Biden's Best Appointment

Rather unsurprisingly, it is Federal Trade Commission Chair Lina Khan, who just just forced GlaxoSmithKline, AstraZeneca, and Boehringer Ingelheim to lower prices on asthma inhalers.

You may be wondering how the FTC gets involved in such things, as its purview does not generally extend to patents and other forms of exclusivity offered to pharmaceutical manufacturers.

It turns out that its what is squarely in its purview is criminal actions in furtherance of anticompetitive goals, like lying to the FDA about the patent protections on certain medications.

The FTC went after all three, and the costs of their inhalers have been lowered, and they are now open to generic competition:

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But I want to start with something different. This week, GlaxoSmithKline announced it will cap out-of-pocket expenses to $35 for a device for its entire line of asthma inhalers, likely due to significant policy action by the Federal Trade Commission. This move will help millions of people, and it speaks to the kind of opportunities lying around for assertive policymakers.

GlaxoSmithKline’s line of inhalers is the most prescribed in the United States, and this corporation’s cut to patient costs follows two other giant corporations - AstraZeneca and Boehringer Ingelheim - who recently did the same thing.

Despite being a very old type of product that is sold inexpensively abroad, inhalers are a big business in America, generating $178 billion in revenue between 2000 and 2021. Three firms - AstraZeneca, GSK, and Teva - had revenue of $25 billion in the past five years from this line of business. The high revenue is a result of high cost, with the list price of inhalers as somewhere between $200 to $600. A cut, therefore, is a big deal, especially for people with high deductible health care plans.

Why are inhalers so profitable? And why have three giant firms decided to forego this money? The short story is that pharmaceutical companies have been committing an extremely boring form of fraud that enabled them to maintain illegal monopoly protection for their products, and no one in government bothered to stop it. Last year, Chair Lina Khan at the Federal Trade Commission stepped up with some clever lawyering and removed their monopoly protection. And so these firms are preemptively choosing to cut what patients have to pay.

Here’s the slightly longer version. While you’d think that a drug patent expiring would be simple and allow new entrants to come in and make an off-patent drug cheaply, in practice pharma companies often have many patents for a single drug, and frequently file for new second generation patents for an old drug. So bringing a generic competitor to market, with all the approvals and manufacturing costs, is risky unless you know it’s legal to sell it. In 1984, Congress passed a law called Hatch-Waxman, which was designed to lower drug prices by setting up a process to let generic drug companies enter markets. It essentially created a litigation period before any production started, where the brand and generic producers would fight, and a judge would decide whether the drug’s patents had expired. Once that judge ruled for the generic producer, it would then put the expensive into factories, distribution, and so forth.

The law worked, and as a result, today, most drugs we take are cheap generics, while most of the money we spend on drugs are for the small number of newer branded drugs that still have patent protections. (The situation though has slowly gotten worse, and a lot of the same problems have re-emerged in new forms, which is why everyone hates big pharma. But most drugs are generic and quite cheap.)

Hatch-Waxman included a litigation-heavy process for challenging a drug patent, involving something called the Orange Book, which is a list of FDA approved medicine that have been deemed safe and effective, as well as their patents. That’s the guide the FDA and generic companies use to tell if an expensive drug can be challenged. According to Hatch-Waxman, when a drug company lists a patent in the Orange Book, the FDA is prohibited by statute from letting any generic into the market for 30 months to let the process of challenging a branded patent play out.

And here’s where the fraud comes in. Pharmaceutical companies have been, well, lying. They list patents in the Orange Book that aren’t valid for the medicine associated with them. That’s illegal. It’s actually a crime, a form of fraud. You’re not allowed to list patents on medical devices, but they do that. And no one has cracked down on illegal Orange Book patent listing in decades. The FDA, HHS, and the FTC all thought it was someone else’s job, until Orange Book fraud became a routine way that everyone just thought, well that’s how business works.

Lina Khan is NOT a, "Someone else's job," kind or regulator, and so the FTC drafted a statement making it clear that this was a crime, and sent out letters to a number of pharmaceutical companies saying that they were breaking the law.

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So basically, what’s happening is that the inhaler and epipen markets are about to get a lot more competitive, and prices are going to come way down, perhaps even lower than the $35 out of pocket some of these firms are promising. It won’t even require government action for much longer, because generic pharmaceutical firms are going to take up the enforcement on their own. That’s how you create markets. And when there’s generic competition with a bunch of sellers, it means we won’t have to depend on brand companies to choose to lower out-of-pocket costs. And that’s the ultimate solution.

No.  The ultimate solution is to jail executives who preside over such schemes.

This is not just a civil infraction, and it is a crime, and even if they have to lower their prices now, they have generated billions in profits over the past few decades, so they still win.

Still, Lina Khan cannot criminally prosecute criminal pharma execs, and she is doing what she can.