FTC Presses For An End To ‘Pay-To-Delay’ Deals
16 CommentsBy Ed Silverman // January 13th, 2010 // 8:27 am
In his never-ending quest, FTC commish Jon Leibowitz will hold a press conference today to ask Congress to include a provision in the health care reform bill to end deals in which brand-name drugmakers offer payments or other inducments to generic rivals to delay copycat versions of best-selling meds. He’ll be appearing at the Rayburn House Office Building in Washington, DC, at 12:30 along with several members of the House, which has already included a ban in its own bill.
The Congressional Budget Office, you may recall, recently estimated that the House provision could save the government $1.8 billion in health costs over the next 10 years (see here). The Senate version does not include a ban (see here), although nine Democrats last month sent a letter to majority leader Harry Reid to include this in the final version of legislation.
“These sweetheart deals are being done on the backs of consumers,” Leibowitz tells The New York Times. “From the perspective of the Federal Trade Commission, these deals are one of the worst abuses across the board in health care and should be stopped.”
As the chart shows, drugmakers struck 19 deals in fiscal year 2009 that involved both delaying generic entry and compensation from given generic makers, that’s up from zero in fiscal year 2004, according to an FTC report. Settlement deals in which generic makers received compensation typically kept generics off the market for 17 months longer than deals without payments, the FTC found.
One famous case involves Cephalon’s Provigil pill for narcolepsy. In late 2005, the drugmaker struck deals with several generic makers that challenged the Provigil patent. Cephalon settled the lawsuit by paying them $200 million and allowing product launches several years before the patent expiration, suggesting consumers would get access to cheaper generics before the patent expired.
The FTC is challenging the settlement by arguing Cephalon’s payments bought it market exclusivity and that if patent challenges prevailed, consumers may have had access to lower-cost generics sooner, the Times notes (background). Cephalon’s general counsel, Gerald Pappert, tells the Times that Cephalon structured the deals to comply with the law and that the agreements allowed generics to enter the market in 2012, three years earlier than the Provigil patent was due to expire.
UPDATE: The European Commission yesterday sent questionnaires to several drugmakers in search of details on pay-to-delay agreements. Among those queried were AstraZeneca, Novartis, Roche, Germany’s Merck KGaA and Stada Arzneimittel. The EU recently raided several drugmakers in search of information (back story).
Condor
Good stuff, Ed — In addition, across the pond:
The European Competition Commission overnight announced that a renewed, and expanded set of written interrrogatories were sent out to many large pharma concerns doing business in the EU, as well.
The focus was on potentially anit-competitive “pay to delay” generic launch deals in the EU markets.
AstraZeneca, Merck, GlaxoSmithKline, and Sanofi, among others, have each confirmed receiving the inquiries.
patrons99
Condor: is this behavior legal? Sounds a lot like price fixing and a violation of the Sherman Antitrust law? Perhaps, Marilyn Mann would also comment here. I believe she’s also an attorney, for either SEC or FTC, if my memory serves me.
HelicalZz
The ’soapbox attractiveness’ of railing against pay for delay is probably too hard for politicians to resist. But the nuances of the arguments indicate that there would be clear unintended consequences should it be eliminated. The only given on ending pay for delay is that legal expenses for pharma will rise. No pay for delay deal has been beyond the expiration of the patent challenged, so it is not clear that there will be any consumer savings based on early introduction of generics. One could just as easily argue that the Cephalon deal saved consumers money by allowing for early (pre-patent expiration) generic versions of Provigil.
A major unintended consequence is that potentially promising therapeutics, which have less than rock solid intellectual property (perhaps due to being initially developed in companies with modest resources), will never see full development or the market. Legal issues could well outweigh (further outweigh?) scientific ones in partnership / buyout discussions. The ability to use a pay for delay tactic to extend exclusivity beyond that provided by Hatch-Waxman could well be saving some programs from the pipeline hatchet.
It seems to me that the problem isn’t pay for delay, but the current landscape that makes this necessary / attractive to originator companies. It points to the data exclusivity period for small molecule drugs as being too short, in some cases, to justify the economic investment in the drugs development. As it stands now, generic companies almost have a clear incentive to challenge the patents on any successful drugs; they have little to lose if unsuccessful. The problem isn’t the pay for delay practice, but the reasons why it is pursued.
Zz
Justice in MI
I’m missing the nuance, truly. I know Zz wrote a long comment. Perhaps someone can break it down for me.
Condor
Patrons99: I have to run off, but. . . .
Collusive settlements are per se unlawful (in any setting) — all of this (the pharma deals) currently fall into shades of gray.
But — as we speak — Congress is thinking about defining what “collusive” might mean in this setting, more crisply.
