FTC Finds 60% Increase in Pay-to-Delay Deals

In fiscal year (FY) 2010, the number of patent settlements in which the manufacturers of branded products paid makers of generic drugs to postpone the introduction of their products reached its highest level ever, according to a Federal Trade Commission (FTC) staff report. The number of these “pay-to-delay” deals rose from 19 in FY 2009 to 31 in FY 2010, an increase of more than 60%. FY 2010 agreements involved 22 branded pharmaceutical products with combined annual US sales of about $9.3 billion, according to the report.

Pay-to-delay settlements postpone the market entry of generic drugs by an average of 17 months longer than settlements that do not include a payment, according to an FTC staff study. Generic drugs, which typically cost at least 20–30% less than their branded equivalents, help reduce costs for taxpayer-funded health programs such as Medicare and Medicaid.

“Collusive deals to keep generics off the market are already costing consumers and taxpayers $3.5 billion a year in higher drug prices,” said FTC Chairman Jon Leibowitz in a press release. “The increasing number of these deals is a win–win proposition for the pharmaceutical industry, but a lose–lose for everyone else.”

The Generic Pharmaceutical Association (GPhA) quickly criticized the FTC report. “The FTC is continuing to perpetuate the myth that procompetitive, proconsumer patent settlements are harmful to consumers,” GPhA said in a press release. The organization also said that FTC has the authority to review and reject patent settlements that it considers unlawful.

In fact, FTC has challenged several of these patent-settlement agreements in court, arguing that they are anticompetitive and violate US antitrust laws. In 2003, an appellate court held that pay-to-delay agreements were illegal, but some appellate courts have upheld these agreements since 2005. FTC has asked Congress to pass legislation to prohibit pay-to-delay agreements.

A total of 113 final patent settlements were filed during FY 2010, according to the FTC report. Of the 31 pay-to-delay settlements, 26 involved generics that were first filers (i.e., the first companies to seek FDA approval to market a generic version of the branded drug). Delaying a first filer’s market entry can block other generic manufacturers from entering the market, according to an FTC press release.