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From Barron’s …
Fouling Up Our Pharma —- The inventive drug industry is a victim of the endless search for a free lunch
By Thomas G. Donlan
7 August 2006
Some of America’s most inventive companies have been presented with dire necessity to invent in new ways. Their industry is extremely competitive, with companies large and small struggling to come up with new products to meet almost insatiable consumer demand. Those products have a relatively short life, as some competitors bring similar products to market and others simply manufacture imitations.
This industry is not entertainment or fashion or publishing or software, although it has characteristics in common with them. It is the pharmaceutical industry, and its members must invent more than just drugs. They have to invent legal and business strategies to cope with a plague of regulators.
The U.S. Food and Drug Administration ranks as one of the more important and ineffectual federal regulatory agencies. Not that any are as important as they think or as effective as they might be, but the FDA really does handle matters of life and death — and does it capriciously yet slowly.
The U.S. Patent and Trademark Office is devoted to legal minutiae and overwhelmed with more minutely inventive applications than its enormous staff can handle. Patents are granted without adequate review, on theories that ought to be questioned before they get to court rather than invented at trial or appeal.
Combining the two agencies’ flaws begins to explain the tangled mess that is the pharmaceutical industry of the United States, in which patents on drugs are endlessly open to challenge, in which promising drugs are held up for excessive regulatory review, in which profit must be made quickly.
But there’s more: Congress has a natural interest in the drug industry, arising from constituents’ desire to get more medicine and pay less for it. Since the federal Medicare and Medicaid programs pay for a lot of those constituents’ medications, Congress also has a budgetary interest. So far, Congress has resisted the temptation to follow the rest of the industrialized world and impose overt price controls. Instead, it has created a morass of incentives and disincentives and marketing restrictions.
And still more: Collusion and market manipulation are natural responses of any industry to over-regulation; the Federal Trade Commission is ever-vigilant but only occasionally effective at detecting and challenging restraints of trade.
Rules of the Game
The segment of the pharmaceutical industry that concentrates on drugs with patent protection was once known as the ethical drugs industry, but ethics is just too far out of fashion these days. Now it’s called the brand-name drugs industry, which distinguishes it from the generic-drugs industry.
Brand-name, bad. Generic, good. It’s as simple as that for some people, because brand-name drugs are expensive and generic drugs are cheaper. Such people are especially abundant on Capitol Hill, where Congress has spent more than 20 years passing laws to promote generic drugs.
The first and greatest milestone of generic-drug promotion was the Hatch-Waxman Act of 1984, by which Congress told the FDA to accept abbreviated new drug applications for generic drugs that are chemically identical to brand-name drugs, rather than forcing makers to go through the same testing that preceded approval of the original inventor’s drug. (Patented-drug makers were given a longer patent term, partly to offset the harm that generics would do their products and profits.)
Among the results: lower prices for consumers of certain older drugs, an increase in generic market share, wild competition among generics to be the first in the market for each drug and a scandal at the FDA as officials took bribes to expedite some generic approvals and slow down others.
Another feature of Hatch-Waxman that was not widely appreciated at the time allowed generic-drug companies to go to court to overturn patents without actually having to put their own imitation into the marketplace first. The usual process for challenging a patent is for the imitator to enter the market and then be sued by the patent holder. This poses risk of triple damages for the imitator that loses, and the patent holder controls the pace of the process. Under the changed law, successful challengers also win the race to be the first generic in the market, for which the prize is a six-month marketing head-start ahead of all other generics — a lucrative temporary monopoly created by destroying the original patent.
The result, of course, was a large increase in the number of patent challenges.
In 2002, the Federal Trade Commission reported that three out of four challenges to patents protecting brand-name drugs were successful if litigated to a final verdict. This may have something to do with the competence of the Patent Office examiners. Or it may reflect the willingness of brand-name manufacturers to drag out their losing cases as long as possible, because not even a year’s worth of huge legal fees can overshadow a year’s worth of huge profits on patented drugs. Generic challengers, on the other hand, have a financial incentive not to throw good money after bad. A patent challenge can take five years and cost $10 million. They settle weak cases and move on.
The FTC, however, charges that often there is a different reason: an illegal restraint of trade.
In dozens of recent cases, the patent holder and the patent challenger have reached settlements in which they agree that the challenger’s generic will be allowed into the market before the patent expires.
To the FTC and other critics, such authorized generics are against consumers’ interests, because they are sold at a smaller discount than “real” no-holds-barred generics.
In some such cases, the patent-holders have even paid the patent challengers to gain a settlement to their advantage. These the FTC terms “abusive,” and it has sued to block several such deals. Last year, however, two federal appeals court panels ruled in favor of the companies making deals, on the grounds that parties contesting a case have the right to make peace on terms that satisfy them. The FTC, which believes the terms should satisfy consumers, is asking the Supreme Court to take up the cases and it’s continuing to bring cases in other appellate court districts. Bristol-Myers Squibb headquarters recently was raided by FBI agents seeking documents for such a case.
