FTC Oversight of the Pharmaceutical Industry

High drug prices in the US are a serious problem for both patients and the health care system. Prices of branded drugs are driven higher by monopoly dynamics: patents and other exclusive marketing rights allow companies to increase prices and restrict supply. Firms earn extraordinary profits from exclusive rights and so have incentives to sustain or extend these rights, including in unfair and abusive ways. Firms build “thickets” of secondary patents (eg, for devices used to deliver a drug) around successful medicines to extend market control by many years, sometimes earning billions of dollars in return. In “pay-for-delay” deals, companies settle lawsuits brought by generic companies challenging patents by paying them or providing other benefits if they agree to stay out of the market. Market power comes not only from patents and regulatory barriers, but also market consolidation, which has affected the pharmaceutical industry like many others. Today, the 3 largest firms control 65% of the world market for generic drugs, and 75% of the national market for pharmacy benefit managers (PBMs), and evidence has emerged that firms in both settings are driving prices higher in ways that involve collusion or other anticompetitive practices.