Pay for delay tactics under scrutiny

August 6, 2007

This article examines and explains the proposed legislation that will end the practice of allowing brand name drug companies to pay makers of generic drugs to delay the release of the cheaper prescription drugs into the market.

The FTC, along with Consumers Union (CU), publisher of Consumer Reports, is supporting legislation in Congress to end the practice of allowing innovator companies to pay makers of generic drugs to delay-potentially for years- the release of the cheaper prescription drugs into the market. "We're seeing brand-name drug companies pay off generic makers under the guise of a settlement to delay getting cheaper prescription drugs on the market," said Michael Wroblewski, project director, consumer education and outreach at CU.

These types of agreements, called exclusion payment or reverse payment settlements, allow brand-name drugmakers to pay would-be generic competitors, which then agree to delay introduction of their less costly, but otherwise identical, versions of the original medicines, according to the FTC. Although reverse payments have been fairly common in the industry for several years, for healthcare consumers, the process has translated into the loss of billions of dollars a year in savings, said Wroblewski. "These settlements between drug companies jeopardize the health of millions of Americans who have difficulty obtaining safe and effective medicines at affordable prices."

Disturbing new trend

An FTC study released in January contained the agency's analysis of a "disturbing new trend" in drug settlements filed during fiscal year 2006, which ended in September of that year. According to the study, half of all patent settlements in FY 2006-14 out of 28-involved compensation to the generic patent challenger and an agreement by the generic firm to refrain from launching its product for some time.

In 2006, the cholesterol-lowering drugs Zocor (simvastatin) and Pravachol (pravastatin), the antidepressants Zoloft (sertraline) and Wellbutrin (bupropion), and the nasal spray Flonase (fluticasone) all went generic. Employers, governments, and patients paid $9.4 billion for these drugs in 2005-the year before they were introduced generically, according to CU. Because generic drugs can be up to 70% less expensive than brand drugs, Wroblewski said, there is potential annual savings of $6.6 billion on those five drugs alone, assuming all brand prescriptions were filled with the generic version.

Additionally, generic competition following successful patent challenges to just four products-Prozac (fluoxetine), Zantac (ranitidine), Taxol (paclitaxel), and Platinol (cisplatin)-is estimated to have saved consumers more than $9 billion, according to the FTC.

This year, and in 2008, several brand-name drugs, including Prevacid (lansoprazole), Imitrex (sumatriptan), Zyrtec (cetirizine), and Effexor (venlafaxine) are expected to go generic.

Threat of rising drug costs

Up until the late 1990s, the FTC had successfully blocked reverse payment agreements. In 2003, the commission ruled that a 1997 settlement between Schering-Plough and Upsher-Smith regarding a potassium supplement widely used by older Americans for high blood pressure and heart disease violated antitrust laws. However, in 2005, the U.S. Court of Appeals for the 11th Circuit Court ruled that the company is indeed within its patent owners' rights to use such agreements.