Meanwhile, Sen. Charles E. Schumer, D-N.Y., and some colleagues have introduced a bill to limit authorized generics. Schumer said they are “wolves in sheep’s clothing,” because they push out generics that might be cheaper.
The pursuit of lower prices by any means available is an old game played by sheep in wolves’ clothing. People who make no contribution to the advancement of technology nevertheless claim a right to have the fruits of invention at a price of their choosing.
Results of this hunger for a free lunch:
All U.S. patents are less reliable. The FTC’s opposition to authorized generics effectively presumes that patents are invalid and that regular generics should always be allowed to move in. Authorized generics come into the market years sooner than the patent expiration, which would be good for consumers’ short-term cash flow unless the patent would otherwise be found invalid.
Prices of patented drugs have risen far faster than inflation. Now that a patent is no guarantee of monopoly rights for a certain term, companies that invent drugs face a new incentive to hike prices to make as much as they can as quickly as possible.
Prices of drugs in general, both patented and generic, are wildly unpredictable and unstable. For their biggest customers, manufacturers discount heavily.
The United States is nominally the last free market for pharmaceuticals because it does not have price controls. With a legal and regulatory regime like this, it doesn’t need them.
Please correct me if I’m wrong, implausible though that may seem, but has the House just passed a bill establishing a Czar for Health Information Technology? Since when, in general, has central planning worked? And, more specifically, can we honestly predict good things from a top-down approach for the implementation of health information and data technologies? I rather doubt it. Where—-anywhere—-in the federal government does there exist a modern system of information technology that is internally consistent, compatible with other systems both within and without government, and that adapts quickly to changing economic and technological conditions? There is no need for a reply; the question answers itself. And once the feds get done, if ever, forcing a one-size-fits-all system on everyone, how will new technologies and approaches be integrated? Does HHS actually have powerful incentives to do so? Please… The adoption and implementation of information technology, particularly in a sector as large and complex as medical care, is a classic example of the prospective advantages of bottom-up investment, that is, the substitution of market in place of bureaucratic incentives. The Romanovs were murdered by the Bolsheviks; may the new Czar be stangled in its crib by our version of the Bolshevik Party, to wit, the U.S. Senate.
The House passed a sweeping health information technology (HIT) bill that includes a provision designed to boost the use of electronic clinical trial data.
But the measure came under swift attack by Democrats who charged that it would not improve technology adoption but would endanger the privacy of patient medical records.
The bill — H.R. 4157, the ‘Better Health Information System Act of 2006” — would establish the Office of the National Coordinator for Health Information Technology within HHS that would be responsible for a number of HIT-related policies. Among those policies is a dictate directing the national coordinator to promote the “efficient and streamlined development, submission, and maintenance of electronic healthcare clinical trial data.”
Under the legislation, the coordinator would be responsible for ensuring that other government agencies adopt policies that help to create a national interoperable health information system.
The legislation also requires the HHS secretary to issue within a year of the bill’s becoming law a report on the work conducted by the American Health Information Community. That report would include information on the progress toward:
* Establishing uniform industrywide health information technology standards;
* Achieving an internet-based nationwide health information network;
* Achieving interoperable electronic health record adoption across healthcare providers.
Even though the vote of the bill — which passed 270-148 — did not break along party lines, some House Democrats quickly issued statements dismissing the measure’s potential effectiveness.
Perhaps they’d be interesting in talking to Duma Speaker Boris Gryzlov. They all seem to share the same Luddite view of technology. (See blog post “Da? Duh!,” August 7, 2006.)
And you thought we were in denial when it comes to dealing with counterfeit prescription medicines.
Check this out —
In Moscow, Duma Speaker Boris Gryzlov stressed the need to “ban the flow of medicines into retail without using technologies that protect medicines from counterfeiting.” Speaking during a meeting of United Russia Duma deputies and President Vladimir Putin, Gryzlov said legislators would clean up the pharmaceuticals market in the fall.
Get that? Legislators will get it done without technology.
Rooting out counterfeit medicines is “absolutely not a matter of technology,” said Veniamin Monblit, research director at Comcon, a research company.
Absolutely not a matter of technology? That’s some research company.
“The equipment for manufacturing medicine is expensive and complex. It cannot be installed at a dacha or in some shed,” Monblit said.
Oh really? Would you like to see some pictures?
In Russia, according to Monblit, counterfeit medicines are sometimes produced at the same plants that make legal medicines. “It’s a matter of catching them and closing them down,” he said.
Thanks for the clarification.