Finally, the “sooner timing” argument Zz makes is based on a flawed premise. See my other comments — debunking Sen. Hatch’s talking points — on this score.
Namaste
Pamela Montanile
I usually find your commentary informative but this story is misleading. Although it may not be the case in all brand-to-generic, many times the generic house comes out with a generic several years before the patent expires. This is calculated so that if a brand company sues for breach of patent, the lawsuit does not make it to court for a year to two years. If the patent is up when it gets to court, it is usually ruled a mute point. I use to work for Wyeth and the generic for Prontix flooded the market approximately 2 years before the patent was up. Wyeth was one of the few drug companies to stand up to the generic houses skirting the legality of a patent. As your article highlites most companies pay the generic to stay off the market even thought they should have patent protection. I’m not sure what happened in Wyeths case but patents are there for a reason. I’m not aposed to generics, I buy them too.
Ed Silverman
Hi Pamela,
Thanks for the note. In this case, I didn’t offer any comment or view of my own. I summarized the NYT story, but included the link to the entire piece so readers could glean whatever other info is contained.
That said, I understand your point and agree that these situations are not all as simple as a basic example may suggest. And so I apologize if, for any reason, the post appeared to have somehow missed the boat.
Regards
ed
Drug Watch
Folks - is it approptiate to have congress define what “collusion” is? I guess they would know it best (did your state get exempted from Medicare costs?). Congress defining “collusion”… what a tragedy.
Why is congress ignoring follow-on-biologics:
“Teva [read: all generic manufacturers] supports reasonable legislation that would prevent abusive settlements, and we unequivocally support improved access to affordable quality care,” Teva North America CEO William Marth said in a statement. “This legislation would do neither. And it is perplexing that the FTC continues to hold media events and issue reports on this singular issue instead of drawing Congress’s attention to the lack of competition that will result from the excessive monopolies guaranteed to brand biologic makers in both the House- and Senate-passed healthcare bills.”
In the end, quality and life saving pharmaceuticals are made by dedicated, hard working scientists with that as their life’s objective. With a 1 in 10,000 chance of success at a billion dollars per chance, it is amazing we have a pharmaceutical industry at all.
Marilyn Mann
Of possible interest, the Justice Department amicus brief in FTC v. Schering-Plough Corporation can be found here:
http://www.justice.gov/atr/cases/f216300/216358.pdf
Marilyn Mann
Oops, I meant this brief:
Arkansas Carpenters Health and Welfare Fund v. Bayer AG
http://www.scotusblog.com/wp-content/uploads/2009/07/us-br-cipro-cta2.pdf
That’s what I get for trying to do something in a hurry. This is the Obama Justice Department new position on pay for delay.
patrons99
Thanks Marilyn, for your input. I apologize for suggesting that you are an attorney. I didn’t have your permission to make such a statement, in my earlier comment in this thread. I was out of line.
Justice in MI
Re: Pamela’s overall point–I agree that generic cos often “take advantage” of the situation by manipulation of the court system. And brand companies do precisely the same, often managing to extend exclusivity years beyond the end of protection.
So what do we do? I remain unclear what arguments make paying-off generic cos. legitimate in the context of the intent of Hatch-Waxman.
Marilyn Mann
patrons99,
I *am* an attorney, and you were not out of line at all. However, my area of specialization is securities law, not antitrust law, so I have no special expertise here.
Condor
Hello, DrugWatch — you wrote:
“. . .Congress defining “collusion”. . . what a tragedy. . . .”
I am sure you are aware that Congress “defined” all of the patent law scheme.
Congress also “defined” much of the law that governs these settlement agreements.
So, it is really so surprising that the central function of. . . wait for it. . . Congress(!) — is to enact laws.
When laws become outdated, or reflect policy that is no longer deemed sound, Congress amends them.
Big Pharma has abused this particular gimmick so severely in the last five or so years, that it has no one to blame but istelf for these calls for legislation restricting the more egregious cases.
I also think your “poor pharma must spend so terribly much, for such a thin chance of an acceptable return” lament is just a little too-highly-schmaltzed — do be careful in picking your particular poison, DrugWatch.
“Methinks the lady doth protest too greatly. . . .”
Last I looked, big pharma was the one place, in all of industry, where none of the major players lost any money, last year. In fact, many posted near record profits — even during a financial collapse.
In short, I’m not buyin’ that snake-oil, bub!
Namaste
pharmavet
If collusive arrangements are unlawful, how do you explain the collaborations between Microsoft and Apple over the years? Gates and Jobs have shared info to the benefit of both companies. Windows would never have happened without Apple, and Apple wouldn’t even exist today without support from Microsoft.
Drug Watch
Hello Namaste -
Life-saving drugs, may you never need them.
No need to lecture me about the system of governance we have. (arrogant)
out