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According to an overview of industry data released by the staff of the Federal Trade Commission, in Fiscal Year 2011, pharmaceutical companies continued a recent anticompetitive trend of paying potential generic rivals to delay the introduction of lower-cost prescription drug alternatives for American consumers.

The FTC staff report found that drug companies entered into 28 potential pay-for-delay deals in FY 2011 (October 1, 2010 through September 30, 2011).  The figure nearly matches last year’s record of 31 deals and is higher than any other previous year since the FTC began collecting data in 2003.   Overall, the agreements reached in the latest fiscal year involved 25 different brand-name pharmaceutical products with combined annual U.S. sales of more than $9 billion.

“While a lot of companies don’t engage in pay-for-delay settlements, the ones that do increase prescription drug costs for consumers and the government each year,” said FTC Chairman Jon Leibowitz.  “Fortunately, Congress has the opportunity to fix this problem through the Joint Select Committee on Deficit Reduction — and save the government and American taxpayers billions of dollars.”

Generic drugs are the key to making medicines affordable for millions of American consumers, and they also help hold down costs for taxpayer-funded health programs such as Medicare and Medicaid.  Generic drug prices are typically at least 20 to 30 percent less than the name-brand drugs, and in some cases are up to 90 percent cheaper.

In recent years, certain brand-name companies have paid or otherwise compensated generic firms to settle their patent challenges and, in turn, delay the introduction of lower-cost medicines.  An FTC staff study has found that patent settlements that include a payment or other compensation delay generic entry on average by 17 months longer than those that do not include a payment.  According to the Congressional Budget Office, proposed legislation would reduce the federal deficit by $2.67 billion over 10 years.

The FTC has challenged a number of these patent settlement agreements in court, contending that they are anticompetitive and violate U.S. antitrust laws.  The agency also has supported legislation in Congress that would prohibit pay-for-delay settlements that increase the cost of prescription drugs.

According to the new staff report, companies reached a total of 156 final patent settlements in FY 2011.  Twenty-eight settlements contained a payment to a generic manufacturer and also restricted the generic’s ability to market its product.  Of those 28 settlements, 18 involved generics that were so-called “first filers,” meaning that they were the first to seek FDA approval to market a generic version of the branded drug, and, at the time of the settlement, were eligible to exclusively market the generic product for period of time.  Because of the regulatory framework, when first filers delay entering the market, other generic manufacturers can also be blocked from entering the market, which makes such patent settlement deals particularly harmful to consumers.

The report summarizes data on patent settlements filed with the FTC and the Department of Justice during FY 2011 under the Medicare Modernization Act of 2003.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.

(2011 MMA Report.final)