How the Government Messes Up Drug Manufacturing

Allegedly, intellectual property laws are supposed to protect drug manufacturing by motivating the development of new products. But economist Megan McArdle points out that the government is actually making bizarre regulations that make no sense.

big pharma

She noticed this because a court ruled that Pfizer can be sued for harm caused by drugs made by another company. If someone gets a bad side effect from a generic drug based on Pfizer’s original work, then Pfizer will be held responsible.

Why hold Pfizer responsible for another manufacturer’s drug?

It turns out that the government, in its wisdom, had made a law forbidding companies that sell generic drugs from putting any new warnings on their labels. They are only permitted to use the same warnings that Pfizer used. So, since the makers of generic drugs are limited in this way, if someone discovers a new side effect, then they are supposed to target Pfizer as the responsible party.

But why would Pfizer or any other drug company that developed an original drug want to allow other companies to sell the drugs they invented and then get held responsible for any bad outcomes from patients buying those drugs from those other companies. They essentially get no profits but they risk losses.

It turns out that, as much as we rail about “Big Pharma,” the generic companies have lobbying power as well. McArdle writes,

Then I read further. And it turns out that the FDA has proposed a new rule that would allow generic-drug manufacturers to add labeling to their products independently. And guess who’s blocking it?

The generic drug manufacturers, of course. They’ve got a pretty sweet deal right now: They get the profits, while the folks who actually did all that expensive research to develop the drug bear a lot of the liability. They’re in no hurry to have that change.

So what we’ve actually got, after all this, is a classic public-choice story: The government is currently doing something insane, which is being defended by the highly motivated special interest that benefits from the insanity. 

How exactly does one stop such insanity? I wish I knew.