Public Policy: Antitrust & Antibiotics

The running battle that has raged for the past three years between the Government and the U.S. drug industry was shifted last week to the courts. Charging conspiracy to fix prices and limit competition, the Justice Department won a grand jury antitrust indictment against three of the nation’s largest antibiotic producers and their chief executives. The defendants: American Cyanamid and its chairman, Wilbur G. Malcolm; Charles Pfizer & Co. and Chairman John E. McKeen; Bristol-Myers Co. and President Frederic N. Schwartz.

The antibiotics cited in the Justice Department suit are aureomycin, terramycin’ and tetracycline—three broad-spectrum antibiotics, so called because, unlike narrow-spectrum penicillin, they treat a wide variety of diseases. Until 1953, according to Government charges, Cyanamid’s aureomycin and Pfizer’s terramycin accounted for 92% of the broad-spectrum market. At that point, all three defendants, plus New York’s Heyden Chemical Co. (now Heyden-Newport Chemical Corp.), applied for patent rights on tetracycline, a new antibiotic made with an aureomycin base.

A Threat. “Pfizer and Cyanamid,” says last week’s indictment, “knew that tetracycline represented a threat to the continuation of their dominant positions and unreasonably high profits.” To keep that threat in check, the indictment alleges, Cyanamid bought out Heyden’s rights to the development and agreed to help Pfizer get the tetracycline patent. In return, charges the Justice Department. Pfizer licensed Cyanamid to produce the drug. Later, to avoid a court fight that might have nullified the patent, Pfizer and Cyanamid let Bristol-Myers in.

As a result of these arrangements, says the Government. Cyanamid. Pfizer and Bristol-Myers were able to maintain ”non-competitive and unreasonably high prices” for all their broad-spectrum drugs; wholesale prices to druggists on the broad-spectrum antibiotics generally range between 25¢ and 30¢ a capsule. In addition, according to the indictment, the three defendants and their associates* were able to keep for themselves 70% of the $165 million broad-spectrum market as late as 1959.

Battle Ahead. All three companies indicted last week were already engaged in a three-year-old fight with the Federal Trade Commission on similar charges. But the severest punishment the FTC could have inflicted was a relatively mild cease-and-desist order. If the Justice Department proves its case in court, the drug companies could draw fines of up to $150,000 each, and their chief executives would be liable to as much as a year in jail plus $50,000 fines. But the embattled drug executives clearly had no intention of surrendering without a fight. Snapped Pfizer’s McKeen: “The charges are positively not true.” Said Cyanamid’s Malcolm: “Harassment.” And Bristol-Myers’ Schwartz promised: “This action will be vigorously defended.”

* Since Bristol-Myers had only a small sales staff, it sold much of its tetracycline in bulk to E. R. Squibb & Sons and the Upjohn Co., both of which were named in the indictment as co-conspirators but not as defendants.