RX For Nosebleed Prices

By John Greenwald

Of all the wonder drugs in today's medical arsenal, the heartburn treatment Prilosec has long been the most successful. The stomach soother reaped an astonishing $6.2 billion in sales last year to make it the best-selling prescription drug ever--a title Prilosec stands to lose when its patent expires in October. But if the drug's maker, British firm AstraZeneca, behaves like many of its counterparts in the industry, it won't easily relinquish its monopoly. Indeed, sources confirmed to TIME that the Federal Trade Commission has quietly launched an investigation into whether AstraZeneca illegally blocked generic competition to protect its Prilosec franchise. A company spokesperson said the firm would cooperate with the probe.

The inquiry reflects a widening drive by Washington to restrain the relentless rise of prescription prices, which remain the fastest-growing component of America's $1.3 trillion health-care bill. The action is on two fronts. The FTC, for its part, is going after brand-name drug companies that seek to block cheaper, copycat generic drugs from the marketplace. At the same time, a bipartisan duo of congressional lawmakers is pushing legislation designed to restrict those anticompetitive tactics and speed up government approval of generic medicines.

The crackdown is timely, given that 200 patents are set to expire over the next five years on branded drugs with annual sales totaling $30 billion. That will give the makers of copycat products a rare opportunity to steal market share, since generics on average debut at 75% of the cost of their name-brand rivals. The price difference could be crucial to many Americans since the average cost to fill a prescription jumped 10.5% in 2000--to $45.27--according to the National Institute for Health Care Management. That increase was more than three times as great as the overall rate of inflation. The group said spending on U.S. prescriptions rose 18.8%, to a record $131.9 billion last year, as consumers purchased ever more and ever costlier remedies.

With its eye on cost, the Food and Drug Administration last week took testimony on whether to require makers of the blockbuster allergy drugs Claritin, Allegra and Zyrtec to sell the products over the counter, a move that would slash their prices. An FDA advisory panel ruled that the drugs were safe enough to be sold without prescription. While the FDA is not required to follow the panel's advice, it has usually done so. A switch to over-the-counter sales would benefit uninsured buyers--as well as insurers, such as the California managed-care giant WellPoint Health Networks, which sought the reform. But insured consumers would be hurt, since the cost of over-the-counter drugs is not reimbursable.

When it comes to generics, though, all consumers benefit financially. That's why the FTC has launched a sweeping review of companies to determine if they've tried to suppress these knock-offs. In recent weeks the FTC has sent out 75 court-enforceable demands for information from companies. And in a little over a year, the agency has filed three cases against drug giants suspected of paying off the makers of generics to keep their products off the market. To settle the suits, two companies agreed not to delay the entry of generics in the future. The third, Schering-Plough, is charged with paying $90 million to two competitors to postpone introducing generic versions of K-Dur, a heart medication. All three drugmakers deny wrongdoing.

Meanwhile, a Senate bill sponsored by Arizona Republican John McCain and New York Democrat Charles Schumer would plug loopholes in a 1984 law that lets name-brand companies obtain frivolous 11th-hour patents when their original protection is about to expire. How frivolous? Consider the case of Bristol-Myers Squibb, which filed a new patent on its antianxiety drug BuSpar last fall even as a generic competitor was loading cheaper pills onto its trucks for shipment. The patent application was a slick move because it did not apply to BuSpar itself but rather to a chemical by-product that appears in the body as the drug is digested. A federal judge eventually threw out the extension request but not before the company had rung up an extra $57 million in sales. Asks John Balto, a former FTC official who has been involved in some of the recent probes: "Has the law encouraged name-brand firms to invest in legions of attorneys to create unwarranted regulatory obstacles rather than creating new and better drugs for consumers?"

Naturally, the drug companies answer no. They point to the quantum improvements the industry continues to make in prescription products. Just last week, for example, the FDA approved a powerful new anticancer drug called Gleevec, which could cost patients more than $2,000 a month when it hits the market this week (see MEDICINE). Says Robert Blendon, a professor of health policy at the Harvard School of Public Health: "We're shifting to new types of drugs that could be a lot better than the old ones."

And they are expensive to cultivate. Last year the pharmaceutical industry spent more than $26 billion to develop new potions, according to the Pharmaceutical Research and Manufacturers of America, a Washington lobby group. While drugmakers have traditionally been among the most profitable U.S. companies, they plow 20% of their sales into research and development, in contrast to less than 4% for the average U.S. manufacturer. "If you've got a life-threatening disease, your best hope is the American pharmaceutical industry," says Alan Holmer, president of the lobby.

William Nixon, head of the Generic Pharmaceutical Association, responds that pressure from knock-offs actually encourages innovation by the name-brand firms. "To remain competitive in the marketplace, they have to go out and do cutting-edge R. and D.," he says. A 1999 Yale study concluded that consumers benefit financially from the increased availability of generic drugs "without any appreciable innovative 'losses' resulting from reduced research and development."

While regulators and some lawmakers take aim at dirty patent tricks, the young Bush White House has mostly looked the other way. Bush campaigned on a promise to help senior citizens pay for prescription drugs through Medicare reform, but he hasn't been eager to press that contentious issue. He will most probably deliver a set of reform guidelines to Congress by summer and then strive to remain above the fray.

But that could prove difficult as the drive to halt patent cheating and encourage generics gains momentum in Washington. As that happens, the issue will become how to control prescription costs without dampening the flow of funds for pharmaceutical research. And if that heroic task should cause anyone heartburn, why, then, a dose of Prilosec--or its generic equivalent, if one ever becomes available--could certainly do the trick.

--Reported by Viveca Novak and Mark Thompson/Washington

With reporting by Viveca Novak and Mark Thompson/Washington