Patent dispute settlements between brand-name and generic drug makers jumped sharply in the past year, the Federal Trade Commission has found in a new study, warning that such deals may be anticompetitive. 

There were 40 potential “pay for delay” deals in fiscal year 2012 involving drugs with combined sales of more than $8.3 billion, the FTC found, compared with 28 deals in FY 2011. It’s the most of any year since the FTC began collecting data in 2003, the January 17 report noted.

The deals – where a brand name drug company strikes a deal with a generic rival to postpone the introduction of a cheaper generic version of a drug – have been the crosshairs of FTC chairman Jon Leibowitz in recent years, though the agency has had mixed success when it has challenged such arrangements in court.

In March, the U.S. Supreme Court will hear arguments in Federal Trade Commission v. Watson Pharmaceuticals, Inc. in a case involving a pay-for-delay arrangement for Androgel, a treatment for low testosterone.

Of the 40 potential pay-for-delay settlements in 2012, 19 of them involved a promise by the brand-name drug maker to not introduce its own “authorized generic” version of the drug, the FTC found.

For generic drug makers, the biggest prize for successfully challenging a brand-name drug patent is a 180-day period of market exclusivity. But that prize is undermined if the brand-name drug maker introduces an authorized generic and siphons off generic sales.

However, a generic company may agree to delay its introduction of the drug if the brand-name maker promises not to launch an authorized generic – an arrangement that the FTC noted will “significantly reduce the level of competition the new generic entrant will face, allowing the generic firm to secure greater market share and extract higher prices from consumers.”

Overall, the FTC estimates that pay-for-delay deals cost American consumers $3.5 billion each year.

“Sadly, this year’s report makes it clear that the problem of pay-for-delay is getting worse, not better,” said Leibowitz in a news release. “More and more brand and generic drug companies are engaging in these sweetheart deals, and consumers continue to pay the price.”

David Balto, an antitrust solo practitioner and former FTC official, praised the report. “The FTC is right to put a spotlight on this egregious conduct and it’s time for the courts to step up and declare these shady deals illegal,” he said.

Contact Jenna Greene at jgreene@alm.com.