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Drug makers take new tack against generics

FTC is critical of ‘pay-for-delay’ agreements

By Duff Wilson
New York Times / September 1, 2011

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Some drug makers are using an indirect method to delay competition from low-cost generic products by promising not to introduce their own generic versions if a potential competitor delays its entry into the market, the Federal Trade Commission said in a report yesterday.

Until lately, the so-called pay-for-delay cases have focused mostly on cash payments by drug companies to settle patent litigation with generic competitors in return for concessions on when to enter the market.

These new agreements add a twist to the patent settlements.

The industry contends they are legal business decisions.

The FTC says they are illegal sweetheart deals that cost consumers $3.5 billion a year.

“Win-win for the companies, but lose-lose for consumers,’’ the FTC chairman, Jon Leibowitz, said in an interview yesterday after the agency released a 270-page study on so-called brand-name generics.

The Generic Pharmaceutical Association called the study part of a “misguided policy to ban pro-consumer patent litigation settlements.’’

The system works, the industry trade group said, noting that 17 of 23 expected generic drug introductions this year, such as Lipitor and Plavix, will be the result of patent settlements.

The FTC report, based in part on industry documents, found that generic drugs made by the original company, when competing against a truly generic drug in the first 180 days of competition, reduced overall prices by 4 percent to 8 percent.

That was unsurprising, Leibowitz said. But it was disturbing, he said, how often agreements not to compete have been used to compensate generic firms for delaying entry to the market.

In the 12 months ended Sept. 30, 2010, 15 drug patent settlements combined a promise not to market a brand-name generic drug with a generic company’s agreement to delay its entry to market, the report said.

“Instead of saying, ‘Here’s $200 million, go away,’ they’re saying they could penalize them $200 million, but they won’t, so go away,’’ Leibowitz said.

The Pharmaceutical Research and Manufacturers of America, a Washington trade group, said the report proves brand-name generics help to reduce prices.

“However, it is unfortunate that the FTC used this potentially valuable report on the benefits to patients of authorized generics to further its attack on patent settlements,’’ the group’s senior vice president, Matthew D. Bennett, said in a statement.