FTC Report Shows Drug Companies Pay to Keep Generic Competition at Bay

An emerging Federal Trade Commission (FTC) report reveals that brand-name drugmakers pay to keep generic drugs off the market as part of a so-called “anti-competitive” or “pay-for-delay” practice.

The scheme puts off introduction of lower-cost generics; 28 such potential deals were completed in fiscal year ended September 20, said the FTC and involved 25 brand drugs with combined U.S. sales of over $9 billion, wrote Businessweek, second only to the prior fiscal year’s 31. The FTC describes the deals as “compensation to the generic manufacturer and a restriction on the generic manufacturer’s ability to market its product,” said The Washington Post, citing the report. Drugmakers must advise the FTC of these agreements, said Businessweek; however, details are confidential, FTC spokesman Mitchell Katz, noted.

The FTC has urged Congress and the judicial system to limit these deals, which delay introduction of cheaper drugs. Drugmakers say the deals reduce legal costs and quicken release of economically accessible generics, wrote Businessweek. The FTC disagrees. “While a lot of companies don’t engage in pay-for-delay settlements, the ones that do increase prescription drug costs for consumers and the government each year,” FTC Chairman Jon Leibowitz said, reported Businessweek.

Generics generally cost about 20-to-30 percent less, even be as much as 90-percent less, than brand versions, said the FTC. To maintain their competitive edge, brand name makers pay or otherwise compensate generic producers to settle patent challenges and postpone release of cheaper generics, the FTC explained, said Businessweek. The FTC opposes these settlements and, according to industry group Generic Pharmaceutical Association’s president and chief executive officer, Ralph Neas, is making it difficult for drugs to reach market. “Forcing drugmakers to continue lengthy litigation with uncertain outcomes will be costly,” he said, wrote Businessweek.

Diane Bieri, executive vice president and general counsel for Pharmaceutical Research and Manufacturers of America, a drug maker trade group, claims the deals ensure patent holders’ rights. “Patent settlements are a vital aspect of a patent owner’s ability to protect intellectual property,” wrote Businessweek. The FTC, said the Washington Post, points out that the “pay-for-delay” deals are questionable, hurt consumers, and raise federal program costs, including Medicare and Medicaid.

Although the deals are not, generally, illegal, they should be, says the FTC, which sued Solvay SA and generic drugmakers Par Pharmaceutical Cos. and Watson Pharmaceuticals Inc. over a deal with testosterone replacement therapy, AndroGel, said Businessweek. The FTC also filed a lawsuit against Cephalon Inc., alleging it paid over $200 million for generic companies to drop challenges on sleep disorder drug, Provigil, patents, said Businessweek.

Pharmaceutical companies seek to maintain strong patent protection for drugs that might have taken them years to develop at price tags in the billions. At one time, these protections carried weight, putting off potential competitors. The Hatch-Waxman Act of 1984 was meant to resolve those issues by enabling generics to be advertised as “bio-equivalent” if manufacturers did not infringe on patents, explained The Post; generics could proceed if they could prove a patent was not valid. The Act was meant to spark competition and keep costs down; however, when brand makers pay generic makers to delay drug releases, the Act’s intention is destroyed, noted The Post.

Senators Charles E. Grassley (R-Iowa) and Herb Kohl (D-Wisconsin) introduced the Preserve Access to Affordable Generics Act to close the “pay-for-delay” loophole and render deals presumptively illegal, enabling the FTC to challenge suspicious schemes in federal court, said the Post. The current version allows brand makers to maintain deals if “clear and convincing evidence” proves that “pro-competitive benefits outweigh the anti-competitive harms,” The Post reported. Meanwhile, the Obama administration estimates that removing such deals could result in a $8.8 billion governmental savings over 10 years, although the Congressional Budget Office’s estimate is closer to $3 billion, said The Post. Either way, the legislation is expected to be positively received by the deficit-reduction “supercommittee,” which was created to find ways in which to cut the federal deficit, said The Post.