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The Federal Trade Commission is continuing its fight against alleged anti-competitive behavior in the U.S. pharmaceutical industry by pushing for federal legislation that would bar makers of brand-name prescription drugs from paying generic drug manufacturers to delay a generic drug release. The agency said the sharp rise of such anti-competitive settlements between the two types of drug makers deprives consumers of affordable prescription drugs. But attorneys for the pharmaceutical industry counter that proposed legislation banning settlements involving compensation to generics would prolong patent court fights between generic and brand-name drug makers. In fiscal 2006, the trade commission counted 14 out of 28 settlements involving a brand name drug maker’s payment or other compensation to a generic company and an agreement that the generic delay a product rollout. The high number of 2006 settlements compares with three out of 11 settlements with both features in fiscal 2005, and none of 14 settlements in fiscal 2004. The other settlements did not compensate the generic company or did not restrict the generics’ market entry. The FTC said pharmaceutical companies boost their profits through such agreements, but consumers are denied lower-cost generic drugs for months or years. The extra profits that brand-name companies reap by negotiating a later generic drug entry enable them to pay the generic drug manufacturer more than it would have earned by launching a competing drug, the agency said. The agency is also troubled by settlements about drugs that aren’t part of a court patent battle between the generic and brand-name drug makers. For the first time in fiscal 2006, the agency counted five settlements that involved marketing agreements about drugs that were not the subject of the litigation between the two companies, but the FTC declined to discuss specific settlements. Open floodgates? The trade commission believes these nonlitigation settlements illustrate widespread and growing complicity between the generic and brand-name drug makers. “The floodgates have opened for these anti-competitive settlements,” said FTC Commissioner Jon Leibowitz. “Before [the Schering case] everyone believed these deals violated the antitrust laws.” In 2005, the 11th U.S. Circuit Court of Appeals ruled that Kenilworth, N.J.-based Schering-Plough Corp.’s 1997 settlement with generic drug maker Upsher-Smith Laboratories Inc. over a drug Upsher-Smith wanted to launch did not violate antitrust laws. The U.S. Supreme Court later denied the FTC’s bid to take the case. Schering-Plough v. FTC, 402 F.3d 1056 (11th Cir.), cert. denied, 126 S. Ct. 2929 (June 26, 2006). After the federal appeals losses, the trade commission is taking its fight to Congress even while scouting for another test case in the federal courts. Yet pharmaceutical companies and attorneys representing the industry argue that many settlements involving payments enhance competition because they bring generic drugs to market before a patent monopoly expires. If the brand-name drug company has a valid patent, and the generic’s challenge leads to a settlement that allows the generic to enter before the patent expires, the result is pro-competitive, said Schering-Plough’s appellate attorney, Laurie Webb Daniel of Holland & Knight’s Atlanta office. “The FTC has taken an extremist approach that ignores practical concerns and realities,” Webb Daniel said. The Preserve Access to Affordable Generics Act was first introduced in the Senate last summer, but no action was taken on it before the legislative session ended. In the current legislative session, the Senate Judiciary Committee held a hearing on a similar bill on Jan. 17, the day it was introduced. In a telephone interview, Leibowitz said the commission strongly supports the legislative “bright-line approach to ban anti-competitive payments that harm consumers.” At the hearing, Leibowitz said the commission supports the intent of the bill that was introduced, and that it hopes to work with the judiciary committee on later drafts of the bill. “A legislative approach could provide a swifter, more certain, and more comprehensive solution,” Leibowitz said at the hearing. But banning drug companies from paying generic companies to postpone market entry could make settling patent litigation more difficult, argued Hewitt Pate, a partner in the Washington office of Richmond, Va.-based Hunton & Williams, who formerly led the Antitrust Division at the U.S. Department of Justice. Ending patent litigation often requires complex multipart settlements, said Pate. “It becomes difficult to reach settlement if there’s a per se rule of anything of value changing hands,” Pate said. The current legislative approach is an attempt to devise an overly simple solution to a complicated problem, said Jim Burling, a Boston attorney who co-chairs the antitrust and competition department at Wilmer Cutler Pickering Hale and Dorr. Burling, who has worked on pharmaceutical patent settlements for brand-name drug company clients, said banning settlements involving compensation could ultimately discourage generic drug makers from filing abbreviated new drug applications (ANDA) with the U.S. Food and Drug Administration. ANDA applications assert that a proposed drug is a bioequivalent to an existing drug. Applications that either challenge the validity of a brand-name drug company’s patent or assert that the generic product does not infringe on