Pay for Delay
Written By: Jed O’Brien

Metropolitan State College of Denver at Denver
November 24, 2011

For years pharmaceutical companies have been trying to protect their expensive drugs, protected by patents, by paying rivals large sums of money from producing cheaper, alternative drugs. In an article written by Marian Wang, she discusses a particular case in which Pfizer makes “…a deal with certain pharmacy benefit managers … to block generic versions of Lipitor.”(Wang, Pfizer’s Latest Twist on ‘Pay for Delay’) There are a few ethical issues with this: one, the rival companies are infringing on patent laws, two, larger pharmaceutical companies are trying to create as much profit for their company until their patent runs out, and three, Americans in need of the drug are forced to pay higher prices for their drugs. The latter two issues go hand in hand with one another.
Patents are used to protect a company’s invention and gives the company exclusive rights to sell that invention. In this case the invention is a drug. But, in the drug business, companies can get a hold of a drug and break down the chemical components making it easy to duplicate. It is not right for competitive companies to be able to easily break down a drug when all the hard work has been done by another and profit. Just because there have been minor adjustments with the chemical structure of the drug gives the rival company the right to market and sell their product.
At the same time doesn’t having the exclusive right to an invention like Lipitor create a monopoly for Pfizer? That is what a patent does, it gives the inventor the sole right to sell the product without interference from competitors until either the patent expires, or becomes obsolete. So, shouldn’t Pfizer be able to charge what the “feel” is right? Monopolies are seen as “…inequitable pricing practices…” (Ferrell, 98) and laws have been passed in order to prevent such a thing to happen. In this case having an exclusive right to the invention should reward the inventor. If not, then what would the incentive be to create drugs to help out the people in need of help. There would be very little incentive. However, a company should not be able to get extremely rich off the people in need of help. Having exclusive rights to a “miracle drug” brings in higher costs to protect the invention and protect it.
Pharmaceutical companies spend billions of dollars on research and development. According to an article entitled Agony From Lipitor’s Expiration Won’t Be Exclusive To Pfizer by Brian L. Wilson “… R&D spending has increased 3% from Q2 2010, now at a whopping 2.2 billion dollars.” This increase in R&D is due to the upcoming expiration of their Lipitor patent, and trying to find the next big drug among their ten new drugs, to keep their company moving forward at a quick, steady pace.
Even though companies like Pfizer spend billions of dollars annually on R&D, other major costs endured are advertising/marketing and legal fees. I will not discuss advertising or marketing because there seems to be no ethical issue on the subject. But, legal fees are a high cost pharmaceutical manufacturers endure in order to protect their intellectual property rights.
If some company can produce the same drug with a slight modification to the ingredients of a particular drug, then there is no incentive for companies to invest in R&D. The general public has a right to cheaper prescription drugs. There are two ways in which Pfizer keeps prices higher than they should be: one is to use “Pay for Delay”, and the other is to increase the price when they have a monopoly on a drug before the patent expires. The practice of “Pay for Delay” “…costs consumers an estimated $3.5 billion dollars each year…” according to the Federal Trade Commission (Wang, Pfizer’s Latest Twist on ‘Pay for Delay’). It’s understandable that companies like Pfizer, who develop the drug, should be protected by their patent, but charging such a high price for the drug is ludicrous. Especially when a generic brand could have been sold starting March 24, 2010, but a deal was made by Pfizer to have exclusivity until November 30, 2011. “In a federal antitrust complaint, 11 California pharmacies say Pfizer and generic drugmaker Ranbaxy are illegally keeping a generic version of…Lipitor off the U.S. market” (Dinzeo, Pharmacies Accuse Pfizer of Fixing Lipitor Prices). It’s estimated that 16 million American take Lipitor each day which equates to $50 million dollars daily. The people within both Pfizer and Ranbaxy each have a goal to make money for their stakeholders’. Both companies have similar goals and by working together with one another, they can both achieve their main goal to make money. This relationship is described as referent power according to the text Business Ethics: Ethical Decision Making and Cases. Referent power “…exist(s) when one person perceives that his or her own goals or objectives are similar to another’s” (Ferrell, 196). Pfizer persuades Ranbaxy into an agreement in which Ranbaxy will be able to distribute their version of Lipitor in the market earlier than they would have been able to do, and Pfizer gets a temporary, illegal extension on their Lipitor patent. Also, it gives Ranbaxy an incentive to fix the price of their drug just slightly below that of Pfizer’s price because of the early access. Both companies are being accused of coming together and fixing the price of their drugs for financial gain.
Not only are companies using “Pay for Delay” to keep prices high, but increasing prices because they have a monopoly on a drug is not the answer either. Pfizer’s drug Viagra is the oldest ED drug to be allowed by the FDA to be sold in the United States. With its monopoly status on the verge of expiring, “…Pfizer has raised the price of Viagra between 5% and 11% every year, to $14 per pill at the wholesale level.”(Edwards, What will Happen When Viagra Goes Generic?).
It seems that the concept of the economic values orientation is the driving force behind their decision making process. The costs associated with the “Pay for Delay” are small when compared to the overall benefit. When I say costs, it’s not only financial, but also a cost to their company’s character. As times change, so do peoples’ values. And, with changing values laws change as well. Eventually Pfizer is going to have to go a different route when it comes to protecting their assets because their consumers will detest this practice to the point the law will be in their favor. The “Pay for Delay” practice is seen as unethical to us as consumers because of the advantages a powerful company like Pfizer has over rivals and consumers. Pfizer can buy off another competitor because of the high profits they charge their consumers.
In my opinion Pfizer is driven mostly by the profit motive and seeks to please the stakeholder’s within their company. They are in a business to save lives through the production of prescription drugs as long as the consumer can afford it. It is understandable how cut throat the “drug” business is. They are always trying to protect their intellectual property rights through patents against their competitors. And, with the high costs of R&D, advertising, and legal fees, we as consumers have to indirectly pay the costs they endure. But, when a rival company develops a comparable drug at a fraction of the cost, consumers should not have to pay for the cost of “Pay for Delay” keeping the price fixed at an absurd price. Pharmaceutical companies need to see that profits are not the most important factor.

Bibliography

Dinzeo, Maria. “Pharmacies Accuse Pfizer of Fixing Lipitor Prices”. Courthouse News Service. 8 November 2011. 24 November 2011. .

Edwards, Jim. “What will Happen When Viagra Goes Generic?”. AccessRx. No Date. 24 November 2011. . Ferrell, O. C., John Fraedrich, and Linda Ferrell. Business Ethics: Ethical Decision Making and Cases. Mason: South-Western Cengage Learning, 2008.

Wang, Marian. “Pfizer’s Latest Twist on ‘Pay for Delay’”. Business Ethics. 15 November 2011. 24 November 2011. .

Wilson, Brian L. “Agony From Lipitor's Expiration Won't Be Exclusive To Pfizer.” Seeking Alpha. 10 October 2011. 24 November 2011 .