Obama's Pick for FTC Chairman Pursuing Two-Pronged Attack Against "Pay-For-Delay" Drug Patent Deals

Copyright 2009.  All rights reserved. 

President Obama has selected Federal Trade Commission member Jon Leibowitz as the new head of the agency. Appointed to the FTC in 1994 by President Bush, Leibowitz has recently described the elimination of "pay for delay" deals between pharmaceutical manufacturers as "one of the most important objectives for antitrust enforcement in America today." Leibowitz believes that these deals, which involve payments between brand name and generic drugmakers in exchange for delayed market entry for the generic drug, cost employers, the federal government, the elderly, and uninsured consumers billions of dollars each year in higher prices for brand-name drugs. Leibowitz seeks to eradicate pay-for-delay deals with a two-pronged approach that involves (1) filing lawsuits in federal court against the companies that engage in these deals, and (2) advocating for legislation banning payments between brand-name and generic drug manufacturers.

I.  The FTC is attacking pay-for-delay deals through litigation in federal courts.

Federal Trade Commission v. Cephalon, Inc.

The FTC filed a lawsuit in February 2008 against Cephalon, Inc., the maker of Provigil. This drug is used to treat patients with narcolepsy and other sleep disorders. The complaint alleges that Cephalon entered into agreements with four generic drug manufacturers, Barr Laboratories, Ranbaxy Pharmaceuticals, Teva Pharmaceuticals USA and Mylan Pharmaceuticals, each of which had challenged the only remaining patent covering Provigil. Under the agreements with Cephalon, the generic drugmakers promised to delay marketing generic Provigil until 2012 in exchange for total payments exceeding $200 million. Leibowitz filed a statement concurring with the FTC's decision to file the complaint. He agreed that "monopolization" was the appropriate legal theory to challenge the agreement between the drugmakers. However, Leibowitz went further. He argued that the complaint should have "named as a defendant any generic company that took these pay-offs and now refuses to relinquish their 180-day exclusivity." Leibowitz was referring to a provision in the Hatch-Waxman Act under which "first filers" receive 180 days to exclusively market a generic drug. Because the settling generic drugmakers refused to waive this right, no other generic companies were allowed to enter the market until the 180 days expired. Leibowitz asserted that this refusal "forc[ed] consumers to pay excessive prices for Provigil throughout the span of these illegal deals." Leibowitz asserted that "the non-relinquishing generics appear to be sending a clear signal to PhRMA Companies: you can do business with us in the future; we will protect your monopolies." The case is currently pending.

The FTC originally filed the Cephalon case in the U.S. District Court for the District of Columbia, but the case was later transferred to the Eastern District of Pennsylvania, where private damages actions were already pending against Cephalon. The FTC opposed the transfer, arguing that its case, which seeks only injunctive relief, would be unnecessarily delayed by consolidation with the private class actions, which involve more complicated issues such as damages calculation and class certification. The transfer also frustrated the FTC's efforts to create a circuit split and force the Supreme Court to rule on the legality of pay-for-delay agreements. The FTC deliberately selected the D.C. Circuit after the Supreme Court's 2006 refusal to review an 11th Circuit decision upholding pay-for-delay deals between Schering-Plough Corp., the maker of a brand-name blood pressure potassium supplement called K-Dur 20, and two would-be generic manufacturers. Before the Supreme Court's refusal to review the Schering-Plough decision, pay-for-delay deals were nonexistent. Thereafter, 50% of generic drug settlements between 2006 and 2007 included these exclusionary payments. Although the DOJ and FTC openly disagreed over whether the Supreme Court should hear the Shering-Plough case, the two agencies are new expected to speak with a common voice following the change in presidential administration and DOJ leadership. Obama's pick to lead the DOJ's antitrust division is Christine Varney, a former FTC official who is expected to be a far more vigorous enforcer of antitrust laws than her predecessor. Ms. Varney's confirmation hearings have not yet been scheduled. Leibowitz does not need to be confirmed by Congress because he was already a commissioner with the FTC.

Federal Trade Commission v. Watson Pharmaceuticals et. al.

In February 2009, the FTC filed a lawsuit in the Central District of California against Solvay Pharmaceuticals and several generic drugmakers. The drug at issue in the case is Androgel, which is a synthetic testosterone gel prescribed to men with low hormone levels due to age or disease. Solvay was granted a 17-year patent for Androgel in 2003, and the drug has become Solvay's second highest grossing product. Three generic drugmakers, Watson Pharmaceuticals, Par Pharmaceuticals and Paddock Laboratories, challenged Solvay's patent before the FDA, claiming that they could produce a generic version of Androgel without infringing Solvay's patent. When the FDA granted approval, Solvay struck an agreement with the generic manufacturers under which they agreed to delay marketing a generic version of Androgel until 2010, in exchange for a share of Solvay's profits. Leibowitz referred to this arrangement as "unconscionable" and "anticompetitive."

II.  Pending legislation would outlaw pay-for-delay deals.

On February 2, 2009, shortly after the Cephalon complaint was filed, the Preserve Access to Affordable Generics Act ("PAAGA") was introduced by Senate Judiciary Committee members Herb Kohl (D-WI) and Chuck Grassley (R-IA). The purpose of the bill is to specifically outlaw payments between brand and generic drugmakers that would serve to keep generic drugs off the market, such as the deal at issue in Cephalon. Henry Waxman (D-CA) is expected to introduce the House version of the bill. This bill mirrors previous bipartisan legislation introduced in the last Congress and co-sponsored by then-Senator Obama. Leibowitz supports the PAAGA, viewing it as "a simple, effective and straightforward solution to the problem by banning payments from the brand to the generic while permitting legitimate settlements." Government action is not limited to the United States, as the European Commission is set to release the results of its inquiry into the European pharmaceutical industry. In the course of its investigation, the target of which was activities that delay or block the sale of generic pharmaceuticals, the Commission raided the offices of several large pharmaceutical corporations.

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