Monopoly Round-Up: How FTC Chair Lina Khan Cut Inhaler Costs to $35
The news of the week includes reverberations from the Apple antitrust suit, a drop in realtor commissions, a Biden nomination of a villain for a judgeship, and more...
This week’s monopoly round-up has lots of news, as usual, especially reverberations from the Apple antitrust announcement. That’s now four trillion dollar tech firms facing monopolization charges from the Biden administration.
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.
In other words, if you illegally list your patent, you get to extend the legal protection of your drug, device, whatever. And no one’s going to stop you, because no one in government thinks it’s their particular job to do so. Orange Book fraud doesn’t happen as much for pills, but it does for medical devices, such as inhalers and things like epinephrine auto-injectors (Epipen’s). So these devices, despite the underlying medication being off patent in some cases since the 1950s, can cost hundreds of dollars.
In September of last year, the FTC came out with a policy statement asserting that unlawful Orange Book patent listing was a violation of a set of anti-monopoly laws. In November, the commission sent letters to 10 companies listing their inaccurate or inaccurately listed Orange Book patents, on 13 inhaler products and four epinephrine injector pens, among other FDA-approved products. These included GlaxoSmithKline, AstraZeneca, and Boehringer Ingelheim. Several firms, including GlaxoSmithKline, immediately delisted patents from the Orange Book, though others, like Teva, arrogantly re-certified their Orange Book listings, as if to say, sue me.
Then, progressive Democratic Senators Bernie Sanders, Tammy Baldwin, Ben Ray Luján and Ed Markey launched an investigation into the high price of inhalers, pointing out that one inhaler sold by Boehringer Ingelheim costs $489 in the U.S. but just $7 in France, one by AstraZeneca costs $645 in the U.S. but just $49 in the U.K, and so on and so forth, despite most of the drugs they rely on having been on the market for decades.
GlaxoSmithKline, AstraZeneca and Boehringer Ingelheim - all European companies - saw the writing on the wall and decided to cut out-of-pocket costs on inhalers to avoid the stigma of what happened to the insulin producers. There are also odd rebate games, where these firms remitting large amounts of the list price, over half, back to middlemen in the industry, so cutting prices isn’t as uneconomical as it seems. But even more importantly, now generic producers are starting to litigate against big pharmaceutical firms using the Orange Book patent fraud legal tool. Amneal recently sued Teva over improperly listed patents, with the goal of entering the inhaler market and competing, and the FTC gave an assist with an amicus brief on Amneal’s side.
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.
And now comes the rest of the news round-up, starting with Biden nominating a villain for an important judicial slot, why he did so, and why that person’s nomination may fail.
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