an existing patent frequently can lead to litigation. Fewer challenges? Under the Drug Price Competition and Patent Term Restoration Act, which is popularly known as the Hatch-Waxman Act, the first generic company to file an ANDA application gains some exclusive rights to market its drug for 180 days if it wins. Brand-name companies that file an infringement suit within 45 days receive an automatic 30-month stay that prohibits generic entry. Many of these patent fights settle, and companies factor in the possibility of future settlements when considering whether to file ANDA applications, Burling said. “If one of the leading ways of settling these cases were not available, generics might not think [litigation] was worth the expense,” Burling said. “We could well have fewer patent challenges if this kind of law would pass.” The approach also ignores the value of the patent and the investment that pharmaceutical companies have sunk into developing the technology, Pate said. “The per se approach sort of takes the view that the patent ought to be presumed to be impeding competition,” Pate said. “It ignores that the patent is how innovating companies get rewarded for investment they’ve made to invent new things.” Leibowitz disputed the notion that generic and brand-name pharmaceutical companies would be unwilling to settle patent disputes without payments. From 2000 to the early part of 2005-during a time when settlements involving payments were believed to be illegal-there were dozens of settlements without a payment to the generic company, Leibowitz said. “It is utterly wrong to say that this bill would prohibit settlements,” Leibowitz said. Deepening a split While it looks to Congress for help, the FTC hasn’t abandoned a court approach. The FTC is scouting for a new case and it has several investigations in the pipeline, Leibowitz said. The agency wants to deepen the split in the circuits and prompt the U.S. Supreme Court to resolve the issue, Leibowitz told the judiciary committee. “But that could take years, and the outcome is uncertain,” Leibowitz said at the judiciary hearing. After court victories earlier in the decade, two key appellate decisions in 2005 weakened the FTC’s tough stance on settlements, and deals involving brand-name company payments to a generic rose sharply, Leibowitz said. The end result, according to the agency, is frequently a generic launch years after the company files for drug approval with the Food and Drug Administration. The 11th Circuit ruled that the Schering-Plough agreement with a generic company was not anti-competitive. The 2d Circuit issued a similar ruling on a separate case involving a drug company settlement over the breast cancer drug Tamoxifen. Although the Tamoxifen case was brought by a group of consumers and third-party health care payors, such as municipal health plans, the outcome weakened the FTC’s stance that settlements involving payments were anti-competitive. The parties involved in the Tamoxifen case have applied for certiorari with the Supreme Court. In re Tamoxifen Citrate Antitrust Litig., 429 F.3d 370 (2d Cir. 2005). Both types of drug companies have discovered that they are better off as partners in a monopoly than as competitors, said Patrick Cafferty, in the Ann Arbor, Mich., office of Chicago-based Cafferty Faucher, and a plaintiff’s attorney on the Tamoxifen case. “I don’t know how a generic company could turn down [these settlement] offers,” Caffery said. “They can make more money by protecting a monopoly than they can by competing. The only ones that lost are the people who have to foot the bill for the drug.” Drug companies and lawyers who represent them argued that the settlements help consumers because they can bring cheaper drugs to the market before a brand-name company’s patent expires. The settlement in the Tamoxifen Citrate case allowed Barr Pharmaceuticals Inc. of Woodcliff Lake, N.J., to introduce a competing generic drug years before the patent expiration, even though the patent was upheld in subsequent litigation, said spokeswoman Carol A. Cox. “The only way to guarantee entry prior to patent [expiration] is to settle the case, and most settlements include monetary consideration,” Cox said. “This is beneficial to consumers and can save the health care system billions of dollars.” The terms of the settlement called for a $21 million payment to Barr and distribution rights to a generic drug made by the brand-name drug company, AstraZeneca PLC’s predecessor. Barr rolled out its own generic drug after London-based AstraZeneca’s patent expired. Since the settlement was a supply agreement that gave Barr rights to sell AstraZeneca’s drug, the result was a drug priced higher than “true generic competition,” Leibowitz said. The Schering-Plough settlement gave Maple Grove, Minn.-based Upsher-Smith the right to market two competing potassium chloride drugs five years before the patent expired in September 2006. But Schering-Plough’s $60 million payment to Upsher-Smith was actually for the rights to five other drugs, primarily for cholesterol management, not an anti-competitive payment to delay the launch of the generic drug initially in dispute, said one of Upsher-Smith’s appellate lawyers, J. Mark Gidley, a Washington-based attorney who chairs White & Case’s global antitrust group. “We think the parties hammering it out is best way to do settlement agreements,” Gidley said. “If we have extremes, we have courts to resolve [that].”

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