How the FDA's Crackdown on Unapproved Drugs Could Create New Monopolies

The FDA's clampdown on two companies selling unapproved nitroglycerin pills highlights an obscure way that drug companies can gain a monopoly on decades-old drugs that everyone believes are subject to generic competition.

The FDA banned Glenmark Generics of Mahwah, N.J., and Konec of Tucson, Ariz., from making the pills, which are used to prevent heart attacks. About 80 percent of all nitroglycerin pills in the U.S. are unapproved by the FDA, and Pfizer (PFE) makes the only FDA-approved brand, Nitrostat, according to the New York Times.

The reason "thousands" of drugs in the U.S. are sold through pharmacies without approval has to do with FDA history. When the FDA was given authority to regulate the nation's drug supply in the 20th Century, any product that was already on the market was "grandfathered" in, and allowed to stay on the market. Only new drugs had to prove to the FDA that they were both effective and safe. Hundreds of common generic drugs, such as aspirin, have essentially never had to go through the rigorous approval process that new drugs do.

But the grandfather law has a twist in it for any company with the gumption to challenge an unapproved drug: If your company submits an application to the FDA for that drug, and the FDA finds it both safe and effective, the FDA will grant you exclusive, monopoly marketing rights and sweep the unapproved products off the market.

It's not clear whether the FDA's move against Glenmark and Konec was a result of Pfizer's insistence on its rights to Nitrostat, but Pfizer will certainly be the beneficiary, via higher prices. The Times noted the price differences:

At CVS, the cash price for a pack of 100 tablets of 0.4-milligram Nitrostat is $21.99; the same amount of the Glenmark product costs $19.99.

For companies like Pfizer, which has an established products group that markets hundreds of old or generic drugs, it's a potential goldmine.