Regulators probe drugmaker deals that would delay generic drugs

Bloomberg NewsJune 23, 2014 

— U.S. regulators, armed with a year-old Supreme Court decision, are stepping up probes of pharmaceutical deals that delay the sale of generic drugs, arrangements they view as illegally hurting competition.

The Federal Trade Commission has opened new investigations into agreements between generic and brand-name drugmakers that may lead the agency to sue for disgorgement of revenues, said Markus Meier, head of the agency’s health-care division. Companies under scrutiny include Forest Laboratories and Endo International, according to regulatory filings this year.

“Our goal is to bring an end to this practice by whatever means are available to us,” Meier said in an interview.

The agency says its enforcement efforts gained strength last June when the Supreme Court ruled antitrust law may bar deals in which brand-name drugmakers compensate generics producers for delaying sales of a particular medication. Until then, judges had found the agreements, which the agency calls pay-for-delay settlements, are legal.

The agency estimates the deals cost consumers $3.5 billion a year. In its most recent data, which covered the year ending September 2012, it found drug companies reached 40 potential pay-for-delay deals involving 31 branded products with combined U.S. sales of $8.3 billion. That was the most since the agency began collecting data in 2003.

The agreements are still being made after the high court ruling, though companies have turned to more creative means of compensation, said Michael Carrier, a law professor at Rutgers University specializing in antitrust.

“They realize when one company pays money to another to delay entering the market, maybe that doesn’t look so good,” he said.

Forest Laboratories disclosed in May that the agency is investigating its agreements with generic-drug makers related to Bystolic, a high blood-pressure treatment. Impax Laboratories Inc. said in February the FTC is probing whether it and Endo International and other companies it didn’t name engaged in “unfair methods of competition” by entering into agreements involving the pain medication Opana ER.

In May, Endo International disclosed it had received a civil investigative demand from the FTC in February related to patent settlements with Actavis Inc. and Impax.

Representatives of the companies didn’t respond to requests for comment on the FTC’s scrutiny. The companies said in securities filings that they are cooperating with the agency.

With its powers enhanced by the Supreme Court decision, the FTC opened new investigations, Meier said, declining to provide details of the probes. The agency also decided to look at patent settlements between branded and generic drug manufacturers over the past 10 years to see if they warrant a deeper probe for anticompetitive effects, he said.

Existing lawsuits brought by the FTC are pending against Cephalon, since acquired by Teva Pharmaceutical Industries, and Actavis.

“There is still work to be done by the FTC and private plaintiffs,” agency Commissioner Julie Brill said. “It’s important for the FTC to use all available tools to ensure the law continues to evolve in the right direction.”

Industry objects

The FTC’s focus on pay-for-delay deals goes back more than a decade. By keeping generic competitors off the market, the settlements harm consumers by forcing them to pay higher prices, according to the agency. Typically, the first generic sells at a 20 percent discount off the branded price, while a discount of as much as 85 percent is common in a market with multiple generics, according to the FTC.

The pay-for-delay agreements are attractive to both sides of the deal because they share “monopoly profits” from the brand-name drug, according to the FTC.

The pharmaceutical industry counters that the settlements benefit consumers. There’s a high risk generic companies will lose litigation over patents to branded-drug rivals, preventing the introduction of generic versions until the patents expire, said Ralph Neas, president and chief executive officer of the Generic Pharmaceutical Association.

By settling litigation, generic drugs get to consumers on average 60 months sooner than when patents expire, Neas said. The FTC’s focus on the issue leaves him “perplexed,” he said.

“They seem to be hell-bent on having patent settlements with considerations be presumptively illegal,” Neas said. “Just because manufacturers reach settlements, including settlements with consideration, that could be the best that can be achieved under a particular set of circumstances.”

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