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The Federal Trade Commission has filed a complaint in federal district court challenging agreements in which Solvay Pharmaceuticals, Inc. paid generic drug makers Watson Pharmaceuticals, Inc. and Par Pharmaceutical Companies, Inc. to delay generic competition to Solvay’s branded testosterone-replacement drug AndroGel, a prescription pharmaceutical with annual sales of more than $400 million.

“At a time of escalating health care costs, these unlawful agreements deny patients the benefit of competition between branded and generic pharmaceuticals and ultimately cost consumers hundreds of millions of dollars a year,” said Acting FTC Bureau of Competition Director David P. Wales.

According to the Commission’s complaint, filed in the United States District Court for the Central District of California, Watson and Par, via its partner Paddock Laboratories, each sought regulatory approval from the FDA to market generic versions of AndroGel. In their FDA filings, both companies certified that their products did not infringe the only patent Solvay had relating to AndroGel, and that the patent was invalid. The complaint charges that Solvay agreed to pay the generic companies to abandon their patent challenges and agree not to bring a generic AndroGel product to market for nine years, until 2015.

“Today’s action reaffirms the Commission’s commitment to protect American consumers from artificially high prescription drug prices that result when branded and generic pharmaceutical companies decide to collude rather than compete,” Wales said. “The evidence in this case will show that Watson and Par agreed to defer their generic entry for nine years, not out of respect for Solvay’s patent, but due to the size of Solvay’s payments to them.”

The court action seeks to promote competition between Solvay and generic drug makers that had sought to introduce generic versions of the branded prescription drug AndroGel. AndroGel, Solvay’s second highest selling pharmaceutical product, is a pharmaceutical gel containing synthetic testosterone. It is approved for testosterone replacement therapy in men with low testosterone levels, which often are associated with advancing age, certain cancers, and HIV/AIDS, among other conditions.

More than two decades ago, Congress passed the Hatch-Waxman Act to encourage generic manufacturers to challenge patents that either are invalid or narrow enough to be designed around. The legislation has worked. Studies have shown that generic manufacturers have prevailed in the majority of patent challenges. The resulting generic entry, which often occurs well before patent expiration, leads to significantly lower prices and huge savings for patients and the health care system.

In May 2003, Watson and Paddock, which partnered with Par, each filed applications for FDA approval to market generic versions of AndroGel. Solvay’s patent on Androgel had been issued in January 2003, with an expiration date of August 2020. By early 2006, Watson had received final approval to market its generic product. According to the complaint, it was well-known that if Watson or Par were to enter with cheaper generic versions of AndroGel, Solvay’s AndroGel sales would plummet and consumers would benefit from the lower prices.

The complaint alleges that Solvay, realizing the devastating effect generic entry would have on its AndroGel franchise, acted unlawfully to eliminate this threat: Solvay paid Watson and Par a share of its AndroGel profits to abandon their patent challenges and agree to delay generic entry until 2015. As a result, the complaint states that the defendants are cooperating on the sale of AndroGel and sharing the monopoly profits, rather than competing.

According to the Commission’s complaint, defendants’ agreements to eliminate generic AndroGel competition were, and continue to be, unfair methods of competition that violate Section 5(a) of the FTC Act. The Commission is seeking a final court judgment declaring that Solvay’s agreements with Watson and with Par and Paddock violate Section 5(a) of the FTC Act, and injunctive relief restoring competitive conditions and barring the defendants from engaging in similar or related conduct in the future.

The Commission vote approving the complaint was 4-0, with Commissioner Jon Leibowitz issuing a separate concurring statement. The complaint was filed under seal in the U.S. District Court for the Central District of California on January 28, 2009. It was filed jointly with the Office of the Attorney General of California.

In his separate statement, Commissioner Leibowitz said, “This is yet another example of pharmaceutical companies turning competition on its head. . . . Congress enacted the landmark 1984 Hatch-Waxman Act to encourage early generic entry and save consumers money, but these anticompetitive deals threaten to destroy that benefit and make crucial portions of the Hatch-Waxman Act extinct in all but name.”

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has or is being violated, and it appears to the Commission that a proceeding is in the public interest. A complaint is not a finding or ruling that the defendants have actually violated the law.

Copies of the public version of the Commission’s complaint will be available soon from the FTC’s Web site at http://www.ftc.gov and the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. 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 383, 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” at http://www.ftc.gov/competitioncounts.

(FTC File No. 071-0060)
(AndroGel.final.wpd)