Free markets work best when their is fair competition over price; they fail when a cartel is formed to keep a price above the market rate. A major pharmaceutical company GSK is said to have made over £50 milion ($75 million) of payments to companies trading in the U.K. The companies who had the rights to produce generic versions of an anti-depressant drug, developed by GSK, called Seroxat. The money was to delay the generic versions from coming onto market.
When a pharmaceutical company develops a drug is holds the rights to produce the drug and to set the price by holding the patent. The company markets the drug under a brand name, which is normally different from the chemical (or generic name.) After a period of time, typically 20 years in the U.S., the patent expires. Once the patent has expired, the drug can be manufactured and sold by other companies and it is called a “generic drug.” Importantly the generic must be comparable to the branded drug product. The pharmaceutical company that first developed the drug may continue to produce and sell it, under the brand name, competing against the (usually) cheaper generic product. To take an example, Glucophage is a branded diabetes drug. It is also sold in generic form as metformin.
Sometimes, and fortunately for consumers and health services infrequently, the pharmaceutical company that develops the drug pays money to the companies that hold the rights to produce the cheaper generic. This is because the pharmaceutical company factors in that the potential sales from the branded product will outstrip the incentive payments it passes onto the generics company. This appears to have happened in the GSK case, according to BBC News.
A fine of just over £37 million has been levied on GSK by the U.K. Competition and Markets Authority (CMA) because the action has led to the U.K. National Health Service spending more than it would otherwise, had a generic version of the anti-depressant Seroxat been available.
Other companies fined are generic manufacturers: Generics UK, Merck, Alpharma, Activis UK and Xellia Pharmaceuticals, for the charge of collaborating with GSK in the market distortion. GSK is considering appealing and does not support the accusation made against it. A spokesperson for GSK said, as quoted by the Financial Times: “GSK and the generics companies entered into these agreements at the time in order to settle costly, complex and uncertain patent disputes.”
GSK has been involved in controversy with Seroxat before. In 2012, the U.S. Department of Justice fined GSK $3 billion for withholding data on paroxetine and for unlawfully promoting it for under-18 year olds.
