By Kevin E. Noonan —

Last month, the Federal Trade Commission released a
report about so-called "pay for delay" arrangements, agreements
between branded pharmaceutical companies and generic drug companies that delay
entry of generic versions of branded drugs.  The FTC's position is clear from the title of the
Report:  "Pay-for-Delay: How
Drug Company Pay-Offs Cost Consumers Billions."

The Report, by FTC staffers from the Bureau of
Competition, Bureau of Economics, and Office of Policy Planning, describes these
agreements as "win-win" for the companies, by permitting brand-name
drug prices to stay high while giving generic companies a share of the high
profits generated by an extension of the time during which the brand-name drug
has no competition.  In the marketplace, the Report notes
that generic prices can be as much as 90% lower than brand-name drug prices,
designating delay in generic entry as a loss for consumers.  The Report notes that the FTC had "deterred" the use of such
agreements between April 1999 and 2004, buttressed by a decision by a regional
Court of Appeals that these agreements were per
se illegal.  In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003).  However, a decision by the Federal
Circuit, In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F.3d 1323 (Fed. Cir. 2008), and
other Courts of Appeal, Schering-Plough Corp. v. Fed. Trade
Comm'n, 402 F.3d 1056 (11th Cir. 2005); see also In re
Tamoxifen Citrate Antitrust Litigation, 466 F.3d 187 (2d Cir. 2006),
have "misapplied the antitrust laws" by upholding this type of
agreement.  As a consequence, "pay-for-delay"
agreements between branded and generic drug companies have "re-emerged."

As a result, generic drug entry is delayed for on
average 17 months and pay-for-delay agreements "protect at least $20 billion in sales of brand-name
pharmaceuticals from generic competition."  The Report estimates that the "cost
to American consumers [is] $3.5 billion per year."  The nature of these agreements is
public information under the terms of the Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, 42 U.S.C. § 1395w-101 (2009) note (section 110), 21 U.S.C. § 355
(2009) note (sections 1111-1118), 21 U.S.C. § 355(j)(5) (2009) (section 1102)),
which require all such agreements to be filed with the FTC.

A previous
FTC study showed that generic drug companies prevailed in ANDA litigation
against brand-name drug companies 73% of the time between 1992 and 2002.  Generic Drug Entry Prior to
Patent Expiration: An FTC Study, Exec. Summary at viii (July 2002).  This statistic provides the incentives for brand-name
companies to pursue these types of agreements.

Turning to
statistics, the Report notes that there have been 66 agreements that "involved
some sort of compensation" for delayed entry between FY 2004-2009, and
that in the same time period, ANDA litigation was settled in 152 instances
without pay-for-delay agreements.  Of the 66 agreements involving delayed generic entry, 51 of them (77%)
were between the brand-name pharmaceutical company and the first ANDA filer.  These data were significant, because (as
the Report notes) "[s]ettlements with first-filer generics can prevent all generic entry" (emphasis in original), since the generic
company to first file an ANDA has a 180–day exclusivity period to which it is
entitled under the Hatch-Waxman Act.  Thus, delaying market entry for the first ANDA filer prevents any
subsequent ANDA filer from entering the market until the first filer has
utilized the 180-day exclusivity period.

These
agreements do not all involve direct cash payments to the generics companies,
however.  Other arrangements
described in the Report include an agreement from the brand-name pharmaceutical
company not to introduce an "authorized generic," i.e., a generic
version of the drug made by the brand-name company, which are not excluded by
the 180-day exclusivity period awarded to the first to file an ANDA.  These types of agreements
were included in about 25% of the "pay-for-delay" agreements
discussed in the Report.

The Report
also presents details regarding how the various estimates were determined
(including average length of no competition against brand-name drugs, the
annual costs to consumers (with an embedded estimate on the average savings to
consumers from generic drug entry), the likelihood of settlements containing
such pay-for-delay provisions, and the sales volume for drugs where settlements
containing such provisions (the latter two categories admittedly being highly
speculative).  Indeed, the Report contains alternative
estimates with higher ($7.5 billion) and lower ($0.6 billion) amounts of
consumer costs, depending on initial assumptions.

The Report
recommends that, in the absence of consistent treatment by the Courts of Appeal
or a decision by the Supreme Court, Congress needs to effect a legislative
remedy.  In the interim, the FTC is
pursuing additional remedies in two lawsuits, Fed. Trade Comm'n v.
Cephalon, No.
08-cv-2141-RBS (E.D. Pa.), and Fed. Trade
Comm'n v. Watson, No. 09-cv-00598 (N.D. GA).  Possible
legislative measures recommended by the Commission (but not contained in the
Report) include forfeiture of the 180-day exclusivity period for any first ANDA
filer that enters into a "pay-for-delay" agreement with a branded
drug company or outright bans as proposed in bills introduced in both Houses of Congress
(H.R. 1706 and S. 369 or S. 1135).  None of these bills have been voted on in
either chamber, however, and their fate is (at present) bound up with the
stalled healthcare reform bill.