Usually when we think about regulation of the medical industry – and specifically pharmaceuticals – the Food & Drug Administration (FDA) is the agency that comes to mind.  After all, the FDA requires extensive testing for safety and effectiveness before drugs are allowed to be put on the market.  While the FDA’s regulatory scheme may have some room for improvement, it is not the agency that is currently wreaking the most havoc on the pharmaceutical industry.  Instead, it is the Federal Trade Commission (FTC) that is interfering with medical innovation. 

Drug development is expensive and uncertain.  Even if a drug is developed that shows promise, it may not meet FDA approval.  The time line from discovery to approval averages over a decade, and for every 5000 drugs that start the process in the lab, the FDA approves only one.  One reason that companies are willing to invest in these risky endeavors is the possibility of obtaining a patent on the drug.  A patent allows the developer a limited period of exclusivity in which the developer can charge a premium price – these drugs are what we generally consider our brand-name medicines.  After the patent expires, other companies are able to copy the invention and make and sell the drug without the extensive testing and approval process.  These companies can then provide the medicine at a lower price – what we generally call generic drugs.  Both brand-name medicines and generic drugs have an important role in today’s economy and health system, and Congress has created a system, through the FDA (the Hatch-Waxman regime) that balances the interests of both types of drug companies.

Despite this carefully crafted balance, the FTC has stepped in to combat what it perceives as anticompetitive behavior in the pharmaceutical industry – even where that behavior is lawful under the federal Food, Drug, and Cosmetic Act and under the Hatch-Waxman regime.  The FTC has conducted industry-wide investigations and developed novel theories to capture the industry’s otherwise lawful behavior.  Additionally, the FTC has been aggressively pursuing, in court, any agreement between brand-name medicines and generic drug companies to settle litigation between the companies.  The FTC has also taken issue with lawfully issued patents on what is known as incremental drug innovation.

Although the FTC’s goals may be well intentioned, its interference with the pharmaceutical expertise provided by the FDA and the patent law expertise provided by the US Patent and Trademark Office is troubling.  In doing so, the FTC is hindering innovation and potentially costing us our health.

Read this paper from the Regulatory Transparency Project to better understand why patents are critical for pharmaceutical development, how Congress has crafted a balance between brand-name medicines and generic drug companies, and how the FTC’s overreach is weakening patent rights and interfering with innovation in this field.