Ending the Silence of Generic Drugmakers

When Jon Leibowitz became chairman of the Federal Trade Commission last year, high on his to-do list was ending drug industry "pay-to-delay" deals. Here's how they work: A generic drugmaker files an application with the U.S. Food & Drug Administration to begin selling a low-cost version of a patented drug. The brand-name drugmaker files suit to prevent approval until U.S. patents expire. Then, the FTC claims, the brand-name company will often pay the generic drugmaker to drop any patent challenges and hold off on bringing its drug to market, delaying pressure from a low-cost alternative to reduce prices.

Leibowitz, 52, a former staff director of the Senate antitrust subcommittee, thinks such agreements are little more than anticompetitive backroom deals, and he's asking a court to stop them. He could find out by August whether victory is possible, some industry lawyers involved in the litigation say. The U.S. Court of Appeals for the Second Circuit in New York is considering whether to review an April decision by a three-judge panel of the court that upheld a 1997 deal between Bayer and Barr Pharmaceuticals, now a unit of Israel-based Teva Pharmaceutical Industries (TEVA). In that deal, Barr dropped a patent challenge involving Cipro, the antibiotic that became well known during the 2001 anthrax scare. In return, Bayer paid Barr $398 million over six years. The judges' panel urged a full-court airing, citing the "exceptional importance" of the antitrust issues involved.

Leibowitz says that if the full court hears the case and rules against the deal, it could "mark a turning point" in his drive to stop companies "from paying off their generic competitors to sit it out." The fight pits drugmakers against the FTC and President Barack Obama, who has made access to cheaper generics a pillar in his plan to reduce health costs.

The importance of patent lawsuit settlements is growing. Brand-name companies face a spate of expiring patents through 2014 that bring $92 billion in sales, notes research firm IMS Health. Last year, brand-name companies had $250 billion in U.S. sales, says IMS. Generic companies had nearly $36 billion.

Defending patents is vital, says Gerald J. Pappert, general counsel of Frazer (Pa.)-based Cephalon (CEPH). "If the branded company loses, it loses its franchise," he says. Cephalon is fighting a suit, pending in federal court in Philadelphia, in which the FTC and drug wholesalers claim the company paid $200 million to would-be rivals to keep generic versions of Provigil, its sleep disorder drug, off the market. David Stark, general counsel for Teva's North America unit, says the agreements are a proven way of doing business, similar to patent settlements in other industries. The deals, drugmakers say, often lead to generics coming out before the original patent is scheduled to expire, as happened under the Cipro deal.

Leibowitz believes the opposite is true. He says the deals often extend weak patents whose life spans would have been cut short by legal challenges. The FTC also contends that brand-name makers in many pay-to-delay deals give generic companies product licensing rights or other benefits in exchange for an agreement on when cheaper drugs will be introduced. The agency says all this results in consumers paying $3.5billion annually in higher drug prices, a figure disputed by some economists.

With the potential court review and a bipartisan push in Congress to pass legislation, the FTC's "lonely voice," as Leibowitz puts it, may finally be heard. "The winds are shifting on the legal front, on the commission front, and on the legislative front," says Robert W. Doyle Jr., a former FTC official.

The bottom line: The FTC's push to speed generic drugs to the market could get a legal boost this summer with a possible appeals court hearing.

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