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FTC Provides Hard Data on Pay-for-Delay Agreements

We have previously written about “pay-for-delay” agreements in which brand-name drug manufacturers pay generic manufacturers to delay bringing cheaper generic drugs to market.  These agreements, which drive up drug costs for health plans and consumers, have long been viewed by the Federal Trade Commission (FTC) to be anti-competitive.  In a new report, the FTC staff have quantified the growing use of these agreements.

According to FTC Chairman Jon Leibowitz, “this year’s report makes it clear that the problem of pay-for-delay is getting worse, not better.  More and more brand and generic drug companies are engaging in these sweetheart deals, and consumers continue to pay the price.”

The FTC reported that in fiscal year 2012, the number of potentially anticompetitive patent dispute settlements between branded and generic drug companies increased to 40 from 28 in the prior year—a 43% jump.  The number of these pay-for-delay deals in 2012 is the highest of any year since the FTC began collecting data in 2003.  The 2012 agreements covered 31 different brand-name drugs with combined annual U.S. sales of more than $8.3 billion.

Let’s pause for a moment and think about what that means for health costs.  The Food and Drug Administration reports that, on average, the cost of a generic drug is 80 to 85 percent lower than the brand name product.  So, just the 2012 pay-for-delay agreements could be costing Americans some $6.6 billion per year extra for prescription drugs.  That’s about $21 for every person in the United States, and significantly more for each user of the drugs covered by the pay-for-delay agreements.

Some other findings from the new FTC report:

  • In nearly half of the 2012 agreements, the branded drug firms may have given the promise that they would not themselves develop or market an authorized generic (AG) as a payment to delay the generic drug firms from bringing a generic drug to market.
  • It is not uncommon for a brand company to enter multiple settlements involving payment for the same branded product.  In FY 2012, 7 branded products had multiple settlements involving compensation and restrictions on entry.
  • Since 2004, brand companies have paid multiple generics in relation to 26 branded products.  For 14 products, a brand company paid 3 or more generics.

Since each additional year of exclusivity a brand-name drug company can acquire by paying off generic competition means tens of millions of dollars or more of additional profits, it’s understandable why brand drug companies are willing to make the payments.  And, for the generic companies, it’s equally understandable why they might accept huge payments for essentially doing nothing for some period.  Fortunately the FTC is watching out for the interests of health plans and consumers.

The continuing viability of these pay-for-delay agreements may be decided by the U.S. Supreme Court later this year in the case of Federal Trade Commission vs. Watson Pharmaceuticals, Inc..The court is scheduled to hear oral arguments on March 25, 2013.