IMS Institute for Healthcare Informatics.

What’s worse: prescription drug prices are increasing dramatically even though the drugs’ ingredients often times stay the same. Although the FDA is charged with ensuring drugs are safe and effective, the federal agency has no legal authority to regulate drug prices.


“Physicians strive to provide the best possible care to their patients but increases in drug prices – without explanation — can affect their ability to offer patients the best possible drug treatments.”

- American Medical Association President Dr. Andrew W. Gurman in a 2016 press release


Competition Is Key

A number of factors affect drug pricing in the U.S. A major contributor is generic competition.

“Over the last decade alone, competition from safe and effective generic drugs has saved the healthcare system about $1.67 trillion,” FDA commissioner Scott Gottlieb said in a June 2017 statement. “When generics are dispensed at the pharmacy, the immediate savings to each of us are clear.”

FDA generic competition and drug prices chart

In the U.S., when a new drug (brand-name drug) comes to market a company gets exclusivity for a period of time so that it can make money and be repaid for the investment it made in research and innovation. But, at the end of that exclusivity period, branded drug companies are supposed to allow generics — or copycat drugs that are deemed as safe and as effective — to come to market so that competition drives the price down.

“Data indicate that consumers see significant price reduction when there are multiple FDA-approved generics available,” FDA spokeswoman Sandy Walsh said in an email to Drugwatch.

In fact, generic prices can be as much as 90 percent less than brand-name prices, according to the Federal Trade Commission (FTC).

“The first generic competitor’s product is typically offered at a 20 percent to 30 percent discount to the branded product,” FTC spokeswoman Betsy Lordan said in an email to Drugwatch. “Subsequent generic entry creates greater price competition, with discounts of 85 percent or more off the price of the branded drug.”

Drug Companies ‘Game’ the System

The generic drug approval process is governed by the Hatch-Waxman Act. Congress enacted the act in 1984 to make sure consumers would have access to lower-cost generic drugs while still preserving incentives (patent protection and market exclusivity) for companies to make new drugs.

Since the act’s inception, however, some branded companies have used different strategies — including conduct that violates the antitrust laws — to delay generic competition and effectively extend their marketing exclusivity.


“Although widespread introduction of generic drugs has saved Americans hundreds of billions of dollars in drug costs, some companies have exploited the ability to delay generic entry through abuse of government processes.”

- Betsy Lordan, FTC spokeswoman


As of May 2017, the FDA identified some 150 drugs that could have generic competition but do not, which means patients are paying more for the drugs.

“We know that sometimes our regulatory rules might be ‘gamed’ in ways that may delay generic drug approvals beyond the time frame the law intended, in order to reduce competition,” Walsh said. “We know that high drug prices have a direct impact on patients — too many Americans are priced out of the medicines they need.”

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Pay-for-Delay

One way branded drug companies delay generic competition that lowers prices is through “pay-for-delay” agreements. Pay-for-delay agreements — also known as “exclusion payment” or “reverse payment” agreements — are settlements in patent litigation between brand-name and generic pharmaceutical companies.

As part of a settlement, the branded drug company will agree to pay a generic competitor to drop a patent challenge and hold its competing, lower-cost product off the market for a certain period of time.

Pay-for-delay agreements are great for the drug companies because brand-name prices stay high and the branded and generic companies share the benefits of the brand’s monopoly profits, according to the FTC. Consumers, on the other hand, lose out on generic prices.

These agreements are estimated to cost American consumers $3.5 billion per year and delay generic entry for an additional 17 months, according to the most recent estimates from the FTC.

A 2010 FTC staff study found pay-for-delay agreements protected at least $20 billion in sales of brand-name pharmaceuticals from generic competition.

“Pay-for-delay agreements continue to deprive consumers of the ability to choose lower-cost medications and impose considerable costs on consumers,” Lordan said.

For example, a consumer paying $400 per month for a branded drug (as opposed to a generic price as low as $40 per month) is forced to pay as much as $360 more per month for prescription drugs. With the extra 17-month delay, the consumer ends up paying $6,120 in additional expenses.

From Zero to 66 in Five Years

In 2013, the Supreme Court explained in FTC v. Actavis that pay-for-delay agreements can violate the antitrust laws. Still, Congress has yet to definitively declare the practice illegal.

“This is one area that Congress can act to ensure that we have the competition that Congress intended,” Mitchell said. “It needs to be clarified and absolutely explicitly illegal.”

