New FTC report blasts Pharma ‘pay-offs’ protecting $20 billion in drug sales from competition

Last Wednesday, FTC and congressional leaders held a press conference highlighting a new FTC report on how drug companies have protected “$20 billion in sales of brand name drugs from generic competition” through collusive, anti-competitive ‘pay-for-delay’ settlements with generic manufacturers.

The FTC report, “Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions” explains how legal decisions starting in 2005 have led to 63 settlements which delay generic drugs for an average of 17 months. FTC  noted that “[m]ost of these agreements are in effect.”  The report estimates, using a very conservative analysis, that these settlements are costing “American consumers $3.5 billion per year — $35 billion over the next ten years.” Other legal experts have previously estimated that these agreements are costing $7.5 billion a year.  

FTC, and congressional advocates urged their colleagues to ban these pay-for-delay agreements, which harm consumers and drive up our health care costs overall.  FTC Chairman Jon Leibowitz was joined by Reps. Chris Van Hollen (D-Md.), Bobby L. Rush (D-Ill.), and Mary Jo Kilroy (D-Ohio) urging legislative action.  At the press conference, Sen. Herb Kohl (D-Wis.) highlighted how the settlements assessed in the report, such as 19 pay-for-delay settlements made in 2009 alone, had “robbed Americans of a competitive marketplace.”  The Report documented how Pharma and the generic manufacturers have increasingly used such ‘pay-for-delay’ settlements since they were first upheld by the appellate courts starting in 2005. 

“Each of these backroom deals kept generics off the market, resulting in higher drug costs for millions of consumers and more federal spending in the form of drug reimbursement costs,” Sen. Kohl said.  “Today’s FTC report is proof that if we are serious about bringing down prescription drug costs, we must …  end these anti-consumer, anti-competitive backroom deals.” 

 The current health reform bill passed by the House bans ‘pay-for-delay’ settlements under federal anti-trust law, but the bill passed by the Senate does not. FTC Chairman Jon Leibowitz stated, “[w]e also must remember that behind the abstract numbers that show these deals increasing are real people with critical health care needs.  Many Americans struggle to pay for prescription drugs, especially the elderly and uninsured.”

FTC Commissioner J. Thomas Rosch noted that “[d]ecades ago our Supreme Court condemned as illegal per se an agreement by potential competitors stifling competition between them… [and] almost all, if not all, reverse payment agreements do that insofar as they delay generic competition longer than it might otherwise occur.”  While the FTC was successful in preventing the use of pay-for-delay agreements between April 1999 and 2004 and the U.S. Court of Appeals for the Sixth Circuit held these agreements per se illegal in 2003, the Report observed that beginning in 2005, “a few appellate courts have misapplied the antitrust law to uphold these agreements.” 

The Report also found that while pay-for-delay agreements benefit both the brand-name and generic pharmaceutical companies, they harm consumers.  Earlier last week, Community Catalyst and several other national consumer organizations, wrote to Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi in support of including a ban on pay-for-delay agreements in national health care reform.

This letter from national consumer groups also proposed to eliminate the ‘bottleneck’ that prevents competition between generic drug companies. Under the Hatch Waxman Act, the first generic company to file an application with FDA to start selling a generic drug is granted a half year (180 days) of exclusive marketing before another generic company can sell the same generic drug.  Unfortunately, current precedent allows this ‘first-filer’ to retain their right to a half-year of market exclusivity even if they sign a settlement deal agreeing to keep their generic off the market.  “Those agreements place a cork in the bottle that typically ensures the brand-name drug’s lock on the market,” the FTC analysis said. “This cork-in-the-bottle effect occurs because every subsequent generic entrant has to wait until the first generic has been marketed for 180 days.”

These settlements are at issue in the PAL member lawsuit promoting access to generic versions of Provigil, and such a pay-for-delay settlement could affect the current PAL-membel lawsuit promoting consumer access to a generic version of Protonix.