Trade agency wants to end deals delaying generics

By Diane Bartz

WASHINGTON (Reuters) - A practice by major pharmaceutical companies of paying generic drug companies to delay putting cheaper medicines on the market violates federal law and must be stopped, a top ranking official with the U.S. Federal Trade Commission (FTC) said.

These so-called reverse payments are made after a generic company files with the Food and Drug Administration (FDA) to sell a generic version of a drug still under patent.

The maker of the original drug often sues for patent infringement, but sometimes these lawsuits are settled when the maker of the brand name drug gives the generic company money to bring the generic drug to market before the patent expires but much later than the generic company had wanted, a government source explained.

The settlements can be structured to make it appear that the drug companies are paying for something other than delayed generic entrance, according to the government source and an industry legal source, both of whom asked not to be identified because they are not authorized to speak to reporters.

Another pharmaceutical industry source, who asked not to be named, confirmed that reverse payments would often be structured so that it would look like the brand-name drug maker was paying for something else. "It's never: 'Here's $50 million, don't launch the product,"' the source said. "I don't think there's a place for those reverse payments."

The FTC says such payments violate antitrust law by dividing up the market.

In February, the agency sued Cephalon Inc (CEPH.O), accusing it of paying $200 million to four generic drug makers to delay production of its sleep disorder drug Provigil.

Cephalon declined to comment beyond a statement, issued at the time the lawsuit was filed, in which it denied any wrongdoing.

FTC Commissioner Jon Leibowitz, a Democrat, said in an interview that Cephalon, which makes $800 million a year on sales of Provigil, would have seen the price of the drug drop by 80 percent to 90 percent if generics had entered the market. The Defense Department buys Provigil to help soldiers in Iraq stay alert.

"This is a major priority for the commission because we strongly believe these deals violate the antitrust laws," Leibowitz said. "We believe they are costing consumers and the federal government, which pays for 30 percent of prescription drugs, billions and billions of dollars each year."

Generics can be 20 percent to 90 percent cheaper than brand-name drugs.

All drug companies are required to report any patent settlement to the FTC.

A former Bristol-Myers Squibb Co (BMY.N) vice president, Andrew Bodnar, was indicted in April for lying to the government in connection with a patent settlement.

The Justice Department accused Bodnar of telling drugmaker Apotex Inc that Bristol-Myers would not launch a generic version of blood-thinning drug Plavix if Apotex agreed to settle litigation and delay launching its Plavix generic until 2011.

Last year, Bristol-Myers pleaded guilty and paid a $1 million fine for misleading the government about the deal.