“Pay-for-Delay” Deals Keep Generic Drugs Off Market, Cost Consumers Billions: FTC Study

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

“Pay-for-delay” patent litigation settlement agreements cost U.S. consumers an estimated $3.5 billion per year, according to a study issued by the Federal Trade Commission on January 13.

Under these agreements, brand-name drug makers pay their generic competitors to keep cheaper alternatives off the market. As such, the agreements are a “win-win” for the drug companies, but a losing proposition for consumers, who miss out on generic pricing that can be a much as 90 percent less than brand prices, according to the FTC staff.

The study found that the number of agreements with payment and delay have increased from zero in 2004 to a record 19 agreements in Fiscal Year 2009. According to the study, the cost to consumers from “pay-for-delay” deals is an estimated $3.5 billion per year—or $35 billion over 10 years.

The study also found that settlement deals featuring payments by branded drug firms to generic competitors kept generics off the market for an average of 17 months longer than agreements that do not include a payment.

Most of the agreements reached since 2005 are still in effect and currently protect at least $20 billion in sales of brand-name drugs from generic competition.

Text of the FTC staff study (“Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions”) is available here on the FTC website.

At a joint press conference announcing the release of the study, FTC Chairman Jon Leibowitz and several members of Congress—including Representatives Chris Van Hollen (D, Md.), Bobby Rush (D., Ill.), and Mary Jo Kilroy (D, Ohio)—renewed their call for legislation that would put an end to such patent settlements.

Chairman Leibowitz said that these agreements force consumers to pay inflated price or to forgo their medication. He urged Congress to adopt a provision to stop these agreements as part of the health care reform bill.

“Ending this practice as part of health care reform is one simple, effective, and straightforward way for Congress to help control drug costs,” the Chairman said.