Number of Pay-for-Delay Agreements

The number of pay-for-delay agreements identified by the FTC went from zero in 2004 to 19 in 2009 alone. In just five years, the agency saw 66 pay-for-delay agreements.

In the six years prior to 2005, FTC enforcement actions against pay-for-delay deterred their use, and an appellate court in 2003 held that pay-for-delay agreements were automatically illegal.

However, since 2005, some appellate courts have misapplied the antitrust laws to uphold these agreements, and pay-for-delay agreements have reemerged.

“Pay-for-delay deals are a bad prescription for America; when drug companies agree not to compete, consumers lose,” former FTC chairman Jon Leibowitz said in a January 2010 statement. “Ending this practice as part of healthcare reform is one simple, effective, and straightforward way for Congress to help control costs.”

Agreements with Delay and Compensation Agreements with Delay and Compensation Chart

Patent Extensions

A branded company will secure a patent to prevent others from making, using or selling its new drug in the U.S. The U.S. Patent and Trademark Office grants patents for a specific time period in exchange for public disclosure of the drug when the patent is granted.

The term of a new patent is typically 20 years from the date on which the application for the patent was filed in the U.S. This means, a drug company that holds a patent can have 20 years to set the price as high as it wishes.

But, once a patent expires, other manufactures can make generics, which severely decreases the cost of the branded drug. So, when a patent is close to expiring, a pharmaceutical company may look for loopholes in the law to extend the patent and protect its pricing power.

“The drug companies make a teeny change to a drug that’s about to go off patent like they put a scoring line down the pill and say, ‘Oh, it’s a new drug,’ and then they go for another patent extension when it’s not new, or they change the dosing,” Mitchell said. “So, there are all sorts of tricks that they use to keep exclusivity and prevent competition.”

New Formulations

One way drug companies extend patent protection is by obtaining additional patents covering new formulations of their successful brand-name drugs.

“Say the drug was built to be given twice a day, they make a new one that’s the same drug, but it’s given once a day, and they pull the twice-a-day drug off the market and raise the price,” Mitchell said.

The FDA approval route is shorter so long as the new formulations are sufficiently similar to the original approved drug. Invokamet XR, Depakote ER and Effexor XR are a few examples of new formulations of branded drugs.

Depakote HC
Depakote NS
Effexor 150mg
Effexor 37.5mg
Depakote ER and Effexor XR are examples of new formulations of branded drugs
New Uses

Another means for blocking generic competition is to obtain patent protection for new uses.

Eli Lilly, for example, filed four patents for its blockbuster antidepressant Prozac between 1974 and 1986. Then, just six months before Eli Lilly was to lose patent protection on Prozac, the company gained a new patent by remarketing the drug as Sarafem, a pink pill used to treat premenstrual dysphoric disorder. The move has repeatedly been criticized as a patent-extending maneuver.

Viagra is another example of a branded drug renamed. Pfizer originally filed a patent for the substance sildenafil to be sold under the name Revatio to treat cardiovascular disease. It later filed a new patent for the same substance — this time calling it Viagra — to treat erectile dysfunction.

Exclusivity

When the FDA approves a new drug, it grants exclusive marketing rights to the drug’s maker for a period of time. This is called exclusivity.

During a period of exclusivity, drug companies cannot ask the FDA to approve generic versions of a brand-name drug. The branded company, therefore, has complete power to charge whatever it wants for its brand-name drug until the exclusivity ends and generic versions hit the market. The goal of exclusivity is to encourage companies to develop new drugs without the fear of losing money.

Fact

The length of time that the FDA grants new drug exclusivity can be three years, five years, seven years or as many as 12 years, depending on the type of exclusivity.

In other words, exclusivity allows a drug company to make its money back for the investment it made and the risk it took to develop a new drug. Debate surrounding exclusivity centers on how long exclusivity should last.

Some people have suggested that exclusivity should run until the drug company has made a sufficient return on its investment, and then exclusivity should go away. In other words, critics of current exclusivity rules say the FDA shouldn’t peg it to a period of time but instead a dollar amount.

“If the goal is to make sure that the innovative drug company can recoup its investment and make a healthy profit, then let’s have the exclusivity period run until that point because the goal is to incent research and development with a good return,” Mitchell said. “So let’s say the drug company prices it so they make their money back and a really nice profit in three years, then that’s long enough.”

