F.T.C. Criticizes Agreements that delay Generic drugs

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Some drug makers are using an indirect method to delay competition from low-cost generic products by promising not to introduce their own generic versions if a potential competitor delays its entry into the market, the Federal Trade Commission said in a report. Until lately, the so-called pay-for-delay cases have focused mostly on cash payments by drug companies to settle patent litigation with generic competitors in return for concessions on when to enter the market. These new agreements add a twist to the patent settlement.

The industry contends they are legal business decisions. The F.T.C. says they are illegal sweetheart deals that cost consumers $3.5 billion a year. "Win-win for the companies, but lose-lose for consumers," the FTC Chairman, Jon Leibowitz, said in an interview, after the agency released 270-page study on so-called brand-names generics. The Generic Pharmaceutical Association called the study part of a "misguided policy to ban pro-consumer patent litigation settlements." The system works, the industry trade group said, noting that 17 to 23 expected generic drug introductions this year, like Lipitor & Plavix will be the result of patent settlements.

The F.T.C. report, based in part on industry documents, found that generic drugs made by the original company, when competing against a truly generic drug in the first 180 days of competition, reduced overall prices by 4 per cent to 8 per cent. That was unsurprising, Mr. Leibowitz said. But it was disturbing, how often agreements not to compete have been used to compensate generic firms for delaying entry to the market. 

In the 12 months ended September 30, 2010, fifteen drug patent settlements combined a promise not to market a brand-name generic company's agreement to delay its entry to market. "Instead of saying, here's $200 million, go away, they're saying they could penalize them $200 million, but they won't, so go away," Mr Leibowitz said. The Pharmaceutical Research and Manufacturers of America said the reported proved that brand-name generics help reduce prices.