Judge slams FTC in pay-for-delay generic drug case

WASHINGTON (Reuters) - A judge hearing a dispute between the Federal Trade Commission and a generic drug company slammed the U.S. agency on Wednesday, saying there was a “strong possibility” that it overstepped its bounds and shared confidential information.

The FTC has been seeking to interview Watson Pharmaceutical CEO Paul Bisaro as part of its probe of allegations that Cephalon illegally settled patent disputes with generic drug companies by paying them not to bring out a generic version of its marquee sleep disorder drug Provigil.

The FTC has been battling what it calls “pay-for-delay” settlements in court, with mixed success. The agency has pushed for legislation to ban the deals but has failed thus far.

Under complicated rules governing the sale of generic drugs, Watson has an exclusive right to produce a generic version of Provigil, also known as modafinil, and retains that right even if it does not market the cheaper version.

A lawyer for Watson has said in court filings that Markus Meier, assistant director in the FTC’s Health Care Division, telephoned him multiple times to urge that Watson give its exclusivity to generic company Apotex.

“During one conversation, Mr. Meier stated that Watson’s failure to waive its right would likely cause the FTC ‘Front Office’ to reopen the modafinil investigation,” Watson lawyer Steven Sunshine had said in a court filing.

Judge Alan Kay, in an order issued late Tuesday, sharply criticized the FTC.

“The facts before us suggest that the FTC sought to place Watson between a rock and a hard place, where the only way Watson could clear its name and escape further FTC scrutiny was to give in to the pressure the FTC was placing on Watson to enter into a business deal with Apotex,” he wrote in an order.

Kay also wrote that there was a “strong possibility” that the FTC shared confidential information about Watson with Apotex.

Kay, however, declined to order the FTC’s Markus to be deposed, which Watson had requested, and he also declined to immediately order that Bisaro be deposed, something that the FTC had sought. He simply ordered the FTC to answer interrogatories posed by Bisaro.

The FTC’s Richard Feinstein, the director of the agency’s Competition Bureau, strenuously denied any wrongdoing by the agency.

“The FTC has done nothing improper in this matter, and is simply trying to complete a law enforcement investigation into whether there is an agreement to keep generic drugs off the market and out of the hands of consumers,” he said in an email statement. “We are disappointed that our investigation has been sidetracked.”

According to FTC data, there were 19 pay-to-delay settlements last year. That was up from 16 deals in 2008 and 14 in 2006 and 2007.

“Given that the FTC and its chairman, Jon Leibowitz, have been the primary architects and supporters of the legislation, this court ruling could deal a serious blow to the credibility of the FTC in matters of patent settlement law,” wrote analyst Corey Davis with Jefferies & Company Inc in a note.

The arrival of generic versions of a drug, on average, cuts the price of the medicine roughly in half, according to the FTC.

Reporting by Diane Bartz, editing by Matthew Lewis