A bizarre antitrust lawsuit for a legal monopoly

The idea behind a patent is to give the owner a legalized monopoly to encourage innovation.

Patents are limited to 20 years, after which the invention enters the public domain and can be freely copied. Therefore, inventors have incentives to create new and better things, since they will benefit from the monopoly long enough to make the effort worthwhile, but not so long that they can rely on an invention indefinitely.

No industry takes this model more seriously than pharmaceuticals, because drugs on patent in this country often fetch prices well above what can be charged for generic drugs.

Now, a pharmaceutical company finds itself the latest target in the crosshairs of New York Attorney General Eric Schneiderman. Schneiderman has chastised Actavis Plc for its decision to withdraw its immediate-release version of the drug Namenda from the market. The patent for immediate-release Namenda, which is used to treat Alzheimer’s, is set to expire soon, and Actavis plans to discontinue the drug in favor of a new extended-release version.

Schneiderman’s theory is that it is a violation of antitrust laws for an end-of-life patent holder to stop selling the patented invention in favor of a new product with a patent life that extends into the future. . Schneiderman finds it even more outrageous for a company to pull its old patent drug off the market before its generic competition can legally hit pharmacy shelves, because that effectively forces users of the old drug to switch to the new product, possibly improved at the same time. when the cheaper substitutes provided are not yet available. In a statement, Schneiderman described Actavis’s actions as “gaming the system.” (1)

In other words, Schneiderman believes that a patent holder has a moral and legal obligation to facilitate the same competition that the patent system is designed to prevent inventors from.

I understand from an ethical and financial point of view why the attorney general feels this way. Switching drugs is often a difficult prospect, and one that many doctors and patients would prefer to avoid. But legally, Schneiderman’s argument doesn’t seem to make much sense. Once generic alternatives hit the market, doctors and patients can go back to the older formulation if they want. In addition, private companies generally do not have a legal obligation to continue selling products that they do not want to sell.

Actavis’s strategy is not new, or even unusual. Claiming it’s illegal won’t make it illegal. And while arguments over whether the strategy is unethical will no doubt continue, even the attorney general can’t properly sue a company just because it does something he wishes it wouldn’t. For now, Actavis plans to continue with the change, according to a spokesperson. (two)

Taken to its logical conclusion, Schneiderman’s real objection is that state laws are designed to force generic substitutions unless prescribers check a box under a brand that instructs the pharmacy to “dispense as written,” otherwise often abbreviated DAW. So by law, generics almost always win when available. However, if a doctor prescribes a brand for which there are no generics available, the DAW is irrelevant. The attorney general’s real problem is with laws governing generic substitution and with doctors who are too uninformed or thoughtless to consider less expensive alternative treatments. This is exactly why pharmacy benefits in insurance programs have formularies, designed to create incentives to use more cost-effective drugs.

Aside from the publicity it generates for New York’s ambitious attorney general, this action appears to be misguided. If Schneiderman wants to stop drug companies from manipulating the patent system, he doesn’t make sense to require them to act against their own financial interests. Sharks do what they do because they are sharks. It is useless to require them to act like goldfish.

Instead, the solution to the problem that Schneiderman has identified is to change state regulations, if he can convince lawmakers, to encourage broader use of generics that are therapeutically comparable, even when they aren’t clinically equivalent. Then let the marketplace, including the insurers that create forms, do the rest.

Sources:

1) Bloomberg, “Actavis sued by New York AG over Alzheimer’s drug swapping”

2) The Wall Street Journal, “What will NY AG’s antitrust suit mean for Actavis? Read here”