How we can lower drug costs and protect free markets at the same time

Sky-high drug prices are a significant public policy concern, but protecting free markets and incentives to produce the cures of the future are just as important to America’s health, if not more so.

Patented brand name drug producers have the right to earn a full return to their costly drug development efforts during their drug patent’s lifetime. This is needed to incentivize the R&D that continues to bring cures and new treatment of diseases to the marketplace. But once the patent expires, vigorous competition from chemically equivalent lower-priced generic drugs is key to reining in drug costs through free market forces.

{mosads}Fortunately, Congress has the opportunity to take a significant step to lower drug prices in a procompetitive way, without sacrificing the American pharmaceutical innovation that is the wonder of the world. As I testified in July 2017 before Congress, the Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act of 2017 does just that.

How?

By targeting two types of abusive delay tactics that may be used by brand name drug companies to block the entry of generic drugs into the marketplace. According to public reports, these delay tactics are real, and they threaten to delay the competition that is needed to lower drug prices after brand name drug patents expire.

The first abusive tactic involves unreasonable refusals by a brand name company to allow a potential generic competitor to obtain samples of the branded product. This prevents the generic firm from performing the testing necessary to show that its product is equivalent to the brand name product. Such testing is required by the U.S. Food and Drug Administration (FDA) before a generic competitor is approved for public sale.

The second abuse involves the brand name company’s refusal to allow generic competitors to participate in safety-based regulatory protocols, without which a generic producer cannot gain FDA approval for the production of certain “high risk” drugs.

Specifically, the CREATES Act allows a generic drug manufacturer facing the first delay tactic (unjustified denial of access to drug samples) to go to federal court to get an order (“injunctive relief”) to obtain the drug samples it needs. The bill also authorizes a judge to award damages to deter future delaying conduct.

Regarding the second delay tactic (denial of access to regulatory protocols), the CREATES Act allows the FDA to approve alternative safety protocols, rather than require parties to develop shared safety protocols. Mandated access to a safety protocol developed by a brand name company (backed by the threat of costly litigation) is not required. Any safety protocol approved by the FDA must, under the act, meet the statutory safety standards for drugs that are already in place.

Furthermore, the CREATES Act fills a statutory gap. Antitrust lawsuits used to challenge delaying tactics by brand name drug firms tend to be long drawn-out and costly. What’s more, their likelihood of success is low. Requiring a brand name company to provide samples would run afoul of the general antitrust presumption against requiring a firm to assist a competitor. The narrow and targeted statutory remedy set forth in the CREATES Act avoids these problems.

In short, the CREATES Act would, on balance, reduce the incidence and burden of abusive regulatory delays that undermine pharmaceutical industry competition. It would do this by fostering competition and avoiding new, heavy-handed regulation. It would hone in like a laser on the problem of unjustified delaying tactics that thwart competition. Because it is narrow and carefully targeted, it would avoid the problem of abusive, economically harmful excessive litigation that drives up business costs without justification.

Finally, it is important to stress that the CREATES Act would deal with unjustified delays after drug patents have expired. It would do nothing to undermine strong patent rights, which are key to a vibrant and innovative American economy. As I have explained elsewhere, American patent rights are under unjustifiable attack. The erosion of those rights is a serious threat to American innovation and prosperity, and appropriate federal legislation to reverse this trend is called for. The CREATES Act would not in any way undermine such needed legislative reform.      

The CREATES Act, now before Congress is a “win-win” for free market drug market competition and for American consumers. This bipartisan legislation merits passage.

Alden Abbott is the deputy director of the Center for Legal and Judicial Studies and a senior legal fellow at the Heritage Foundation.