‘Pay for Delay’ Deals Over Generic Drugs Should Be Halted, FTC Tells Court
May 23 (Bloomberg) -- Linda Bannister, an analyst at Edward Jones & Co., talks about the outlook for U.S. pharmaceutical stocks. Johnson & Johnson, the drugmaker that won approval last week for the first new AIDS medicine since 2008, plans to introduce four drugs this year that may combine for annual sales of $9 billion, helping to offset product recalls and declining profit for medical devices. Bannister speaks on Bloomberg Television's "InBusiness with Margaret Brennan." (Source: Bloomberg)
The U.S. Federal Trade Commission urged an appeals court to outlaw certain settlements between brand-drug manufacturers and generic-drug makers over the timing of sales of copycat medicines, saying they harm competition and hurt consumers.
The agency asked the U.S. Court of Appeals in Philadelphia to reverse a lower court’s ruling that accords between Merck & Co.’s Schering-Plough unit and generic manufacturers of K-Dur 20 high blood-pressure medicine didn’t violate antitrust laws.
The FTC is fighting agreements between companies about when generic drugs can be marketed, known as “pay for delay” or “reverse-payment” settlements, saying they cost consumers the equivalent of about $3.5 billion a year in higher prices for pharmaceuticals. These transactions compensate the generic-drug maker in return for dropping challenges to a patent and establish a date when the non-branded version of the drug can be sold, the agency said.
The FTC is pressing the courts and Congress to limit the settlements. Brand- and generic-drug makers say the deals may bring lower-cost copies of medicines to the market sooner than they would otherwise.
The commission filed a court brief May 18 siding with retailers such as CVS Pharmacy Inc., Rite Aid Corp., Safeway Inc. and Walgreen Co. that have challenged the legality of patent settlements between Schering-Plough Corp. and two generic drugmakers for K-Dur 20, a potassium supplement. The U.S. Justice Department also filed a brief the same day seeking to overturn the lower court’s ruling based on antitrust laws.
Generic drugs now account for 78 percent of the $307.4 billion U.S. pharmaceuticals market, according to the IMS Institute for Healthcare Informatics. Consumer spending on generic drugs is growing, while spending on branded drugs is declining as patents expire and patients choose lower-cost options, IMS said on its website.
A March 2010 ruling by U.S. District Judge Joseph Greenaway in New Jersey would allow name-brand companies to pay generic rivals to stay out of the market until the patents for the medication expire. These deals run counter to basic antitrust principles as well as the Hatch-Waxman Act of 1984, which Congress passed to foster competition from generic drug firms, the FTC said today in a statement.
“The vast majority of the benefit of generic entry goes not to the generic sellers, but to the public, in the form of lower prices,” the FTC wrote in its brief.
Deals Called ‘Outrageous’
FTC Chairman Jon Leibowitz called the deals “outrageous” and said they harm consumers in a May 3 interview with Bloomberg News. Deals that delayed the introduction of cheaper generic medicines rose 63 percent last year, he said in the interview.
The number of deals increased to 31 from 19 in 2009, the FTC said. The agency said there were no such settlements in 2004. The cases involved 22 products and $9.3 billion in sales. The FTC tracks the drug patent settlements, which companies are required to report to the agency.
“We continue to assert that patent settlements are a vital aspect of a patent owner’s ability to protect intellectual property,” Diana Bieri, executive vice president and general counsel of the Pharmaceutical Research Manufacturers of America, a Washington-based trade group, said in an e-mailed statement. “A patent owner has the right to defend a valid patent, and settlements are a tool that can allow this to happen without the burden of engaging in a costly, extensive legal battle.”
Bieri said in the statement today she hasn’t reviewed the FTC filing.
‘Never Prevented Competition’
The settlements don’t prevent competition beyond a patent’s life, David Belian, a spokesman for the Generic Pharmaceutical Association, a Washington-based trade group, told Bloomberg News.
“Patent settlements have never prevented competition beyond the patent expiry, and generally have resulted in making lower-cost generics available months and even years before patents have expired,” Belian said today.
The agency sued Schering-Plough over the patent settlements in 2001. The Supreme Court in 2006 refused to give the agency more power to crack down on the practice when it left intact a decision by a federal appeals court that overturned FTC sanctions against Schering-Plough in 2005. Merck bought Schering-Plough in November, 2009.
U.S. courts, including federal appeals panels in New York, Atlanta and Washington, have upheld such agreements as long as they don’t delay the entry beyond the expiration terms of patents held by the brand companies.
Efforts in Congress
Past efforts to persuade Congress to pass a law making the settlements illegal have failed. Senators Herb Kohl, a Wisconsin Democrat, and Charles Grassley, an Iowa Republican, have introduced a measure that would bar the settlements. It has run into opposition from lawmakers who say the deals actually help consumers.
The FTC is an independent agency with authority over antitrust and consumer-protection matters that has three Democratic and two Republican commissioners. The FTC doesn’t answer to the White House or the Justice Department and the agency has the power to litigate its own cases.
The case is In Re: K-Dur Antitrust, 10-02077, 10-02078 and 10-02079, U.S. Court of Appeals for the Third Circuit (Philadelphia).
To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net.
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net
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