On November 8, 2017, the Federal Trade Commission held a workshop entitled, “Understanding Competition in Prescription Drug Markets: Entry and Supply Chain Dynamics.” FTC held the meeting due to its concerns about rising drug prices that have leading policymakers questioning whether there are obstacles to generic entry that prevent competition from keeping prices “in check.” Acting FTC Chairman Maureen K. Ohlhausen and FDA Commissioner Scott Gottlieb, M.D. provided the keynote addresses.

The first session took a look at generic drug markets, including considerations that may preclude generic product entry after the relevant (usually the Orange Book listed) patents have expired. Panelists discussed price and non-price factors that may influence entry in these markets. The second session evaluated intermediaries in the pharmaceutical supply chain, focusing on pharmacy benefit managers (PBMs) and group purchasing organizations (GPOs). Panelists discussed how the contractual relationships between intermediaries, manufacturers, and health plan sponsors impact consumer prices for prescription drugs. Speakers were encouraged to provide suggestions for how to encourage entry and reduce or eliminate competitive barriers to generic competition in prescription drug markets.

Ohlausen started the keynote presentations with an observation that there are “few things more effective to lower prescription drug prices than to have more generic drugs.” She noted that the FTC has investigated and brought enforcement actions related to mergers, “pay-for-delay” settlements, and sham petitioning. She said these efforts have helped make Hatch-Waxman work as intended—a balance between providing incentives for developing innovative new drug therapies, while providing a mechanism for generic drugs to help spur competition and reduce drug prices once the relevant incentives (patents/exclusivities) have expired.

Ohlausen said that when Hatch-Waxman was passed, there was an assumption that once the patents expired, there would be multiple generic drug versions approved, selling at marginal costs. While this is often correct, she added, sometimes there are off-patent drugs with only a single source, which may lead to drug shortages and higher than expected prices in the absence of competition.

Ohlausen said that this public workshop does not mean that the FTC is planning to ramp up enforcement to address the issue. The FTC recognizes that limited competition is a complex, multi-faceted problem, where antitrust actions may not be the solution to every problem. She said that antitrust actions work best when addressing harms in the process, but for now, the FTC needs to learn more about how the markets are working today and what changes in the regulatory system would be appropriate, e.g., adjusting incentives.

Gottlieb’s keynote remarks echoed many of Ohlausen’s observations, while summarizing some of FDA’s complementary activities to date. Gottlieb said FDA is concerned about the public health when patients are priced out of receiving the medicines they need (and FDA has approved), especially when required for life or for treating cancer and rare diseases. While FDA appreciates the need to reward innovation, Gottlieb explained, branded companies may make it near impossible for generic drug companies to obtain samples of those branded products by “gaming” the system and thereby preventing generic drug competition.

In Gottlieb’s opinion, when branded companies engage in such tactics, they have abandoned the framework of Hatch-Waxman, which relies on generic drugs coming to market once the period for innovation incentives has expired. Gottlieb characterized this as an “extended monopoly,” and asked branded companies to “end the shenanigans” if they want the current incentives to stay in place. Gottlieb said that if branded companies continue to engage in tactics to make obtaining their product samples difficult, whether by restricted access through specialty pharmacies or other means, such tactics are in “direct conflict with broader public health goals” and that branded product incentives may “need to be readjusted.” As a first step, Gottlieb said that he plans to directly contact pharmaceutical chain intermediaries and let them know that if they sign onto restrictive programs that deny branded samples to generic drug companies, such actions are “against public health goals.”

At the same time, Gottlieb explained, FDA is internally taking steps to make the generic drug approval process more efficient. In the coming weeks, FDA will disclose new initiatives to do this and has already started by expanded prioritization for reviewing the first three generic drugs, when there are no blocking patents or exclusivity, and by making public lists of off-patent/off-exclusivity products available for immediate competition. FDA will take steps to make it easier for innovators and generic drug companies to set up a single, shared REMS via a master file, which, if denied by the innovator, will provide a stronger basis for FDA to grant waivers to a single, shared REMS system. FDA also announced new policies on complex generics and is working to reduce not only review times, but the number of review cycles required for approval of generic drugs.

Presentations from the panels may be found here.

By way of summary, in the first panel, speakers discussed physician and consumer perception of generic drugs, perceived anticompetitive measures taken by innovator companies to frustrate the development and approval of generic drugs, and market drivers to consolidate markets and reduce marketed generic drug players. Potential solutions included increased advertising/promotion scrutiny, use of imported generics to prevent shortages, greater funding to the Office of Generic Drugs, legislative fixes and greater FTC scrutiny/enforcement for anticompetitive abuses, increased attention to purchaser consolidation, and regulatory and market challenges for developing interchangeable biologics and marketing biosimilars.

In the second panel, PBMs, panelists noted how the top three PBMs control up to 80 percent market share, which allows them to negotiate lower prices with manufacturers and pharmacies. Such negotiation has led to a 3.5% increase in the cost of branded medicines when taking rebates and other discounts into account, but few understand or have access to “hidden” PBM revenue streams that collectively place each in the top 22 of Fortune 500 companies.

The third panel looked at GPOs and how their group buying power affects generic drug prices. In this panel, Arent Fox’s Stephanie Trunk provided insight into the role of wholesalers/distributors in the supply chain and in establishing prices for prescription drugs for downstream customers. In addition, the panel explored the role of GPOs in the supply chain and their impact on drug pricing. Most hospitals and many non-acute care facilities use GPOs to reduce costs for hospitals, healthcare providers, Medicare and Medicare, and taxpayers. Unlike PBM contracts, GPO contracts are more transparent and subject to annual or more frequent reviews. But generic drug pricing is complicated, depending on supply of competing generic drugs and their wholesale acquisition cost, as well as the potential to bundle certain classes of drugs from a sole manufacturer in exchange for rebates or other discounts, such as volume or exclusivity commitments.

In addition, the FTC has asked for public comment from interested parties through December 8, 2017. Comments may be submitted here and comments that have been submitted already may be read here. Specifically, the FTC invited comments on the following questions:

  1. Do generic drug manufacturers have sufficient incentives to enter markets where the brand drug is off-patent? Do policymakers or market participants have a role in providing incentives to encourage entry decisions that better align with the public interest?
  2. Some report strategies to reduce generic drug competition when the branded drug is off-patent. Are these reports accurate? If so, what steps are taken to reduce competition? If not, are there other reasons why generic entry is not seen as robust? What can be done?
  3. What role do intermediaries, such as pharmacy benefit managers and group purchasing organizations play in prescription drug pricing, consumer access, and quality? What are the benefits and costs of intermediaries in the pharmaceutical supply chain? Has consolidation affected price, access, or quality?
  4. How do companies assess the benefits, costs, and risks of contracting with intermediaries? How well do consumers understand intermediaries’ roles? Is more information necessary?
  5. How should stakeholders evaluate proposals to reduce drug prices and increase consumer access in prescription drug markets? What role can the FTC play in addressing these issues?