Constraining Drug Supply: Product Positioning, Patent Protection and Regulatory Standards

On both sides of the Atlantic, fast growing drug expenditures and an apparent slow-down in the introduction of new pharmaceutical compounds and generics had rekindled antitrust concerns. Yet while the EU Commission was entering largely uncharted territory, US authorities seemed guided by relevant legislation and case law that has no equivalent in Europe. Still, the US experience so far also shows that public outcries over high-profile cases are no substitute for a dispassionate assessment of conflicting incentives, inconsistent regulatory standards and essential welfare trade-offs. In fact, it suggests the need to reconsider fundamental policy options and to establish efficient rules so as to ensure a competitive supply of innovative drugs. Contemplating the US experience, this article is organised in five parts. By way of introduction, Part I links US healthcare expenditures, drug research costs and elements of drug regulation and reimbursement to identify four corporate imperatives for product positioning and life-cycle management. Part II focuses on the economics of innovation and intellectual property rights and the need to challenge patents. Part III outlines the structure of the Hatch-Waxman Act, intended to speed up generic substitution, and discusses the evolution of US court decisions on patent settlements in the wake of it. Part IV offers some considerations for modifying the application of Hatch-Waxman rules as well as the processes for contesting patents and pharmaceutical product markets. Part V sums up and links back to the current EU initiative.