Will The State Of New York Stifle Pharma Innovation?

By Ed Miseta, Chief Editor, Clinical Leader

An anti-trust lawsuit is pending in the U.S. Court of Appeals for the Second Circuit that could have an impact on the ability of a pharmaceutical company to innovate and invest in medicines they think will best serve patient needs. Announced last year, the case of State of New York v. Actavis plc Forest Laboratories, LLC seems to have the potential to determine whether the government can tell life science companies what they can and cannot produce. To wit, if you get approval on a drug and market it to patients, can you decide at some point that you no longer want to manufacture it, so as to devote valuable resources to other projects.

To recap for those of you who may not know, Forest Laboratories developed a drug (Namenda IR) to treat Alzheimer’s disease. Eventually generic versions of the drug hit the market to compete against it. Now Forest is developing a new version of the drug (Namenda XR) and wishes to discontinue manufacture of the older drug. The company claims the newer version has advantages over the old product, most notably that it must only be taken once a day. Continuing to produce the older medicine, Forest claims, will force the company to divert limited manufacturing resources to producing an older product all for the purpose of subsidizing the generic manufacturers (New York is a state that requires substitution of generic drugs by pharmacists. By marketing your own product, you are in fact marketing the generic versions as well).

The New York Attorney General wants Forest to continue producing the drug, and claims federal antitrust laws require it to do so. An October 2014 district court ruling prohibits Forest from discontinuing production, ruling the injunction was necessary to promote competition and consumer welfare.

I would be the first to argue that competition is good. Competition leads to greater innovation, lower prices, a healthier market, and increased consumer satisfaction. If we did not have cell phone manufacturers competing against each other for greater market share, I doubt my phone would have a camera, full touch keyboard, internet access, GPS, texting, and dozens of other features I use on a daily basis. But if government had the right to step in and tell cell phone makers that they were required to produce older models, would we have these capabilities or would we still be carrying mobile phones the size of a shoe?

But will the ruling promote competition and consumer welfare, or will it have the exact opposite effect? Attorneys from the law firm Ballard Spahr, along with Melissa Schilling, a professor from New York University’s Stern School of Business, have filed an amicus brief on behalf of 12 leading professors of management, organization, and policy supporting an appeal of the district court ruling. The brief notes the high cost of research and development will result in the injunction having the opposite effect. According to the brief, “To the contrary, it is inefficient and anti-competitive to force a company to continue to support a product that it has replaced and for which the government’s witness agrees there is no ‘market need.’”

The brief goes on to state the district court ruling undervalues important drivers of innovation, and the need to protect that innovation is heightened in pharma, an industry that is already heavily regulated and has high R&D costs.   

To be fair, the ruling will not require Forest to manufacture Namenda IR indefinitely. The company would be required to continue producing the product for a period of time after the introduction of the new product. But regardless of the time requirement, what is not in question is that Forest would be required to devote needed and scarce resources away from a new and improved product into an older and outdated one.

Still, pharma is an industry like no other. Innovation and advancements in this industry not only save lives, but improve the quality of life for millions every day. We rely on pharma companies to invest in medicines that will do the most good and serve the greatest need. With the skyrocketing cost of bringing a new drug to market, the money and resources that drive R&D will always be in great demand. If it comes down to deciding who would best be able to decide how those resources should be used, I have to go with the companies that are involved in drug discovery on a daily basis. The last thing we need to do is further drive up the costs by forcing companies to continue to invest in older and less effective medicines.