Summary
Professor Mark Lemley weighs in on how agreements among pharmaceutical companies lead to higher costs for consumers in an article for NBC News.
While sharp overnight increases in the cost of prescription drugs have recently dominated headlines, critics say another pharmaceutical industry practice that has added billions of dollars to the price that consumers pay for their medicines continues unabated.
Known as “reverse settlement payments,” or “pay-to-delay” deals, the financial arrangements are a unique but common practice in the pharmaceutical industry. Essentially, they allow drug manufacturers in some instances to pay competitors not to manufacture generic versions of their products, thereby ensuring that they maintain patent protection for as long as possible.
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“There’s always that disconnect,” says Mark Lemley, a professor of law at Stanford who represented plaintiffs in a recent reverse settlement case in California. “And it’s why these parties can come to a deal over these payments: ‘I stand to make $1 billion if I keep the monopoly, you stand to make only $200 million if you come in and compete with me, and consumers would benefit the rest. But I’ll pay you $250 million to just stay out. I still get most of my profit, you get more money than you would have made,’ and the people who lose out are the consumers who pay the higher prices. We’re agreeing to put the costs on someone who isn’t in the room.”
Lemley worked for plaintiffs, including patients, pharmacies and insurers, on a case that reached the California Supreme Court in 2012 over a $398 million reverse settlement that Bayer paid generic manufacturer Barr to delay introducing a version of the popular antibiotic ciprofloxacin. In that case, the California Supreme Court ruled that the deal to delay production of a generic for Cipro, a brand-named drug that became a household name in 2001 as a first-line defense against anthrax, violated state antitrust laws and remanded the case back to the trial court. Without admitting any wrongdoing, Bayer settled the lawsuit in 2013 and agreed to pay $74 million to the plaintiffs.
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While the number of these agreements has declined in recent years, it remains at roughly the same level as 2009, said Lemley.
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That, said Lemley, means the cumulative cost to consumers has continued to grow since Hemphill’s groundbreaking study.
“It would be fair to estimate that the costs to consumers since 2009 have been even higher than they were before then,” he said. “At a minimum, consumers certainly have overpaid for drugs by many billions of dollars as a result of these settlements.”
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