FTC Sues Drug Makers Over Pay-To-Delay Deals

[frigidmagi]

WSJ

For the first time since the U.S. Supreme Court ruled last year that so-called pay-to-delay deals may be subject to greater antitrust scrutiny, the U.S. Federal Trade Commission has filed a lawsuit charging drug makers with violating anti-trust laws and hurting consumers in their collective pocketbooks.

Specifically, the agency charged several drug makers – including AbbVie ABBV +2.59%; Abbott Laboratories ABT +0.31%, which spun off AbbVie, and Teva Pharmaceuticals TEVA +2.60% – for striking deals that delayed the availability of the widely promoted AndroGel testosterone replacement therapy, a $1 billion seller.

“We believe the defendants’ anticompetitive conduct has forced consumers to overpay hundreds of millions of dollars for this medication,” FTC chairwoman Edith Ramirez told the media in a briefing, in which she noted the agency hopes to force the drug makers to disgorge “their ill-gotten gains.”

In these deals, a brand-name drug maker settles with a generic rival in exchange for ending patent litigation and launching a copycat medicine at a future date. The pharmaceutical industry contends the deals are not only legal, but actually allow drugs to reach consumers faster than if litigation continued.

Also known as reverse payment settlements, the deals emerged as an unintended consequence of the Hatch-Waxman Act that was designed to accelerate access to lower-cost generics. An FTC report in 2012 found there 40 potential pay-to-deals, up from 28 the year before.

The Supreme Court ruling, which reviewed a lawsuit brought by the FTC against Actavis, was a boost to the agency, because it supported the contention that pay-to-delay deals may violate antitrust laws and, effectively, allowed the FTC to pursue lawsuits against drug makers.

The FTC had spent years trying to convince Congress and the courts that pay-to-delay deals hurt the economy. The agency, in fact, regularly released reports estimating the deals cost consumers dearly. In the last such report, which was issued in early 2013, the agency estimated the deals cost Americans $3.5 billion annually and contributed to the federal deficit.

In its ruling, the Supreme Court decided the deals should be evaluated under a long-standing doctrine known as rule of reason, which says a violation exists if an activity poses an unreasonable restraint of trade. After the ruling, FTC officials vowed to redouble their efforts to scrutinize patent settlements for signs of anticompetitive activity and pursue legal action.

In its lawsuit, the FTC charges that AbbVie, Abbott and Bevins Healthcare filed “sham” patent litigation against potential generic rivals, including Teva, and then entered into an allegedly illegal patent settlement in order to thwart competition.

An AbbVie spokesman sent us a note to say the drug maker “cannot comment on the lawsuit specifically. However, our patent infringement lawsuits were appropriate and our settlement agreements were lawful, as well as in the best interest of all parties.”

And an Abbott spokesman sent us a note say the company “separated its research-based pharmaceutical business into a new public biopharmaceutical company called AbbVie in January 2013. With the separation, the U.S. commercial rights and associated responsibilities for AndroGel passed to AbbVie.”

We asked Teva and Bevins for comment as well, and will update you with any replies. [UPDATE: A Teva spokeswoman wrote us to say there would be no comment.]

[EDITOR'S NOTE: The lawsuit contains some redactions. An unredacted version is expected to be filed and available on September 18, according to the docket].

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