According to the Moscow Times, the making or selling counterfeit medicines is not currently considered a criminal offense under the law.
Note to Gryzlov and Monblit — your copies of “Coincidence or Crisis” are on the way, courtesy of the Center for Medicine in the Public Interest.
(Comrades, you can also download the book at www.cmpi.org — but that would require using … technology.)
From the AP Wire:
Vermont Gov. Jim Douglas and his counterparts in three others states petitioned federal health officials Thursday to issue long-delayed guidelines on the production of generic versions of insulin and human growth hormone.
“We’re tired of waiting for the FDA to act,” said Douglas, speaking at a news conference in Montpelier, Vt. “It’s time for the federal government to end its foot-dragging and put the interests of Americans who need access to less expensive medications ahead of the interests of the pharmaceutical industry.”
Douglas and the others said there were no scientific reasons for delaying the issuance of the guidance documents FDA already has drafted.
Well, um, actually there are quite a few very thorny scientific questions and I’m sure the FDA would be more than willing to brief Governor Douglas, et al.
(Note to Governor’s staff: If you need the FDA’s phone number, please email me at email@example.com.)
Also — when it comes to follow-on biologics (there really can never be a truly generic biologic) there are also legislative questions. To that end I recommend that Governor Douglas call his congressional delegation. And how hard could that be? After all, it’s Vermont. There are two senators and only one representative.
I pondered this question in light of Mel Gibson’s anti-Semitic rant at the LA cop while deep under the influence of distilled spirits. Can we blame Gibson’s views on alcohol? You can say a lot of things when you are drunk, but the phrase “The Jews start all the wars” is not exactly one that leaps to mind in people who are plastered. Then again, Michael Moore called Israel part of the true axis of evil and he was stone sober, though overweight when he said that…No one seems to care.
Which raises an interesting question, when will someone begin to blame hateful outbursts on Ambien? It makes statistical sense. And according the Washington Post ,which has made coverage of Ambien a nice little hobby, it seems to cause everything else. Ambien, we are told, caused Patrick Kennedy to smash his car up, causes sleepwalking, shoplifting, midnight snacking, etc., etc.
Or does it. After all, sleepwalking, car crashups, and shoplifting were around before Ambien. So was the drug and alcohol addition of people that often take these medications or abuse them. But even with that, just how much of problem is this so-called Ambien epidemic? The folks at http://www.blogcritics.org did the math in a March 14, 2006 posting:
In 2004, over 24 million prescriptions for Ambien were written. Let’s say that each contained 30 pills. That’s 740 million times people took this sinister drug in 2004. Tinmothy Morgenthaler, a Mayo Clinic researcher, reported five cases fo sleepwalking in 2002. Nineteen cases were reported by one center last year. Since 1997, a whopping 207 sleepwalking incidents have been reported, most of which physicians can’t link to Ambien. In fact, only 48 have been linked to this killer drug.
It’s well known that adverse incidents are under-reported, so let’s assume a factor of 100. That is, there are 100 times more incidents that are reported. Okay, we get out our calculator and multipy 48 incidents times 100. Wait a minute. Got it, that’s 4800 incidents over, say, 8 years or 600 a year. Wow! No wonder it got banner headlines. But wait. The drug is used 740 million times a year, which means your odds of sleepwalking from using the drug are 0.00008% or something like 1/80,000th of a percent. Another way of thinking about it is that if you take the drug 80,000 times, you have a 1% chance of sleepwalking.
Blame Ambien for anti-Semitic outbursts? Might as well blame the Jews for sleepwalking.
Lots of news reports today by the MSM (New York Times, Washington Post, etc.) on the Lipitor patent issue. Zero coverage on the news that the governments of Great Britain and Canada have alerted their citizens to another case of counterfeit Lipitor.
Serious? Consider the following statement (as responsibly reported in the Times of London), “Experts are becoming increasingly concerned that criminal networks are exploiting the market in statins, which are taken by millions of people to lower cholesterol.” The Times reports that there are broader concerns about the criminal network linked to the men arrested.
In a plan published last week by the Medicines and Healthcare products Regulatory Agency (MHRA), Kent Woods, its chief executive, outlined significant concerns about counterfeit products and internet sales. Describing the “increased threat across the world,” he said that international relationships needed to be developed and “as much disruption as possible created to illegal and unsafe trade.”
To that end, I am posting a copy of “Coincidence of Crisis,” (the new book on how to accomplish precisely that goal — edited by me and published by the Stockholm Network) to Mr. Woods today.
(BTW, if you would like a copy of “Coincidence or Crisis” it is available at www.cmpi.org as a download. If you would like a hard copy, please e-mail me at firstname.lastname@example.org.)
