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Drug Firms Accused of Trying to Block Low-Cost Generics


The Federal Trade Commission on Monday accused Schering-Plough Corp. of illegally paying American Home Products and a second drug manufacturer at least $80 million to keep cheaper versions of its widely prescribed potassium supplement off the market.

The FTC said the alleged conspiracy has cost people who use the supplement, K-Dur 20, $100 million since 1997. The drug is often used to maintain potassium levels in people who take medication to lower their blood pressure. It is the fourth-most-heavily used prescription drug by seniors, according to Washington-based Families USA, a consumer group.

The civil complaint, which also named Upsher-Smith Laboratories of Minneapolis, is part of the FTC's ongoing probe of anti-competitive practices in the pharmaceutical industry. Within hours of filing the action, the FTC announced a settlement in another case involving Aventis' strong-selling hypertension treatment, Cardizem CD.

The FTC said that drug manufacturers are using provisions of the 1984 federal Hatch-Waxman Act to block low-cost generics from entering the market. The act seeks to balance demand for cheaper drugs with the need to encourage discovery through patent protection. But Molly S. Boast, acting director of the FTC's Bureau of Competition, said the act has "unintended consequences in that it invites patent litigation and creates incentives for agreements we find troubling."

She added: "We ultimately think we will continue to see these kinds of cases in the absence of an amendment to the statute."

The FTC has disclosed that is investigating the legal tactics used by Bristol-Myers Squibb to delay a generic version of its blockbuster anti-breast cancer drug, Taxol.

"It is high time for the FTC to crack down," said Ron Pollack, executive director of Families USA. "These actions by the drug companies are costing seniors hundreds of millions of dollars a year."

In the pharmaceutical industry, companies do whatever they can to extend monopolies on strong-selling drugs. Entry of a generic can drive down prices by as much as 70%, hammering profits. Banc of America Securities analyst Len Yaffe estimated that a cheap knockoff could slash sales of Schering's K-Dur 20 by half. Revenue from K-Dur 20 totaled $290 million in 2000, according to Schering-Plough's annual report.

Schering, American Home Products and Upsher-Smith each issued statements Monday denying the FTC's allegations. The companies said the agreements are legal and beneficial to consumers.

According to the FTC's complaint, Upsher-Smith in June 1995 sought approval from the Food and Drug Administration to sell a knockoff of Schering's K-Dur 20. Schering's patent does not expire until 2006, but under Hatch-Waxman, Upsher-Smith could market a generic if it certified to the FDA that its generic does not infringe Schering's patent or that Schering's patent is invalid.

Schering sued Upsher-Smith for patent infringement, which, under Hatch-Waxman, delayed FDA approval of generic K-Dur 20 by 30 months, unless a court held Schering's patent invalid. The FTC said that in June 1997, Schering and Upsher-Smith settled the suit with Schering agreeing to pay Upsher-Smith $60 million to not enter the market until September.

The FTC said that although Upsher-Smith transferred licenses on five products to Schering, those licenses were of little value. The commission said that Schering marketed only one of the products, which Schering spokesman William O'Donnell identified as an unsuccessful anti-cholesterol drug. O'Donnell wouldn't provide the drug's name or say whether it is still being sold.

Schering and Upsher-Smith denied the licensing deal was a sham. Schering said the drugs were chosen for their market potential by scientists who were unaware of the settlement with Upsher-Smith. And Upsher-Smith said it licensed a sustained-release niacin to Schering that Upsher-Smith believed was worth at least $60 million. The company said it has offered to have the product appraised by an independent economist, but that the FTC declined its offer.

The FTC said the settlement agreement between Upsher-Smith and Schering acted as a "bottleneck" to prevent other generic competition. Under Hatch-Waxman, the first company to seek FDA approval to sell a generic drug obtains the exclusive right to market it for 180 days. The FTC said that until Upsher-Smith brought out its generic, no other company could do so without violating Hatch-Waxman.

According the FTC's complaint, Schering reached a similar deal with American Home Products. In December 1995, the ESI Lederle unit of American Home sought FDA approval to make a generic K-Dur 20. Schering sued ESI Lederle, triggering a 30-month stay on FDA approval of ESI Lederle's generic.

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