Pay-for-Monopoly? An Assessment of Reverse Payment Deals by Pharmaceutical Companies

Over the past eighteen years, pharmaceutical firms have developed a blueprint to impede competition in order to maintain their monopoly profits. This scheme, termed pay-for-delay, involves direct or indirect payment of money from a branded-drug manufacturer to a generic-drug producer to stay out of market. In most cases, the payment is shrouded as a side deal, where the generic-drug entrant agrees to stay out of the market in return for overpayment on some unrelated agreement from the branded drug company. These agreements are signed at the same time, or even within the same legal agreement. While the Federal Trade Commission has often asserted that these agreements restrict trade by keeping the generic off the market at the expense of consumers, traditional expert economists have developed a number of defenses for such practices. Drawing on insights from behavioral economics, we argue that these agreements are very unlikely to be pro-competitive. We suggest solutions, both judicial and legislative, that would lead generic drugs to the market faster, providing more medicine to those that need it at a more affordable price.