Government Intervention into Drug Pricing: Part 2

Drug Policy Post 2

Government Intervention into Drug Pricing: Part 2

In our first post addressing government intervention into drug pricing, we gave a brief overview of commonly proposed tactics originating from the United States Department of Health and Human Services (HHS) and Congress. In this post, we discuss different approaches that aim to incite competition between branded and generic drug products, as well as an example demonstrating the potential impact of these policies.

The Carrot & The Stick

Policy makers have approached the issue of generic and branded prescription drug competition by: (1) incentivizing generic manufactures to enter the market, and/or (2) threatening branded manufacturers who deploy delay tactics. The proverbial carrot is offered to generic manufacturers through promise of prompt generic or follow-on drug application review, as seen in the Lower Health Care Costs Act (S. 1895), or by safe harboring the incentives for generic manufacturers to challenge weak patents preserving branded drug exclusivity, a provision outlined in the Preserve Access to Affordable Generics and Biosimilars Act (H.R. 2375).
The stick, on the other hand, is presented to branded manufacturers looking to slow the approval and market entrance of generic competition. Pay-for-delay, also known as reverse payments, and citizen petition engagements are used by companies looking to stave off competitors. The Competitive DRUGS Act of 2019 (H.R. 1344) threatens fines for companies that do this of up to three times the value transferred for delay initiatives. Outlined in the Stop STALLING Act (H.R. 2374), the FDA may determine if a citizen petition is primarily seeking to delay the approval of an application and refer the petitioner to the Federal Trade Commission.

Keeping Lipitor Exclusive (at least for a bit)

In 2018, CVS Pharmacy, Inc. sued Pfizer Inc. over a 2008 deal made to delay generic availability of Lipitor (atorvastatin), the hugely successful statin. The deal between Pfizer and Ranbaxy Laboratories pushed generic production of Lipitor to from about March 2010 to November 2011. In return for the delay, Ranbaxy was granted permission to sell generics of Lipitor and Caduet (amlodipine besylate, atorvastatin calcium) in the U.S. beginning November 2011. This 20-month delay had huge financial implications as U.S. sales of Lipitor generated revenue of $5.0B in 2011. After generic Lipitor launched, Pfizer’s Lipitor revenue dropped to $0.9B in 2012. Had pay-for-delay tactics, like those being discussed, been in effect in 2010, Pfizer could have lost out on over $4.0B of extra Lipitor sales.

The Lipitor example illustrates the potential impact of potential government interventions into the competition between branded and generic drugs. If implemented, these tactics will force brand manufacturers to re-evaluate financial forecasts for current and pipeline products, impacting decisions on drug development, pricing and financial assistance.

Please look out for our next post where we will evaluate proposed policy to implement drug price indexes.

-Luke Coburn & Michael Koskulics with help from Victor Cotton