Debate Over Drug Companies’ Spending

Pegging exclusivity to a return on investment may not be so simple. Many drug companies rely on a Tufts University study that says it takes $2.7 billion to take a new drug to market. However, critics question the study’s legitimacy and accuse drug companies of exaggerating the cost involved in bringing a new drug to market.

“That study is bogus. It’s paid for by Pharma, and the Tufts researchers who produced it will not disclose their source data, so this number $2.7 billion is thrown around all the time, and it's bogus,” Mitchell said. “It’s like taking research from tobacco companies that tell you cigarettes don’t cause cancer. The study is bought and paid for by the drug companies.”

A new study published in JAMA Internal Medicine found the cost of developing cancer drugs — the most expensive of new drugs — is far less than the $2.7 billion per drug estimate. Researchers looked at 10 cancer medications and found the median cost to be $757 million per drug — $1.9 billion less than the Tufts study figure.

Most recently, the FDA approved a new leukemia drug with a retail price of $475,000 per treatment. The drug, manufactured by Novartis, is likely to be just the first of several gene therapy cancer treatments to be sold at unbelievably high prices.

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In addition to accusing drug companies of over estimating the cost, critics say more than 50 percent of the major prescription drug breakthroughs come from research that was financed by the federal government through organizations such as the National Institutes of Health and the National Cancer Institute. Some people say it’s as high as 75 percent of the major breakthroughs.

“The basic science and the initial risk were funded by taxpayers,” Mitchell said. “So, I do not believe that drug companies are spending as much as they say — or that it costs as much as they say — that it would warrant the exclusivity period that they want.”

Restricted Distribution Systems

Sometimes, a particular prescription drug is sold only at select pharmacies because it carries especially dangerous risks. Known as a restricted distribution system, this is part of safety protocols that ensure the drug is distributed in a safe way. However, some branded companies are setting up restricted distribution systems as a way of making sure that they keep control of a drug and prevent generic drug companies from getting the drug and making cheaper versions.


“They’re setting them up voluntarily — not because there’s a safety issue — making it worse on patients and using it really only to protect their profits.”

- David Mitchell


The FDA is authorized to require Risk Evaluation and Mitigation Strategies, or REMS, which is the program that limits distribution of certain drugs in order to protect the public. However, a manufacturer can voluntarily restrict access to a particular drug, even if the FDA does not require REMS for that pharmaceutical.

REMS Inquiries

The FDA says it has received about 100 letters of inquiry on the misuse of REMS.

“FDA has been made aware that, in some of those cases, branded sponsors may use these limited distribution arrangements, whether or not they are REMS-related, as a basis for blocking generic firms from accessing the testing samples they need,” Walsh said.

Branded manufacturers have used restricted distribution programs to delay generic entry in two ways.

Testing Samples

Fact

Generic drug companies need as many as 3,000 doses of a branded drug for comparative testing

The FDA requires generic companies to test their drugs to show that the generic versions do the same thing in the body as the branded drugs they’re copying.

In order to perform the required testing, a generic company typically needs 1,500 to 3,000 doses of the branded drug.

But, branded companies are using restrictions they place in their commercial contracts or their agreements with distributors to make it hard for pharmacies to sell the drugs to generic drug developers, Walsh said.

“I understand that generic sponsors are willing to buy these products at fair market value; but, in some cases, branded companies may be using regulatory strategies or commercial techniques to deliberately try to block a generic company from getting access to testing samples,” Walsh said.

Shared Safety Systems

The FDA prefers that a generic drug uses the same safety system (REMS) as the branded drug it’s copying. However, branded companies may try to prevent the generic from doing so as a way to block competition.

“They might prolong negotiations with the generic firms over the implementation of these single shared systems, which could delay the entry of safe and effective generic drugs onto the market,” Walsh said.

This manipulation by branded drug companies has lost Americans $5.4 billion annually due to higher prices for prescription drugs, according to a study cited in FTC testimony.

“I took a drug that uses a REMS. I took it for five and half years, and during that time, the price of the drug went up dramatically,” Mitchell said. “At the same time, the maker of the drug was refusing to supply samples to generic drug manufacturers who wanted to come up with a cheaper generic, saying it’s too dangerous and they couldn’t give them samples, but that’s just a ploy to avoid allowing a cheaper generic to come to market.”

What’s Being Done?

Organizations such as the American Academy of Family Physicians are calling on the FDA and Congress to "establish mechanisms to prioritize and fast-track competitive drug options for widely used life-saving or life-sustaining drugs that may be subject to monopoly power."

