Supreme Court Deals Blow to Drug Consumers

The Supreme Court this morning refused to hear a Federal Trade Commission antitrust suit challenging sweetheart deals between brand name drug manufacturers and their would-be generic competitors. The decision -- or more precisely the refusal to hear the case -- is a huge blow for consumers.

The Hatch-Waxman act gave industry additional patent protection if their drug applications are delayed at the Food and Drug Administration. But in exchange, the industry agreed to cooperate with generic manufacturers who want to begin producing the drug ahead of the patent expiration date. The idea was to get generics on the market literally on the day the patent expires.

The law also gave the first generic firm that seeks to market a brand name drug six months of "generic" exclusivity. That's why the first generic version of a drug coming off patent usually sells somewhere near the original brand name price. It's only after that six-month exclusivity period expires that other generic firms enter that market and the price falls to about half of the original brand name price.

What manufacturers have done in a disturbingly high number of cases is pay the generic first-mover to not market their drugs during that period of exclusivity. The deal in essence allows the brand name company to "buy" the incentive created in the law for generic firms to move quickly. Consumers (including insurance companies, Medicare, Medicaid, and the VA) pay the tab for this deal.

The FTC challenged this practice on antitrust grounds after Schering-Plough Corp., of Kenilworth, N.J., paid $60 million to Upsher-Smith Laboratories Inc. of Minneapolis to not market a generic alternative of Schering's high blood pressure potassium supplement K-Dur 20, which went off patent in 2001. But Schering-Plough appealed the agency's ruling. Two years ago the 11th U.S. Circuit Court of Appeals agreed that the dispute was in essence a patent law dispute, and therefore not subject to antitrust sanctions.

I am tempted to call this decision the last nail in the coffin for the nation's antitrust laws. But those laws died and were buried a long time ago. I suspect tomorrow's papers will note this Supreme Court sanction of a billion dollar consumer rip-off with brief items in the business section.