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  • Writer's pictureJeff Matthews

Legal Payoffs in Healthcare, but Who’s Complaining?

Medicis Pharmaceutical is a small dermatology drug company with a big problem: its lead product, an anti-acne tetracycline called Solodyn, is losing its patent protection, allowing other, larger drug makers to introduce cut-price generic versions of the stuff.

Oh, and Solodyn is roughly half the company’s sales, which means, as far as profits go, it’s a big deal to Medicis.

So what’s a company to do in this capitalist system of ours? Will it compete its way to prosperity?

Well, sort of—Medicis recently launched a Botox competitor that has potential to capture a slug of that highly profitable business. But mainly it’s been buying off the generic Solodyn competitors by way of entirely legal “settlements” with the erstwhile cut-price drug makers.

Specifically, Medicis has sued and then “settled” with Impax, Teva and, just last week, Sandoz, allowing Medicis to keep the generics off the market for a few years.

The winners, of course, are Medicis, which keeps its big fat mark-ups on the Solodyn franchise intact for now, as well as Impax et al, for whom the settlement reduces litigation costs both now and down the road, when they can introduce licensed generic versions of the drug at presumably higher mark-ups than if a raft of generics were to immediately take down pricing to where old-fashioned Economics 1 would tell you it should go: the marginal cost of production.

The losers, of course, are the consumers who can’t buy generic Solodyn, but must instead continue paying the big fat mark-ups.

This is all entirely legal, of course.

And, like so much of our healthcare system—particularly when it comes to lawyers getting involved—bizarre.

But don’t expect Congress to do a thing about it. After all, they’re mostly lawyers.

Jeff Matthews I Am Not Making This Up © 2009 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

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