Drug Firms' Deals Allowing Exclusivity

By Marc Kaufman
Washington Post Staff Writer
Tuesday, April 25, 2006

Brand-name drug companies have resumed the practice of slowing the sale of cheaper generic competitors by cutting deals that result in paying millions of dollars to makers of generic drugs while consumers continue to pay brand-name prices.

The agreements follow two federal appeals court rulings last year that rejected Federal Trade Commission actions that since the late 1990s had prevented brand-name companies from paying their rivals to drop patent challenges.

An FTC analysis found at least seven such agreements so far in fiscal 2006, with three in 2005. Before that, no generic companies had been paid to drop their patent challenges for years.

Speaking yesterday in Philadelphia, FTC Commissioner Jon Leibowitz said that if the appeals court decisions remain in force, rival drugmakers will have "carte blanche to avoid competition and share resulting profits." He said the commission had agreed to ask the Supreme Court to overturn one of the lower-court decisions.

"Until recently, payments by brand-name companies to generics were the exception, but now they're the rule," he said in an interview after his speech. "They appear to be a new way to do business, and that's very troubling. Hopefully the Supreme Court will take our case and reverse."

Generic drugs, which generally cost a fraction of the brand-name original, come to the market after the product's 20-year patent expires. The law and business practices governing patents can be complicated, however, and many generics become available only after successful court challenges.

Leibowitz said that when brand-name and generic companies agree to end their patent litigation, both generally benefit but the public suffers. The agreements allow the branded companies to maintain their patent exclusivity for longer periods, while the generic company receives money for, in effect, dropping its challenge. The generic companies also often enter into agreements to produce lower-priced versions of the brand-name company's drug at a predetermined date -- far in the future.

The two organizations that represent the industries -- the Pharmaceutical Research and Manufacturers of America and the Generic Pharmaceutical Association -- declined to comment yesterday on the FTC report and the commissioner's comments.

In his speech to the In-House Counsel's Forum on Pharmaceutical Antitrust, Leibowitz gave several examples of the kind of agreements the FTC finds problematic.

Earlier this year, he said, Cephalon Inc. made deals to get four generic companies to drop challenges to its patents on the sleep-disorder drug Provigil. All four generics agreed to stay out of the market until 2011, and together they will receive licensing payments of $136 million from Cephalon.

Also this year, the two makers of the blood thinner Plavix (Bristol-Myers Squibb Co. and Sanofi-Aventis) agreed to pay a generic challenger to defer its entry to the market until November 2011 in exchange for dropping its patent challenge.

Drug companies began entering into these agreements in the 1990s, but the FTC concluded they were unfair to consumers and anti-competitive and the agency successfully challenged them.

Its position was undercut last year when judges in the U.S. Court of Appeals for the 11th Circuit concluded that the FTC had overstepped its authority when it blocked a complicated agreement between Schering-Plough Corp. and Upsher-Smith Laboratories Inc. involving the drug K-Dur 20, used to treat high blood pressure and congestive heart disease. The FTC had said that the generic company was essentially paid to drop its patent challenge, but the judges said the two companies had an acceptable agreement under which deals were completed.

The FTC has appealed to the Supreme Court.

More than 53 percent of prescriptions are now filled with generic drugs, and that percentage is expected to climb as employers and government programs seek to control health costs. Because generics are so much cheaper, they account for only about 12 percent of drug purchases.

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