Market Participants and Competition

• Pages: 1-67

1

CHAPTER I

MARKET PARTICIPANTS

AND COMPETITION

Pharmaceuticals play a major role in the U.S. economy and in the

health of Americans.1 Billions of prescriptions are filled annually,

estimated at a cost of roughly half a trillion dollars. For example,

according to an issue brief from the U.S. Department of Health and Human

Services (HHS), the prescription drug spending in the United States was

about $457 billion in 2015, or 16.7 percent of overall personal health care

services.2 Of that $457 billion, $328 billion (71.9 percent) was for retail

drugs and $128 billion (28.1 percent) was for non-retail drugs.3 And in

2014 alone, four billion prescriptions were filled in this country.4

Expenditures on pharmaceuticals are growing. While 2016 saw a

relatively slow growth rate (1.3 percent) in prescription drug spending, this

followed two consecutive years of relatively strong growth (12.4 percent

in 2014 and 8.9 percent in 2015).5 Overall health care spending rose 4.3

percent to $3.3 trillion, and, as a percentage of the U.S. gross domestic

1. From a Food and Drug Administration (FDA) regulatory standpoint,

pharmaceuticals inc lude both conventio nal drugs and biological drugs.

2. Office of Ass’t Sec’y for Planning and Evaluation, U.S. Dep’t of Health &

Human Servs., ASPE I ssue Brief: Observatio ns on Trends in Prescr iption

Drug Spending, Department of Health and Human Services (Mar. 8, 2016),

available at https://aspe.hhs.gov/sites/default/files/pdf/

187586/Drugspending.pdf.

3. Id.

4. The Henry J. Kaiser Family Found., Total Number of Retail Prescription

Drugs Filled at Pharmacies (2014), available at http://kff.org/other/state-

indicator/total-retail-rx-drugs/.

5. U.S. DEP’T OF HEALTH & HUMAN SERVS., CENTERS FOR MEDICARE &

MEDICAID SVCS., NAT’L HEALTH EXPENDITURES 2016 HIGHLIGHTS 1,

available at http://www.cms.gov/ Research-Statistics-Data-and-

Systems/Statistics-Trends-and-Repor ts/NationalHealthExpendData/

Downloads/highlights.pdf [hereinafter CMS, 2016 HIGHLIGHTS]; see

CONG. BUDGET OFFICE, ISSUES IN DESIGNING A PRESCRIPTION DRUG

BENEFIT FOR MEDIC ARE 1 (2006) [hereinafter CBO, ISSUES IN

DESIGNING], available at http://www.cbo.gov/sites/default/files/cbofiles/

ftpdocs/39xx/doc3960/10-30-prescriptiondrug.pdf.

2 Pharmaceutical Industry Antitrust Handbook

product (GDP), rose to 17.7 percent in 2015 and 17.9 percent in 2016.6

Generic drugs increased their share of total prescriptions, reaching 89

percent in 2016, but accounted for only 26 percent of total prescription

spending.7

Despite the strong growth of generics, drug companies continue to

offer new, innovative and often more expensive drug treatments. Forty-

six new drugs were approved in 2016, a greater number of approvals than

the average of 31 per year from 2008 through 2016.8 New drugs are

generally more expensive than older drugs, particularly certain specialty

drugs which may have very high per-patient costs, but may be more

effective and produce fewer adverse side effects.9 According to the Center

for Medicare and Medicaid Services’ Office of the Actuary, the strong

growth in 2014 and 2015 prescription drug spending reflected “increased

spending on new medicines and price growth for existing brand-name

drugs” and the slower 2016 growth was due to fewer new drug approvals,

slower growth in brand-name drug spending, and slower price growth for

generic drugs.10 Pharmaceuticals continue to represent a significant part

of the nation’s economy and the health care sector.

A. Market Participants

1. Branded Manufacturers

Branded pharmaceuticals (here, referred to as “branded” or “brand”)

are sold under a trade name. Generally, they are innovative drugs

(comprising either chemistry-based or biologic pharmaceuticals) that

enjoy or enjoyed protection by one or more patents. They are also referred

to as innovator or pioneer drugs.

6. CMS, 2016 HIGHLIGHTS , supra note 5, at 1.

7. ASSOCIATION FOR ACCESSIBLE MEDICINES, GENERIC DRUG ACCESS &

SAVINGS IN THE U.S. 16 (2017), available at https://accessiblemeds.org/

sites/default/files/2017-07/2017-AAM-Access-Savings-Report-2017-

web2.pdf [hereinafter AAM, GENERIC DRUG ACCESS].

8. U.S. FOOD & DRUG ADMIN, CENTER FOR DRUG EVALUATION AND

RESEARCH, 2017 NEW DRUG THERAPY APPROVALS 9 (Jan. 2018),

available at https://www.fda.gov/downloads/AboutFDA/CentersOffices/

OfficeofMedicalProductsandTobacco/CDER/ReportsBudgets/UCM5919

76.pdf.

9. Nat’l Ctr. for Health Statistics, Health, United States 2006, Tbl. 93 (200 6),

available at http://www.cdc.gov/nchs/data/hus/hus06.pdf.

10. CMS, 2016 HIGHLIGHTS , supra note 5, at 1.

Market Participants and Competition 3

a. Drug Discovery Process

Pharmaceutical companies take an average of ten to 15 years

researching, developing, and obtaining approval for a new drug.11 During

research and development, tens of thousands of compounds will be

screened, but only one will receive approval.12 Of these, only 12 percent

of the proposed new drugs that reach clinical trials will be approved by the

Food and Drug Administration (FDA).13

b. Large Research and Development Costs

An industry trade association, Pharmaceutical Research and

Manufacturers of America (PhRMA), estimates that the cost of developing

one new drug or biologic is approximately $2.6 billion, including the cost

of failures.14 This represents a large increase in recent years, as the average

cost was about $800 million in the late 1990s.15 In 2014, the worldwide

research and development spending reported by U.S.-owned

pharmaceutical companies and the U.S.-based spending reported by

foreign companies was $89 billion, an increase of 8 percent in real dollars

from 2008.16

c. Patent Protection

In the United States, patents give the inventor exclusive rights to sell

an invention for 20 years. The exclusivity provided by our patent system

fosters innovation, which benefits consumers.

Many brand drugs enjoy patent protection when they are introduced

to the market. However, patents ordinarily are granted before FDA

approval is obtained; several years of patent protection thus may expire

11. See PHARM. RESEARCH & MFRS. OF AM., PHARMACEUTICAL INDUSTRY

2016 PROFILE 46 (2016) [hereinafter PHRMA, 2016 INDUSTRY PROFILE ]

available at http://phrma-docs.phrma.org/sites/default/files/pdf/

biopharmaceutical-industry-profile.pdf

12. Id.

13. Id.

14. Id.

15. Id. at 47.

16. GOVERNMENT ACCOUNTABILITY OFFICE, DRU G INDUSTRY PROFITS,

RESEARCH AND DEVELOPMENT SPENDING, AND MERGER AND

ACQUISITION DEALS 29 (Nov. 2017), available at https://www.gao.gov/

assets/690/688472.pdf.