WASHINGTON, May 6 (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.
With poorer and older Americans choosing between medicine and other necessities because of the cost of food and energy, one advocacy group for Americans 50 and older called reverse payments “outrageous.”
“If they need medication and they can’t get a generic drug, they’re probably not going to be able to afford it,” said John Rother of AARP. He said 25 percent of Americans over age 65 struggle to pay bills.
The European Union says reverse payments are illegal. In January, European antitrust officials raided the offices of pharmaceutical companies GlaxoSmithKline (GSK.L), AstraZeneca (AZN.L), Wyeth WYE.N, Teva Pharmaceutical Industries Ltd TEVA.O(TEVA.TA), Sanofi-Aventis (SASY.PA) and Pfizer Inc (PFE.N) looking for information about reverse payments. All of the companies have acknowledged being contacted by European authorities.
Some drug companies and makers of generic drugs call reverse payments “settlements” because, with few exceptions, they end expensive patent litigation.
U.S. courts are divided on the issue. Drug companies have won two out of three lawsuits pertaining to reverse payments.
In one lawsuit closely watched by the FTC, an AstraZeneca Plc unit and the generic drug maker Barr Pharmaceuticals Inc BRL.N were sued over a deal involving the breast cancer drug tamoxifen. The U.S. Court of Appeals for the 2nd Circuit, based in New York, called the payment legal.
“The case law hasn’t supported the FTC pursuit,” said Barr spokeswoman Carol Cox. “We perfectly believe that we have the right to settle cases in a way that is pro-consumer and pro-competitive.”
Reverse payments are a consequence of the 1984 Hatch-Waxman Act, which was designed to speed generic drugs to market.
The first known reverse payment was in 1994 when Bristol-Myers Squibb Co paid $290 million to Schein Pharmaceutical to delay sale of a generic version of the anti-anxiety drug Buspar.
Pharmaceuticals trade group PhRMA Senior Vice President Ken Johnson said in an e-mailed statement: “Patent settlements between brand-name and generic companies can resolve expensive patent disputes to help foster innovation and improve access to medicines so that patients can live longer, healthier lives.
“America’s pharmaceutical research companies invest billions of dollars each year researching and developing new medicines, and they depend on patents to continue the important work they do every day,” Johnson said.
There are bills before the Senate and U.S. House of Representatives to ban reverse payments. They are opposed by pharmaceutical companies and makers of generic drugs, and they are unlikely to win approval in this Congress.
Thomas Leary, a Republican and member of the FTC from 1999 to 2005, said in a recent interview that drug companies make so much profit from blockbuster medications that they can pay generic companies more to delay entering the market than the generics would earn from coming in.
“If you have people getting a monopoly that they don’t really deserve, and you have people buying off challengers, you can see why that’s a concern to antitrust authorities,” said Leary, now with law firm Hogan and Hartson. (Editing by Gerald E. McCormick, Toni Reinhold)