Prevent drug companies from blocking generic drugs

Obama's budget plan proposes measures to prevent drug companies from blocking generic drugs

Updated: Thursday, March 5th, 2009 | By Robert Farley

During the campaign, President Obama vowed to rein in efforts by drug companies to lengthen the exclusive period before generic drugs are allowed.

Under existing rules, drug companies that develop new medications deemed safe and effective by the Food and Drug Administration are granted a period of market exclusivity, during which cheaper generic alternatives cannot be offered on the market. Once that exclusive period ends, generic copycat drugs are allowed to flood the market, and the price of the medications drops dramatically.

It's something of a tradeoff. While generic drugs spell significant savings for consumers, they are a profit killer for the companies that develop the new medications. Naturally, pharmaceutical companies try to extend their exclusivity — and the higher profits they can achieve — as long as they can.

An Obama campaign document said that "some drug manufacturers are explicitly paying generic drugmakers not to enter the market so they can preserve their monopolies and keep charging Americans exorbitant prices for brand name products. The Obama-Biden plan will work to ensure that market power does not lead to higher prices for consumers. Their plan will work to increase use of generic drugs in the new public plan, Medicare, Medicaid, FEHBP (Federal Employee Health Benefits Program) and prohibit large drug companies from keeping generics out of markets."

Obama addressed the issue in the outline for his 2010 budget, which was released Feb. 26. It recognizes the need for a period of exclusivity for drug companies, to offset the high cost of research and development and to encourage innovation. But the budget plan offers two measures to prevent drug companies from blocking generic drugs when the original period of exclusivity ends.

First, the administration proposes "prohibiting anticompetitive agreements and collusion between brand name and generic drug manufacturers intended to keep generic drugs off the market." This speaks to the campaign charge that drug manufacturers are paying generic drugmakers not to enter the market.

Additionally, the Obama plan proposes that drug manufacturers be "prohibited from reformulating existing products into new products to restart the exclusivity process, a process known as 'evergreening.' " Essentially, this seeks to prevent drug companies from slightly altering their medication, calling it something new, and then attempting to restart the clock on their exclusivity period.

We note that the budget proposal is just that, a proposal. It's a long process to move a budget through Congress. And it's worth noting that pharmaceutical companies donate gobs of money to politicians, many of whom will vote on all of this. So this promise has a long way to go. Nevertheless, by including these measures in his first budget plan, Obama has set things in motion. And so we move it to In the Works.

Sources: Office of Budget and Management, Budget Documents for Fiscal Year 2010 , Feb. 26, 2009