FTC Wants to Waylay 'Pay to Delay' Deals

A few months back, the Federal Trade Commission sued Cephalon for paying four generic drug makers to refrain from selling generic versions of the anti-sleepiness drug Provigil until 2012. Each of the four companies had challenged the only remaining patent covering Provigil (modafinil), which is taken by people with sleep apnea, narcolepsy, and shift-work sleep disorder.

U.S. sales of Provigil totaled $800 million in 2007, and accounted for more than 40 percent of Cephalon's total revenue. The prospect of generic versions of Provigil entering the market posed a major threat to the company.

The saga began in 2002 when the four generic companies submitted applications with the Food and Drug Administration to begin marketing generic versions of Provigil. Each company had either designed around, or challenged the validity of, the only remaining patent on Provigil. Cephalon sued them all. In late 2005, with the companies nearing FDA approval, Cephalon agreed to pay the companies more than $200 million to stay out of the market.

Despite its losing streak in such cases, the FTC filed suit, accusing Cephalon of engaging in anticompetitive practices and abusing its monopoly power.

Two federal appeals courts recently upheld similar "pay for delay" settlements. Not surprisingly, these favorable rulings caused the frequency of such settlements to increase. In fiscal 2006, half of all pharmaceutical patent settlements (14 of 28) contained such payments. Such deals cost consumers millions of dollars by keeping lower-cost generic drugs off the market.

So what's behind the current case? It's clear that many FTC officials are tired of seeing their authority eviscerated by the courts (see this Washington Post op-ed by FTC commissioner Jon Leibowitz). By bringing the action against Cephalon, it appears the FTC is hoping to create a "circuit split" that could lead eventually to Supreme Court review. Of course, it's not likely the super-business-friendly Roberts court would side with consumers, either.

That's why the FTC is also supporting legislation pending in both houses of Congress that would ban the payoffs. Alas, that faces tough sledding, too. An Associated Press analysis of lobbying reports for fiscal year 2007 showed that about 12 generic and brand-name drug makers and industry trade groups spent $38.8 million on lobbying Congress.

"Lobbyists have a lot of influence in Washington," said Sen. Herb Kohl (D-WI), who sponsored the Senate bill. "If we can just get this to a vote, it will be pretty hard for people to vote against it. A vote against this is a vote against consumers."

-- by PM

Posted by gooznews at May 13, 2008 09:21 PM