Cost of Pharmaceutical Drugs in the US

As pointed out on this site before, a couple of the reasons drugs are so expensive in the US are:

1. Advertising on television for pharmaceutical drugs is only allowed in the US and New Zealand. The success of the advertising campaigns can be represented by the simple fact that drug companies spend 19 times more money on advertising than they do on research.
   
2. There is an arrangement that seems a bit complicated, where drug companies can pay generic manufacturers to delay the release of a generic version that would reduce the cost, so that all of the companies involved can share in the increased cost. This process can be challenged in court, but it must be done on a case by case basis per the Supreme Court.
   

“Solvay Pharmaceutical agreed to pay them $31 million to $42 million annually through 2015 (to generic manufacturers), at which point they could enter the market with generic versions…”

U.S. Drug Prices 3- to 6-Fold Greater Than Other Countries

In addition to these costs, there is a push to prescribe “specialty drugs” to commercially insured patients. The costs of some of these drugs can be staggering if you look at Gattex or Soliris.

Marketing of drugs in the US during 2012 meant that, on average, each American filled an average of 12 prescriptions. Considering that only 60% of Americans take a prescription drug in any given year, it would mean that the people getting prescriptions are getting much more than 12 per year. These customers are the target market for drug advertising, and as you might think, close to 100% of the “seniors” are on prescription medicine.

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They Used to Call It Price Fixing

It used to be that companies could not collude to fix prices and avoid competition.

In 2008, DeBeers settled a lawsuit about price fixing diamonds.

In 2010, DRAM makers settled a price fixing litigation with 33 states.

Even this month, Chocolate manufacturers in Canada were being sued for price fixing chocolate in that country.

Canada’s Competition Bureau said in a statement that Hershey Canada was expected to plead guilty later this month “for its role in the conspiracy to fix the price of chocolate confectionery products in Canada.”

This week the Supreme Court ruled that profit sharing between drug companies that hold patents and generic manufacturers can be legally challenged.

“Today’s ruling is a victory for millions of Americans who depend on generic drugs to treat illness and pain,” New York Attorney General Eric Schneiderman said. “Pay-for-delay drug settlements should receive serious scrutiny because they are frequently anti-competitive, unlawful, and harmful to health-care consumers across the country.”

In the Federal Trade Commission vs. Activis lawsuit, Solvay Pharmaceutical had negotiated an agreement to pay three generic manufacturers between $31M and $42M to withhold a generic version (and patent challenges) of the AndroGel product from the market until 2015. AndroGel is topical testosterone applied in gel form.

The FTC has fought such “pay-for-delay” settlements for a decade as their number has grown, from just three in 2005 to 40 last year. They were joined in this case by a coalition of 36 states that argued the deals should be subject to challenge.

It is suggested that generic manufacturers have to legally challenge a drug patent before they can bring a generic version to market. The “pay for delay” agreements are apparently put in place to avoid the litigation costs. An explanation of the duration, and types of drug patents can be found here.

Either way, the Supreme Court ruling should open the door for generic drugs to make their way to market earlier.