Cross-posted at’s WLF contributor site

One of the best ways for a federal agency to justify its budget and seek similar or increased funds in the next fiscal year is to inject itself into the hot topics of the time.

For the U.S. Federal Trade Commission (FTC), one of those money-magnet hot topics has been health care costs. Lower health care costs are of course good for everyone, and combatting unlawful restraints on trade which increase costs is well within FTC’s authority. We don’t take issue with the Commission’s focus on health care. What we do question, however, is the Commission’s proclivity for targeting lawful business activity that FTC is convinced harms competition and increases prices.

WLF has touched upon one of these lawful activities quite a bit here, namely patent settlements between branded and generic drug companies where branded companies give something of value to generic companies. FTC is absolutely convinced these “reverse-payment settlements” are unlawful; courts have consistently disagreed with FTC, largely on the basis that patents offer drug makers a lawful monopoly, and the settlements don’t extend the patent term.

A May 23 article in The Washington Post focused on a newer object of FTC’s misguided ire: branded drug companies’ decision not to sell certain prescription products to generic companies who wish to make copies of these drugs. The drugs in question are subject to FDA-mandated risk evaluation mitigation strategies (REMS), which impose complex restrictions on their labeling, use, and distribution. The makers of these high-risk drugs argue they don’t want to sell large quantities to third parties who will conduct human trials over which the branded companies have no control. Third parties’ failure to follow the meticulous use provisions could result in liability litigation against the branded manufacturer.

The generic companies believe the branded companies are refusing sales in order to delay competition. In one instance, a generic company facing this situation sought FDA’s intervention through a citizens petition. FDA has taken no action yet. Enter the FTC, which is, of course, convinced that branded drug companies have nefarious motivations. FTC Chairman Jon Lebowitz finds refusals to sell “particularly troubling,” and the Commission initiated an investigation against branded maker Celgene in 2009.

From our perspective, if this refusal to sell REMS-restricted drugs (for arguably valid reasons) is inconsistent with the public interest, then it should be Congress, not FTC or FDA, which acts. Congress considered an amendment to the Food, Drug & Cosmetic Act in 2007 putting a framework in place to move such sales forward, but the provision was removed prior to final passage.

The U.S. Senate turned its attention to this issue once again this year through the must-pass FDA user-fee bill (S.3187, the “Food and Drug Administration Safety and Innovation Act,” which passed last week). Section 1131 of the bill requires branded companies to sell REMS-restricted drugs to generics for the purpose of testing if HHS issues a written notice to the branded company. The generic company must certify that it will follow the HHS’s conditions of use. If after receiving HHS written notice the branded company refuses to sell, it will be in violation of its REMS. The bill does provide the branded company liability protection from suits arising out of the generic human trials. The House’s version of the user-fee bill, H.R. 5651, which passed yesterday, does not include a provision like S.3187’s § 1131.

WLF takes no position on whether such congressional action is appropriate. But certainly if some action is to be taken, we’d rather have our elected representatives do it, instead of leaving regulated entities to the whims of unelected bureaucrats.