Our friends in the Great White North are also concerned. From Ottawa comes the news that Health Canada is informing Canadians about this same case, reminding their citizens that …
“Counterfeit drugs may contain the incorrect dose, the wrong ingredients, dangerous additives, or no active ingredients at all, which could result in potentially serious health risks to patients. Even if these drugs do not
harm you directly or immediately, your condition may get worse without effective treatment.”
And I’m sure that sounds as frightening in French.
Why is Health Canada so concerned about a UK counterfeits problem? Because it’s an international problem. Because Canadian Internet pharmacies brazenly (and illegally) import drugs from all across Europe.
Oh, sure — these profiteers masquerading as pharmacists will tell you that they only import from the UK — but, because of parallel trade (what we in the US call “re-importation”), upwards of 20% (one-in-five) of all drugs sold in the UK come from other places within the EU like Greece, Portugal, Latvia, Estonia, Malta and Cyprus. And according to the Treaty of Rome, parallel trade is completely legal and Articles 30 and 36 prohibit manufacturers from managing their European supply chains in their own or patients’ interests.
In the EU there is no requirement to record the batch numbers of parallel imported medicines, so if a batch of medicines originally intended for sale in Greece is recalled, tracing where the entire batch has gone (for example, from Athens to London through Canada to Baton Rouge) is impossible.
And speaking of Baton Rouge, this latest trans-Atlantic counterfeits case should serve as a wake-up call to those who don’t think that US Customs has to worry about “Canadian” drugs coming into the US via the mail.
That’s a dangerous dance. Let’s call it “the Vitterbug Shuffle.”
Here’s where we at drugwonks try to impose a little logic on the rhetoric of pols on the Plan B issue to underscore once again that whatever you think about its availability (and I think it should be out there) this is not about public health or science or consistency.
Tom Harkin wants to know why Plan B should be restricted to people 18 years of age and older while it can be purchased OTC in Europe by anyone. I guess that means Harkin was on joking when he supporting restircting the sale of pseudoephedrine products to minors cumulative amount of pseudoephedrine purchased per month to 7.5 grams. Plan B will join Sudafed and other PSE containing pills behind the counter at drug stores. Why one and not the other Senator? (PS. The practice has had no effect on cold medication sales.)
Senator Christopher Dodd (and Grassley) talks about restoring scientific integrity to the FDA but then he entrusts David Graham to help write his legislation and on withdrawing Ketek despite a scientific consensus that this is a badly needed medicine.
Hillary Clinton claims that getting drug companies to work with pharmacists to limit the distribution of Plan B to minors is akin to Clinton likened that demand to holding the distillers of alcoholic beverages responsible for bartenders who serve underage drinkers. Uh, but we already do Senator. Ditto for tobacco. Remember the multi-billion tobacco settlement your administration helped engineer along with the then FDA commissioner who called for tobacco companies to restrict their marketing practices and work with retailers to cut down on kids smoking. What about the vaccine companies sued by trial attorneys not because they did anything wrong but because they have deeper pockets than some lonely doc?
Plan B politics is simply political BS.
Free Andy now!
The news coverage of yesterday’s H.E.L.P. committee hearing on Dr. von Escehnbach’s confirmation as FDA Commissioner focused almost exclusively (yep, you guessed it) on Plan B.
Is there anything else? Not according to the MSM and certain pols and pundits.
Is there anything else?
You mean like, perhaps, moving forward in the war against disease? Perhaps new ways to accelerate the approval of life-saving cancer medications, advances in the treatment of Alzheimer’s Disease, better more robust ways to understand and use biomarkers and innovative biomedical technologies to allow the safer, more targeted use of existing drugs?
Is there anything else?
Here’s what Andy had to say in his opening remarks:
“A few weeks ago I spoke with a young mother who happened to be celebrating her daughter’s birthday when I returned her call.
She shared with me that she had a tumor for which she had already been treated with surgery and chemotherapy but the tumor was growing and threatening her life and her hope of being there for her daughter’s next birthday. The question she wanted to ask me was IS THERE ANYTHING ELSE. Senators and Members of the Committee, millions of people are asking if there is anything else. Anything else for cancer, Alzheimer’s, AIDS, diabetes, Avian flu — anything else to protect our food supply, improve nutrition, alleviate obesity, keep our animals healthy and cosmetics safe. The fact is that there cannot be anything else without this FDA — a modern, efficient and effective FDA.”
So, indeed, there is something else. And that something else is advancing the public health.
Oh — and by the way — all of the members of the committee agree that Andy is highly qualified. I guess that’s not enough for a speedy confirmation anymore. Or is it?
Time for a vote. Anything less is holding the public health hostage for political reasons.
Andy was dandy today in front of the H.E.L.P. committee. If you’re into reading tea leaves, consider the fair and equitable demeanor of Senator Kennedy. What about the Murray/Clinton hold? It’s looking more self-serving and silly by the minute.