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Drug makers' 'pay for delay' schemes

Backroom deals among pharmaceutical makers to protect drug patents and profits aren't necessary and hurt consumers.

February 05, 2009

Solvay Pharmaceuticals is understandably pleased with AndroGel, the synthetic testosterone gel it developed in 2003. Not only does the drug bring in more than $400 million a year in sales to AIDS patients, cancer patients, elderly men and others who suffer from low levels of testosterone, but the company was granted a 17-year patent, which bars competitors from entering the market with a generic version until 2020.

Unless, that is, the patent can be successfully challenged. Which is exactly what three drug makers tried to do. In applications to the Food and Drug Administration, Watson Pharmaceuticals, Par Pharmaceuticals and Paddock Laboratories argued that Solvay's patent wasn't valid and that, in any case, they could manufacture generic versions of AndroGel without infringing it.

Needless to say, Solvay was dismayed by the threat to its $400-million revenue stream. So it made a deal that has become all too common in recent years: It took its competitors aside and offered a compromise under which the companies would agree not to market a generic version for another nine years -- in return for a share of Solvay's monopoly profits.

Hooray for negotiation! Everyone's a winner!

Except, of course, the consumer. By holding generics off the market until 2015, the deal keeps prices high. When generics become available, prices can drop as much as 80% to 90%. So Solvay's gain was the consumer's loss.

Last week, the Federal Trade Commission and the California attorney general filed suit in federal court, calling the deal illegal and anti-competitive. They said the companies had chosen to "collude rather than compete." The commission also noted that Solvay's "pay for delay" deal is far from unusual. Nearly half of all agreements between generics and brand-name manufacturers in 2006 and 2007 included payments in return for staying out of the market.

The FTC insists that such payments are illegal, but the law is not yet settled. The FTC has twice sought to persuade the Supreme Court to consider cases challenging pay-for-delay agreements, but both cases were turned away.

We agree with the commission that such deals are anti-competitive and bad for consumers. Sure, companies such as Solvay deserve patent protection (although Solvay long ago recouped its research-and-development costs). But society also has a strong interest in making sure that generic drugs become available as soon as legally appropriate. These competing interests must be weighed fairly and carefully, and a process is in place to do so under the Hatch-Waxman Act of 1984. At this point, there's little to be gained, at least for consumers, from backroom deals made by interested corporate parties.

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