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Recent suits by states and consumer groups are the latest in a series of attacks on the pharmaceutical industry’s alleged effort to keep generic drugs off the market. In a case filed on May 14 by 15 states and the District of Columbia, Aventis is accused of first suing Andrx Corp., the generic manufacturer, for infringing on its patent on Cardizem CD, a popular heart medication, and then agreeing to pay Andrx millions to keep its generic equivalent off the market until the suit went to trial and all appeals were exhausted. Before the states and consumer groups got into the act, however, private plaintiffs’ lawyers had filed dozens of class actions against drug makers for market-entry agreements that also either settled or worked around pending infringement suits. The private litigation began more than two years ago in San Francisco. Five groups of class actions are now pending, including three in New York, Michigan and Florida that have been consolidated through federal multidistrict litigation. After the private lawsuits began, the Federal Trade Commission (FTC) started investigations of its own. On March 16, the FTC said that it had barred Abbott Laboratories and Geneva Pharmaceuticals Inc. from entering further sue-then-settle arrangements concerning Abbott’s hypertension drug Hytrin. A similar ruling came on April 2, when the FTC announced it had forced Aventis and Andrx to accept a consent agreement under which they would be barred from entering any more arrangements that “have the purpose or effect of delaying the entry of generic pharmaceuticals.” On the same day, the agency issued an administrative complaint against Schering-Plough Corp., accusing it of paying two generic drug manufacturers up to $90 million to settle a patent infringement suit and similarly to keep from consumers their bioequivalent products of the name-brand company’s popular high blood-pressure treatment drug, K-Dur 20. In addition, Richard A. Feinstein, assistant director of the FTC’s Bureau of Competition, says that the agency on April 24 issued “special orders” — interrogatory-like questions — to 49 generic drug makers and 26 brand-name manufacturers to determine whether any more potentially illegal agreements or settlements exist as part of a broader study into how generic drugs are reaching American consumers and to advise Congress on any needed legislation. Not surprisingly, the flurry of legal actions over this generic drug issue are coming at a time when the patents on as many as 18 brand-name drugs, with $37 billion in U.S. sales, are expected to expire during the next five years. Aventis general counsel Edward H. Stratemeier, like attorneys for the other drug makers, insists that his company has done nothing wrong. “Surely, there has to be a way to settle these patent disputes” in an orderly fashion, he says. ANTITRUST ALLEGATIONS The private suits invariably allege antitrust violations under the Sherman Act by way of abusing loopholes in the 1984 Hatch-Waxman amendments to the Food, Drug and Cosmetics Act. That compromise reform law was an attempt by Congress to get more low-cost generic drugs to consumers faster, while encouraging innovation by confirming or extending the patent law’s “exclusive right to market” protections to the pioneering and generic drug companies. Once a brand-name drug company learns through government filings that a generic manufacturer is going to challenge one of its patents and files a patent infringement suit, the Hatch-Waxman Act does not allow the FDA to approve for sale any competitor’s generic equivalents for 30 months. If a court rules that the name-brand company’s patent was either invalid or not infringed on, the generic manufacturer that first challenged the patent gets exclusive marketing rights for a 180-day period. Hatch-Waxman does not address how to settle the infringement litigation. Most of the class actions maintain that the parties run afoul of the antitrust law when they try to settle the infringement suits either by having the suing brand-name company pay the defending generic manufacturer millions essentially to keep their bio-equivalents off the market longer than the Hatch-Waxman’s 30-month exclusivity period, or by having the generic drug company waive its own marketing rights under that law. The end result, the lawsuits argue, is that prices to consumers are artificially inflated by as much as 80 percent. According to Michael G. Nast, one of the plaintiffs’ lawyers and a name partner in Lancaster, Pa.’s Nast & Roda, such agreements are clear evidence of illegal price-fixing and/or illegal market allocation. “What normal company would sue its competitor for infringing its patent and wind up paying that defendant millions of dollars to settle?” he asks. In nearly every instance, however, the companies and their attorneys insist that the “agreements” or “settlements” were consistent with Hatch-Waxman and are reasonable attempts to resolve complex and highly risky infringement lawsuits. “It was Congress that provided an incentive to generic drug companies to challenge an innovator’s patent,” says Matthew B. Van Hook, deputy general counsel for the Pharmaceutical and Research Manufacturers of America. “And it is inconceivable that the innovator cannot protect its property rights” by suing and settling that dispute when it makes sense to do so. As for the common settlements being evidence of antitrust violations, Aventis’ Stratemeier says, “the patent laws, not a [private] settlement agreement,” control a company’s right to market its product, including pricing. It is possible that Congress will enter the fray. Senators Charles E. Schumer, D-N.Y., and John McCain, R-Ariz., recently introduced a bill that proposes to eliminate Hatch-Waxman’s 30-month FDA automatic stay on new generic drug approvals and would allow late-arriving generic makers to market their bioequivalents once the brand-name and first-to-challenge generic companies settle their infringement litigation. MORE SUITS SEEN AS NEEDED Meanwhile, the failure of the FTC to file more complaints against America’s drug companies is “exactly why” even more private class actions are needed, says Joseph Lipofsky, a partner in New York’s Zwerling, Schachter & Zwerling, who represents plaintiffs in three of the five groups of pending class actions. Indeed, on May 9, the Boston-based Prescription Access Litigation Project, a coalition of 19 consumer groups in 13 states, announced the first of what it says will be many antitrust class actions it plans to file against the drug industry. That lawsuit was filed in a federal court in Detroit. It accuses Barr Laboratories Inc. and Astra Zeneca Inc. of conspiring to fix prices on Tamoxifen, a low-cost breast cancer treatment drug. The states followed with their suit less than a week later.

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