Generic-Drug Delay Fight May Be Near `Turning Point,' FTC's Leibowitz Says

The U.S. government’s decade-long fight to limit drugmakers’ ability to keep generic medicines off the market may reach “a turning point” soon, Federal Trade Commission Chairman Jonathan Leibowitz said.

The FTC is counting on a review by an appeals court to break a deadlock over agreements made by brand-name drugmakers that it says delay the introduction of lower-priced generic medicines. The focus is on the 2nd U.S. Circuit Court of Appeals in New York, which may decide by August whether to review a deal between Bayer AG and Teva Pharmaceutical Industries Ltd.’s Barr unit on when a generic version of the antibiotic Cipro can go on the market.

The Cipro case “signals a renewed concern about these pay-for-delay deals, and hopefully it will mark a turning point towards a legal rule that prohibits brand pharmaceutical companies from paying off their generic competitors to sit it out,” Leibowitz, 52, said in an interview. The review could bring the issue of agreements before the Supreme Court.

The fight pits drugmakers against the FTC, the Justice Department, pharmacies such as CVS Caremark Corp. and President Barack Obama, who cited the greater availability of generic drugs as a way to reduce health-care costs. There also is an effort in Congress to restrict the settlements.

Photographer: Tannen Maury/Bloomberg News

Caplets of 500mg Ciprolie or "Cipro." Close

Caplets of 500mg Ciprolie or "Cipro."

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Photographer: Tannen Maury/Bloomberg News

Caplets of 500mg Ciprolie or "Cipro."

Licensing Deals

The FTC contends brand-name makers offer generic-drug companies licensing rights on a product or other compensation in exchange for an agreement on when cheaper drugs are introduced. The agency said it supports settlements, except when there is some sort of financial consideration.

Medicines that generate about $92 billion in sales will face generic competition through 2014 because of expiring patents, according to the research firm IMS Health Inc. Medicines accounted for $250.3 billion in U.S. sales for brand- name drugmakers in 2009 and $35.8 billion for generic firms, according to Norwalk, Connecticut-based IMS.

Defending valid patents is vital, said Jerry Pappert, general counsel of Frazer, Pennsylvania-based Cephalon Inc. “If the branded company loses, it loses its franchise.”

Cephalon is being sued by the FTC, which contends the drugmaker paid more than $200 million for generic companies to drop their challenge to patents on its sleep-disorder drug Provigil. Cephalon says the settlements are in accordance with patent law.

No Delay

In the Cipro case, CVS and other pharmacies said Bayer paid $398.1 million for Barr to drop its patent challenge. David Stark, general counsel for Teva’s North America unit, said generic-drug makers aren’t delaying marketing products as a result of financial incentives. The agreements are no different than patent deals in other industries, he said.

Photographer: Andrew Harrer/Bloomberg

Jonathan Leibowitz, chairman of the U.S. Federal Trade Commission, said today he is "optimistic" Congress will pass legislation to stop drug companies from entering agreements that delay competition from generic drugs. Close

Jonathan Leibowitz, chairman of the U.S. Federal Trade Commission, said today he is... Read More

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Photographer: Andrew Harrer/Bloomberg

Jonathan Leibowitz, chairman of the U.S. Federal Trade Commission, said today he is "optimistic" Congress will pass legislation to stop drug companies from entering agreements that delay competition from generic drugs.

Leibowitz said the agreements add to health-care costs. If some settlements between companies aren’t prohibited, “you’re going to pay seven, eight, 10 times as much as you otherwise would,” he said. The FTC said the deals cost consumers $3.5 billion annually, a figure disputed by economists such as Jonathan Orszag, senior managing director at the economic consulting firm Compass Lexecon in Washington and the brother of White House Budget Director Peter Orszag.

Courts have allowed the settlements as long as they don’t prevent entry of the generic beyond a patent’s lifespan.

In the Cipro case, the agreement allowed a generic drug to be sold six months before the patent expired, said Kathleen Jaeger, chief executive officer of the Generic Pharmaceutical Association, a Washington trade group.

‘Tremendous Value’

“The FTC doesn’t see the tremendous value the patent settlements have brought to the system,” she said.

Since February, courts have thrown out antitrust lawsuits over Bristol-Myers Squibb Co.’s blood-thinner Plavix and AndroGel, a testosterone ointment now made by Abbott Laboratories. The FTC lost a case over a settlement involving Schering-Plough Corp.’s K-Dur heart medication.

A three-judge panel in April upheld the Cipro settlement, though it recommended opponents seek a review by the full court.

The potential court review, along with legislation Leibowitz predicted Congress would pass this year, add momentum to efforts to limit deals. Senators Herb Kohl, a Wisconsin Democrat, and Charles Grassley, an Iowa Republican, introduced an anti-deal measure. House legislation would bar the settlements.

‘Winds Are Shifting’

“The winds are shifting on the legal front, shifting on the commission front and on the legislative front,” said Robert Doyle, a former FTC official.

Ken Johnson, a senior vice president at the Pharmaceutical Research and Manufacturers of America, a Washington trade group, said brand-name drug companies need patent protection to justify the investments required to develop medicines. Drugmakers said the settlements also provide certainty as to when generics will enter the market.

Stark said a court review may not be significant.

“I don’t think it’s a foregone conclusion just because they take it up that they reverse the trend,” he said.

Marcy Funk, a spokeswoman for Leverkusen, Germany-based Bayer, declined to comment.

All parties are watching if the 2nd Circuit agrees to hear the Cipro case. The decision may come in August, said David Balto, a lawyer representing consumer groups.

Leibowitz said he believes the FTC has a strong hand. “I have yet to see an issue that’s as black and white,” he said.

The 2nd Circuit case is In Re Ciprofloxacin Hydrochloride Antitrust Litigation, 05-2851 and 05-2852, 2nd U.S. Circuit Court of Appeals (New York).

To contact the reporter on this story: Jeff Bliss in Washington jbliss@bloomberg.net; Susan Decker in Washington at sdecker1@bloomberg.net.

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