FTC: Payments Keep Drug Costs High

Jan 19, 2007

By George Anderson

Jon Leibowitz, a member of the Federal Trade Commission (FTC), said the big pharmaceutical companies are causing consumers to pay much higher prices than they should for drugs by engaging in a practice whereby they pay manufacturers not to produce generic drugs for several years after patents expire.

Mr. Leibowitz told the Senate Judiciary Committee on Wednesday, “Such settlements restrict competition at the expense of consumers, whose access to lower-priced generic drugs is delayed, sometimes for years.”

In 2006, according to Mr. Leibowitz, there were 14 cases of these so-called reverse payments where deals were struck between large pharmaceutical companies and generic drug producers.

Sen. Patrick Leahy (D-Vt.), the chairman of the Judiciary Committee, has sponsored legislation that would ban these types of payoffs in the future.

“Congress never intended (the Hatch-Waxman Act of 1984 and the Medicare Modernization Act of 2003) for brand-name drug companies to be able to pay off generic companies not to produce generic medicines,” he said. “That would be a shame, harmful to consumers, and a crime.”

Representatives of the Pharmaceutical Research and Manufacturers of America (PhRMA) said that disallowing the practice could wind up causing consumers to pay even higher prices and possibly delay new products coming to market quickly.

Billy Tauzin, president of PhRMA, said that by eliminating the payments, generic producers would find it more difficult to challenge patents in courts. The payments made by the major pharmaceutical firms actually helps to subsidize this activity and, in turn, works to bring generic alternatives to consumers more quickly.

The Star-Ledger of Newark, NJ said that while generic manufacturers are often at odds with the brand companies, there is some agreement on this issue.

The Generic Pharmaceutical Association (GPhA) said patent settlements on a case-by-case basis as is the current practice are beneficial to consumers.

In a press release response to the hearings this week, Kathleen Jaeger, president and CEO of GPhA, said, “Many of the settlements discussed at today’s hearing guaranteed early market entry — and that’s pro-competitive and pro-consumer. It is critical that as we continue this discussion we do not inadvertently sweep good settlements in with the bad ones. A case-by-case approach protects consumers by evaluating the market implications of a particular settlement. Doing so would preserve the right avenues that allow generics to enter the market, saving consumers and the healthcare system billions of dollars annually.?h

The FTC’s Leibowitz is not buying the arguments of the PhRMA or GPhA. Reverse payment deals, he maintained, are negotiated at the expense of consumers. “The implications of these developments for consumers, and for others who pay for prescription drugs, are serious,” he said.

In a recent case involving Bristol-Myers Squibb, the company offered $40 million to have Apotex of Canada delay its generic launch of the blood-thinner Plavix. The deal fell through, however, and Apotex began selling its generic version of Plavix in August. Shortly after its introduction, Apotex’s product captured 75 percent of the Plavix market.

Currently, Apotex is barred from selling the medicine until a case involving it and Bristol-Myers Squibb is decided in federal court.

Discussion Questions: Ultimately, are reverse payments to the advantage of consumers when it comes to having access to affordable prescription medicines? What should the position of retail pharmacists be on this issue?

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4 Comments on "FTC: Payments Keep Drug Costs High"

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M. Jericho Banks PhD
M. Jericho Banks PhD
15 years 4 months ago

The “hitch” in this system seems to be the time and cost involved in challenging expired patents in court. When the branded companies pay off the generic companies to delay entry into the market, it sounds like (I may be wrong) an implicit part of the agreement is for the branded guys to refrain from fighting the generics in court when they finally start making the generic stuff.

If this is true, it explains why the GPhA supports the practice of reverse payments. Generic manufacturers win three times: Once when they receive the payoff to delay, once when they dodge court costs, and once when they finally take over the market for a specific drug. While the GPhA wants us to believe that this is beneficial to consumers (no court costs built into the product), the subsequently-delayed availability of the generics seems like it would cost consumers even more.

David Livingston
15 years 4 months ago

This sounds like a lot of double talk to me. One thing for sure is that whatever happens, it is intended to benefit the drug companies first before the consumer sees any benefit. Obviously the drug companies find it more profitable to engage in this practice. And its not just drug companies. Retailers will deed restrict vacant property to keep competitors out. Or pay ex-employees not to work for a competitor. Sometimes we see large stockholders paid off so not to make trouble. The federal government has even been known to pay farmers for not growing crops. It’s a very gray area between blackmail and sound business practice.

John Keegan
John Keegan
15 years 4 months ago
The 180 exclusivity provision of Hatch-Waxman prevents other competitors from entering the market as soon as the patent expires. The idea behind this concept hoped to prevent price destabilization allowing for careful purchasing and inventory management. My experience is that this provision should be deleted at some point. Generic Zocor came to market at a price of $295.00 per ninety. After the six month exclusivity period, the price went to around $10.00 per ninety. My understanding is that Merck licensed its product during that period to Dr. Reddy which means it was able to stretch the higher price for 6 more months than was intended by patent law. This practice is known as “authorized” generics. In almost all cases, the authorized generic is coming off the same line as the brand product, just with a different label. To me this exclusivity period needs to be changed in concept or eliminated all together. What happened with Plavix was a different concept known as “at risk” marketing. Apotex brought the product to market despite ongoing and unsettled… Read more »
Mark Lilien
15 years 4 months ago

What keep generics off the market? High legal costs for generic producers. What would reduce legal costs and help the public get their drugs faster and for less? Assign all patent cases to a special court, require discovery to start within 7 days, the actual trial to start within 60 days, and a decision within 30 days of the trial’s end, with all appeals heard and decided within 60 days after that. Generic drug manufacturers need to have their legal costs kept reasonable. Otherwise, you can’t blame them for taking payments to keep generics off the market. And justice delayed is justice denied. The longer a patent case drags on, the longer the public pays a premium price.


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