FTC Report Shows Drug Companies Still Paying to Keep Generic Drugs From Consumers

'These agreements inflict special pain on the working poor and the elderly, who need effective drugs at affordable prices.'

May 22, 2008 - The Federal Trade Commission yesterday released a report on 33 final settlement legal documents submitted to the FTC by drug manufacturers in fiscal year 2007 with those submitted since fiscal year 2004, finding an increasing use of "pay-for-delay" agreements between brand-name and generic drug manufacturers. For many of the elderly, the sickest and poorest Americans, the low-cost generics can be critical.

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“This report confirms that settlements with potentially anticompetitive arrangements continue to be prevalent,” FTC Chairman William E. Kovacic said. “The Commission remains committed to ensuring that brand and generic companies do not use such settlements as a way to deny consumers the benefits of competition.”

Commissioner Jon Leibowitz added, “As our report today sadly demonstrates, pay-for-delay settlements continue to proliferate. That’s good news for the pharmaceutical industry, which will make windfall profits on these deals. But it’s bad news for consumers, who will be left footing the bill. These agreements inflict special pain on the working poor and the elderly, who need effective drugs at affordable prices.”

The FTC’s Bureau of Competition issued the summary of agreements filed with the agency in fiscal year 2007 (ending September 30, 2007) .

The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 requires drug companies to file certain agreements with the FTC and the U.S. Department of Justice. The summary provides information regarding the agreements filed with the FTC in FY 2007. It also compares FY 2007 data with data received in FY 2006, FY 2005, and FY 2004.

Each annual report is available on the Commission’s Web site at www.ftc.gov.

In fiscal year 2007, there were 33 final settlements, nearly half of which (14, or 42%) included both compensation to the generic company and a restriction on the generic’s ability to market its product. Of those 14 settlements, seventy-nine percent involved agreements with first-filer generic companies.

Unlike FY 2006, however, most of the FY 2007 agreements involving restrictions on generic entry did not include a side deal involving elements not directly related to the resolution of the patent dispute. Instead, the majority involved compensation to the generic firm through an agreement by the branded firm not to sponsor or compete with an authorized generic product for some period of time.

In the 14 final settlement agreements received in FY 2007 that involved both a restriction on generic entry and compensation to the generic, the compensation took two forms: 1) In 11 of the final settlements, the branded company agreed not to launch or sponsor an authorized generic drug for some period of time after the entry of the generic drug company’s product; and 2) In three of the final settlements, the compensation flowed to the generic firm in the form of a side deal.

In six of the 14 agreements, both the brand and generic firm received compensation. In three of these six agreements, the branded company received a royalty in exchange for granting the generic firm a license to the patent at issue in three cases.

In one case, the brand received a royalty payment on the generic firm’s sales of an authorized generic product. In another case, the brand received a royalty on the generic company’s sales of a particular dosage of the drug at issue in the litigation. And in the final case, the branded company could receive a percentage of the generic company’s sales of the drugs at issue in the litigation, as well as of some unrelated products.

The report also states that 11 of the settlements reported included a restriction on the generic drug’s ability to enter the market, with no compensation to the generic firm. In six of these cases, the generic withdrew its patent challenge, agreeing not to enter the market until the patent expired.

Eight settlements included no explicit restriction on the generic’s ability to market its product. In five of these cases, the generic was already on the market. Six of the eight settlements included no compensation to either firm; the two remaining settlements involved the generic paying the branded company a fixed sum.

In 16 of the 33 final settlements reported, the generic manufacturer was the first-filer with the FDA. Eleven of those agreements resulted in both a restriction on generic entry and compensation to the generic manufacturer. In addition, in FY 2007, nine interim agreements between branded and generic firms were reported. Seven of these involved either:
1) an agreement to stay the litigation and be bound by the results of litigation involving the same patents;
2) an agreement by the generic firm to provide the branded firm with advance notice of an “at risk” generic launch, to provide the branded firm with the opportunity to seek a preliminary injunction; or
3) an agreement by the generic firm not to introduce its generic product until the court ruled on a preliminary injunction motion.

Finally, the report states that in FY 2007, only one agreement was reported between generic drug manufacturers. Under the terms of the agreement, the first filer agreed to give up its 180-day marketing exclusivity period, thereby allowing the subsequent filer to receive FDA approval for its product.

Copies of the Bureau’s summary of agreements filed in FY 2007 are available on the FTC’s Web site at www.ftc.gov. The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.