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 falls into the public domain and can be freely copied. Thus, inventors have an incentive 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 under patent in this country often command prices well above those that can be charged for generic competition.
Now, a pharmaceutical company finds itself the latest target in New York Attorney General Eric Schneiderman’s crosshairs. Schneiderman has reprimanded Actavis Plc for its decision to withdraw its immediate release version of the drug Namenda from the market. Namenda’s patent for immediate-release, 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 the owner of a patent nearing the end of its life 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 that a company would withdraw its old patented drug from the market before its generic competition could legally reach 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 expected cheaper substitutes are not yet available. In a statement, Schneiderman described Actavis’s actions as “gambling the system.” (one)
In other words, Schneiderman believes that a patent owner has a moral and legal obligation to facilitate the very competition that the patent system is designed to prevent inventors from doing.
I understand from an ethical and financial standpoint why the attorney general feels this way. Switching medications is often a difficult prospect, and many doctors and patients would prefer to avoid it. But legally, Schneiderman’s argument doesn’t seem to make much sense. Once generic alternatives hit the market, doctors and patients can revert to the previous formulation if they choose. In addition, private companies generally do not have a legal obligation to continue selling products that they do not want to sell.
Actavis’ strategy is not new, or even unusual. Saying it’s illegal won’t make it illegal. And while arguments about 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 do. 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 prescribing physicians check a box under a mark instructing the pharmacy to “dispense as written,” often abbreviated DAW. So, by law, generics almost always win when they’re 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 too uninformed or thoughtless to consider less expensive alternative treatments. This is exactly why pharmaceutical benefit insurance programs have formularies, designed to create incentives to use more cost-effective medications.
Aside from the publicity it generates for New York’s ambitious attorney general, this action appears to be misguided. If Schneiderman wants to prevent drug companies from manipulating the patent system, there is no point in requiring 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 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 are not clinically equivalent. Then let the marketplace, including the insurers that create formularies, take care of the rest.
Sources:
1) Bloomberg, “Actavis sued by New York AG over Alzheimer’s drug swap”
2) The Wall Street Journal, “What Will NY AG’s Antitrust Lawsuit Mean for Actavis? Read Here”