FTC: Pay-to-Delay Pharma Deals Cover $8.3 Billion in Revenue

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As the US Supreme Court prepares to review the veracity of so-called pay-to-delay deals, in which a brand-name drugmaker agrees to pay a settlement to a generic rival in exchange for ending patent litigation and launching a copycat medicine at a future date, the US Federal Trade Commission has released its latest report that shows the number of these agreements has increased.

The court review is considered very significant, because its decision could determine the pace at which lower-cost genreic drugs become available and, therefore, influence the cost of medicines for Americans. Drugmakers have struck dozens of these deals over the past decade or more, prompting increasing scrutiny at a time of rising health care costs. The FTC contends the deals are anti-competitive and cost Americans about $3.5 billion annually.

Branded Pharma companies -- including Pfizer (PFE), Merck (MRK), Novartis (NVS), GlaxoSmithKline (GSK), Sanofi (SNY) and Bristol-Myers Squibb (BMY) -- are having a hard time generating revenue growth as patents expire on existing medicines and the companies' labs fail to develop enough new drugs. Companies have turned to a number of strategies, including pay-to-delay, to try to hang onto branded revenue.

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To make its case, the agency highlights report findings that, in fiscal year 2012, the number of “potentially anticompetitive” patent deals between branded and generic drugmakers increased to 40 from 28 in fiscal year 2011. The FTC also notes that in 19 deals, brand-name drugmakers may have promised they would not develop or market an authorized generic as a form of payment to convince their generic rivals from marketing a competing product.

The agency also notes that the 40 deals tallied is the largest number of agreements in a given year since the FTC began collecting data in 2003. Overall, the deals reached in the latest fiscal year involved 31 different brand-name drugs with combined annual US sales of more than $8.3 billion. All totaled, drugmakers filed 140 final patent settlements, according to the report.

“Sadly, this year’s report makes it clear that the problem of pay-for-delay is getting worse, not better,” FTC chairman Jon Leibowitz says in a statement. “More and more brand and generic drug companies are engaging in these sweetheart deals, and consumers continue to pay the price. Until this issue is resolved, we will all suffer the consequences of delayed generic entry – higher prices for consumers, businesses, and the US taxpayer.”

The Supreme Court agreed to examine the issue after both Merck and the FTC sought review of separate cases. The FTC presented a case dating back to February 2009, when the agency filed a complaint challenging agreements in which Solvay Pharmaceuticals, which sells AndroGel, paid three generic drugmakers – Watson Pharmaceuticals (WPI), Paddock Laboratories and Par Pharmaceuticals – to delay launching copycat versions. In 2007, AndroGel generated more than $400 million, according to the FTC.

To read the remainder of this article, go to Pharmalot.

Ed Silverman, a contributing editor of YCharts, is the founder and editor of Pharmalot. He previously reported on the pharmaceutical industry and other business topics for the Star-Ledger of New Jersey, New York Newsday and Investor’s Business Daily. He can be reached at editor@ycharts.com.


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