Pay for Delay

The big pharmaceutical with a blockbuster drug gets to have the only product on the market for a little longer. It also doesn’t have to deal with price competition. The FDA estimates generics usually cost 80 to 85 percent less than brand-name drugs — not great news for the maker of the brand-name medication.

As for the generic drug maker, it has to hold off on coming into a given market — but it also gets a settlement from a pharmaceutical, often in the millions. Not a shabby deal either.

The Federal Trade Commission, which brought the suit, has a completely different take. It argues that this is horrible for consumers, who end up with higher drug prices as generics stay off the market longer than they otherwise would. With more than a dozen pay-for-delay deals struck annually, the FTC estimates that these settlements will cost consumers $35 billion.

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Comments (14)

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  1. Chris says:

    How is this not price fixing/collusion? I find myself usually defending pharmaceutical companies against irrational attacks from the left, but not in this case.

  2. Buster says:

    I generally support the right of firms to contract with each other. This is no exception. However, we don’t allow firms to collude and work out deals where they “fix” prices and stifle competition. I don’t object to the deals that drug makers sign, one innovator firm is (legally) trying to protect its patent as long as it can. The generic firm is trying to enter the market as soon as it can with as little litigation as it can. The problem isn’t with the firms as much as it is the system that makes it lucrative for them to collude and negotiate a pay-for-delay deal. Congress and the FDA need to alleviate the perverse incentives that makes this kind of deal attractive. I cannot say what they fix might be. It’s likely that Congress needs to reform the patent system so that the patents in place that protect a drug are straight forward and it’s clear when a given drug loses patent protection. It’s the uncertainty and the ability of drug makers to file multiple competing patents that creates the environment where pay for delay is possible.

  3. Patel says:

    I agree with the FTC, certainly allowing the generic drug companies to come into the market sooner is good for the consumer. But again, I do think it is important for drug companies to make decent profit for the new medications they come up with, I know a lot of money goes into the research and development of drugs.

  4. Desai says:

    @ Buster

    I agree with your principles, but in this case understand that a lot of money goes into the R&D of making drugs, so some kind of market protection and guarantee may be warranted.

  5. Alex Cave says:

    A settlement in the millions of dollars for not releasing a generic product? Generic drug makers are basically getting paid millions for not producing anything. Hey, if those were the terms and conditions when running my business, I wouldn’t complain either!

  6. Bernard Wolsh says:

    From the drug makers perspective it certainly makes sense for them to not want the Supreme Court to abolish this agreement between pharmaceuticals and their competitors. However, as a consumer it’s mind-blowing to see how pharmaceutical companies are willing to pay their competition so much money just to keep them out of the market for a while, and on top of that take advantage of their consumers by ripping them off with skirocketing drug prices. This should be a consumer-driven market where pharmaceuticals look after the consumers’ best interest. That’s obviously the least of their concerns.

  7. H. James Prince says:

    The cost of drug R&D is obscenely high. Let them make profit while they still can.

  8. Jack says:

    I’m sure the revolving door between legislators and lobbyists helps the matter. Buster is right on.

  9. Vanessa says:


    So basically you are saying we should let them make profit at the expense of us consumers? I don’t know if many people would agree with you buddy.

  10. Harley Herzling says:

    Prince is right. Big Pharm is one of the areas where market forces doesn’t stimulate innovation without property right protections. This is fundamental stuff, long before Adam Smith.

  11. Robert Scam says:

    And yet just another example of how dysfunctional and corrupt our health industry has become. This is no surprise whatsoever.

  12. Nethal Ayama says:

    The moment a company or person profits from not producing or contributing anything for the consumer and society is the moment when we have all failed.

  13. Louise Venier says:

    @ Nethal,

    Right on point! Not only have we all failed by compensating pharmaceuticals who are not offering anything to consumers, but they are also limiting consumer’s choice to all brand-name drugs, when perhaps we are more interested in generic drugs. They are basically forcing consumers to buy their products by keeping generic pharmaceuticals out of the market, and they are not letting us decide what product we rather buy and how much we rather spend.

  14. Benedict Popplewell says:

    It would really help if the U.S. did not subsidize the rest of the world’s pharmaceutical development costs. I don’t believe that American needs price controls like the rest of the world but spreading around R&D costs would certainly be equitable. Instead, they fall squarely on the American consumer.