Obama White House sides with trial bar at costly expense of generic drug makers

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Article Highlights

  • We have to decide if we want generic drugs that are cheap & a business that’s highly competitive.

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  • Drug labels no longer serve a solely medical purpose. They are written by lawyers to mitigate legal risk.

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  • Obama team’s plan doesn’t read like it's crafted to promote public health, or a market for cheaper, more competitive generics.

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The FDA has issued a new regulation that could open generic drug makers to the same sort of product liability suits that plague branded pharmaceutical companies.

It’s part of a political effort by the Obama team to find a regulatory end run around its failed bids to attain the same result in the courts and on Capitol Hill.

But the new rule will jeopardize the business model that has given the U.S. the world’s most vibrant, and low cost market for generic medicines.

At issue is whether generic drug makers can be sued for the “failure to warn” patients that a drug has certain risks that weren’t disclosed in its FDA mandated label. The question has been the subject of intense political lobbying by trial lawyers who argue that generic drug makers shouldn’t be immune to these suits.

The trial bar seems to have won the debate.

These “failure to warn” lawsuits are the backbone of modern drug torts and a booming legal industry. Lawyers troll for patients on TV commercials. In 2005 alone, 17,000 lawsuits were filed against the multi-national drug companies. This is more than the litigation filed against the next five most sued industries combined.

In a typical case, a branded drug company will be accused of failing to warn consumers of a risk that didn’t appear on the drug’s FDA-approved labeling.

Even though FDA maintains tight control over what can be included in the label, trial lawyers will typically argue that the branded drug makers have some latitude to unilaterally update labels without FDA’s prior permission, to reflect new warnings.

There are good legal and practical reasons why generics have been largely absolved from this same sort of litigation.

Under the 1984 law that created the modern generic drug approval process, named Hatch-Waxman after the bill’s principal sponsors, generic drugs have to largely reproduce the labels of the branded drugs that they’re copied from.

Because the generics aren’t free to insert their own safety warnings, they contend that they are pre-empted from state torts that seek to second-guess the contents of warnings.

The Supreme Court agreed in a landmark 2011 ruling. In a separate but related generic drug case decided last summer, the Supreme Court solidified this precedent.

In the 2011 Supreme Court ruling, Pliva v. Mensing, President Obama’s Solicitor General tried to argue that generic drug makers could be held liable in state torts, with the creative reasoning that generic labels only needed to conform to branded drugs at the time of approval, but generics were free to change their labels later. (Pliva is now a part of Teva NYSE:TEVA)

The Supreme Court disputed that reasoning. It held, among other things, that the generic drug laws clearly stated that the generic firms didn’t have freedom to adapt their labels at will. Moreover, the court argued that the law charged FDA with tightly controlling the warnings that got included in those generic labels.

The Obama Administration’s new effort is aimed at thwarting this precedent.

FDA’s draft regulation will obligate generic drug makers to update their labels without waiting first for FDA’s permission, or for a drug’s predicate drug label to get updated. This new rule may well conflict with not only the courts, but also the existing law.

The effort is of a piece with an administration that liberally pursues through regulatory fiat what it has fails to achieve through the courts, or in legislation. A bill to change the drug laws to make generics responsible for updating safety labeling was introduced in the Senate last year, but pulled when it didn’t garner any support. Politicians realized that there were costly implications to such a measure.

If the goal is making sure that the generic labels are kept up to date with modern safety warnings, the Obama scheme is a clumsy solution.

If the FDA rule is finalized, generic drug companies will have to grow up the same costly “pharmacovigilance” groups that branded companies already maintain, largely as a way for the generics to fashion new warning labels and blunt the effects of litigation. The new rule would likely eliminate the preemption from failure-to-warn claims that the generics enjoyed, exposing them to liability for drug label warnings that state courts find insufficient .

We have to decide if we want generic drugs that are cheap and a business that’s highly competitive. Or we want the industry to subsidize product liability torts.

Ultimately, the cost of litigation will get baked into generic drug prices.

It will raise the cost of developing these medicines, creating additional barriers to market entry. This will reduce the number of generic entrants that typically copy each individual drug, and then compete to lower prices.

In the branded drug world, litigation already translates into higher development costs, and prices.

FDA also complains that branded companies use drug labels as legal disclaimers to shield themselves from the failure to warn suits. They add all kinds of superfluous warnings to these labels. One common catchall warning reads “don’t use this medicine if you are allergic to any of its components.”

Drug labels no longer serve a solely medical purpose. They are written by lawyers to mitigate legal risk.

Now generic drug makers will add their own verbiage to this noisy mix.

Many generic drugs have a dozen or more different firms that will produce copies of a medicine. If the FDA regulation goes forward, it could mean each one of those different firms would be vying for the label with the longest list of warnings.

Instead of pursuing this messy scheme, FDA could assume responsibility for keeping the generic labels up to date.

Most generic drugs are old medicines where the safety issues are well understood. The desire to add new warnings isn’t typically a question of new safety issues emerging, but of evolving standards that prompt increasingly cautious regulators to favor more disclosures around remote risks.

But the Obama team’s plan doesn’t read like its crafted to promote public health — or a market for cheaper, more competitive generics.

Its principal ambition is to reach a compromise with the trial bar.

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