Nonprice Competition in “Substitute” Drugs: The FTC's Blind Spot

Abstract

As the recent case of United States v. Lundbeck illustrates, the Federal Trade Commission's lack of knowledge in medical and pharmacological sciences affects its evaluation of transactions between medical and pharmaceutical companies that involve transfers of rights to manufacture or sell drugs, causing the agency to object to such transactions without solid basis for doing so. This article argues that in order to properly define a pharmaceutical market, one must not just consider the condition that competing drugs are meant to treat, but also take into account whether there are “off-label” drugs that are used to treat a relevant condition, whether drugs actually compete with each other on price or whether they are selected based on their side-effects (or lack thereof), mechanism of action, physician knowledge, and other noneconomic considerations, and finally whether the drugs in question enjoy any patent or nonpatent-based exclusivity that prevents generic manufacturers from entering the market.