Some drugmakers assert they are unable to create cheaper generic versions of drugs because their rivals are exploiting a legal loophole.
It all comes down to process: To get a generic drug approved for sale, a company has to test a sample of the brand-name version and show regulators that the generic version is essentially identical and as effective.
But the government has placed restrictions on distributing some drugs that are dangerous or prone to abuse. Critics say manufacturers of those brand-name drugs are using the restrictions to stop generic makers from getting samples to test.
No samples, no generics.
At issue are brand-name drugs that federal regulators approve only if the drugmaker agrees to tightly control their distribution — providing them only for hospital use, for instance. These restrictions, which are imposed by the Food and Drug Administration on a case-by-case basis, block the flow of drugs to the wholesalers that generic firms rely on for their must-have samples.
Critics warn that the practice is bound to become more entrenched and widespread.
The Federal Trade Commission has launched an investigation into the matter. Connecticut’s attorney general has done the same. And this week, the Senate is addressing the complaint in a provision included in a broader measure that funds the FDA. Critics say these tactics end up raising drug costs for consumers and taxpayers, who pay for Medicare, Medicaid and similar programs.
For more than a decade, the FDA has had the power to impose distribution restrictions. That authority was strengthened by 2007 legislation that led to an expansion of the number of drugs covered starting the following year. It now stands at more than two dozen. The products include treatments for rare conditions and widely used blockbuster drugs.
“It’s an opportunity to apply the law, as Congress saw fit to pass it, in a way that might benefit your business,” said James Czaban, a food and drug lawyer at Wiley Rein who has represented makers of generic and brand-name drugs. “Any rational company, generic or innovator, is going to use the system to their advantage. It’s the world we live in.”
In a 2009 petition to the FDA, generic-drug firm Dr. Reddy’s Laboratories accused Celgene of gaming the system by refusing to sell samples of Revlimid, a drug known to cause serious birth defects when taken by pregnant women. The drug is distributed only to patients, doctors and pharmacies registered with Celgene.
Celgene denied the charge, saying it is under no legal obligation to sell its product to a competitor. In an FDA petition, the company also said it does not want to expose itself to liability risks by providing large quantities of a drug with known dangers to a third party for human testing under circumstances out of Celgene’s control.
Celgene made similar arguments when refusing to sell samples to other firms.
The FTC started investigating Celgene in 2009 to “evaluate whether there is reason to believe that we have engaged in unfair methods of competition,” the company said in an earnings report.
The agency declined to comment about the investigation. FTC Chairman Jon Leibowitz described this type of practice as “particularly troubling.”
“Some of these drugs are used by older Americans who are critically in need of inexpensive medicines,” Leibowitz said. “And it’s the taxpayers who foot the bill, because we all pay for Medicare.”
Connecticut Attorney General George Jepsen said in a statement that an ongoing investigation by his office revealed “a disturbing, broader trend by certain branded drug manufacturers” using restrictive distribution policies “as a weapon to blunt the development of generic drugs.” Jepsen did not disclose company names.
Both the FTC and Jepsen said these practices represent a radical departure from the intended purpose of Risk Evaluation Mitigation Strategies (REMS), the program that introduced the restricted distribution provisions starting in March 2008.
Back then, Congress anticipated that this program might lead to anti-competitive behavior. Lawmakers included a provision to address that issue. But many experts who track the subject say the language is vague and weak because it lacks enforcement tools.
Buried in a Senate bill that authorizes the fees that drug and medical device companies pay to the FDA is a provision that beefs up the language. The provision bars drugmakers covered by REMS from restricting sample sales to generic-drug firms that agree to follow certain safety procedures approved by the FDA. The goal is to relieve brand-name firms of what they see as an inconsistency in current law, which demands that they stick to the terms of their REMS while not blocking access to their drugs.
The House version of the bill does not include the provision.
But on the Senate side, there are practical reasons to push forward. The Congressional Budget Office estimates that this provision and others that would reduce market barriers for generics would reduce direct spending for mandatory health programs by $753 million from 2013 through 2022.