“Clearly, family physicians are concerned about this complex patient care issue,” AAFP president Dr. Michael Munger said in an October 2016 blog post titled “Unreasonable Drug Prices Force Patients to Skip Meds.” “From insulin to EpiPens and so much more, too many patients flat-out can't afford medications that are vital to their health. Without corrective action, the problem is likely to get worse.”

FDA Efforts to Boost Competition

The FDA has no legal authority to investigate or control drug prices set by manufacturers, distributors and retailers. However, the agency can facilitate increased competition in the market for prescription drugs through the approval of lower-cost, generic medications.

Scott Gottlieb, FDA Commissioner
FDA Commissioner Scott Gottlieb

In June 2017, Gottlieb announced that the agency is developing a Drug Competition Action Plan.

“As part of this effort, the agency held a public meeting in July to solicit input on places where FDA’s rules – including the standards and procedures related to generic drug approvals – are being used in ways that may create obstacles to generic access, instead of ensuring the vigorous competition Congress intended,” Walsh said.

The agency also published a list of off-patent, off-exclusivity branded drugs that lack approved generics, so companies know which branded drugs are without competition. The FDA has promised to expedite the review of any generic drug application for a product on the list so that lower-cost drug options come to market as fast as possible.

In addition, the FDA implemented, for the first time, a new policy to expedite the review of generic drug applications where competition is limited. The agency says it will speed up the review of generic drug applications until there are three approved generics for a given drug product.

Recent actions by the FDA commissioner include:

  • calling for new generics where there is only an off-patent branded drug that needs competition
  • encouraging generic manufacturers to submit applications for generics in those cases
  • expediting the review of generic applications where there is little to no competition
  • looking at abuses by the drug companies that delay generics from coming to market

FTC Enforcement Actions

The FTC recently provided testimony before the House Judiciary Committee on the commission’s efforts to stop anticompetitive conduct in the pharmaceutical industry.

“At the FTC, we’ve been fighting back against these efforts to keep prices artificially inflated,” the testimony stated. “In the years since the Hatch-Waxman Act was enacted, the commission has pursued numerous antitrust enforcement actions involving both branded and generic firms.”

The FTC has challenged the practice of pay-for-delay through at least 10 enforcement actions in the past decade, including two in 2017.

“The FTC also identifies and investigates other potential anticompetitive conduct in the pharmaceutical industry, such as REMS abuses,” Lordan said. “The commission has recently taken actions to prevent monopolization by branded firms through abuse of governmental processes, including sham citizen petitions.”

Legislation and Petitions

On Aug. 3, 2017, the U.S. Senate passed an FDA funding bill that would prevent baseless price increases on decades-old prescription drugs that are without competition. The bill instructs the FDA to speed up the review of generic drug applications when drugs on the market have little or no competitors.

Another piece of legislation, the Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act, would allow generic drug manufacturers to bring action in federal court for injunctive relief and authorizes judges to award damages to deter future delays.

CREATES Act

If the CREATES Act becomes law, generic drug companies would be able to sue branded companies that try to prevent generic drugmakers from obtaining samples of the branded drug to perform necessary tests.

In addition, there are also several legitimate citizen petitions circulating that urge the federal government to take action to lower drug prices. A recent Patients for Affordable Drugs petition, for example, tells the President and Congress that Medicare should be able to negotiate lower drug prices for patients and taxpayers. Currently, the law explicitly prohibits Medicare from doing so.

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*Patients for Affordable Drugs is a national patient organization focused exclusively on policies to lower prescription drug prices.

Cheaper Drugs Do Not Mean Lower Quality

The FDA has stressed time and time again that generic drugs work just as well as brand-name drugs.

“All generic manufacturing, packaging and testing sites must pass the same quality standards as those of brand-name drugs, and the generic products must meet the same exacting specifications as any brand-name product,” according to the FDA.

Generics are copies of brand-name drugs and must have the same safety, quality and performance characteristics. They do not cost less because the drug itself is lesser; generics drive prices down because they increase competition in the market.

“We as patients should want and try to get cheaper generics and not listen to the drug companies who want to scare us and mislead us into believing they are not going to be as effective, or even worse, dangerous for us,” Mitchell said. “Don’t believe what the drug companies are telling you that you have to have the more expensive brand or you’re not getting the drug you need.”

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