UPDATE:DOJ Changes Policy On Pharma Pacts That Delay Generics
07 July 2009 - 9:56AM
Dow Jones News
The U.S. Department of Justice on Monday took a skeptical view
on the legality of pharmaceutical patent settlements that delay the
introduction of generic drugs, the latest change in antitrust
policy under the Obama administration.
The department's antitrust division said in a court filing that
drug patent settlements should be presumed unlawful when branded
drug makers pay their generic counterparts to abandon patent
challenges that could lead to early market entry of competing
generic medicines.
For a settlement to survive legal scrutiny, a drug maker needs
to have good explanations for why the settlement doesn't impose an
unreasonable restraint on competition, the Justice Department
said.
The department expressed its views in a case in which drug
purchasers, including CVS Caremark Corp. (CVS) and Rite Aid Corp.
(RAD), challenged an agreement in which Bayer AG (BAYRY) paid Barr
Pharmaceuticals Inc. (BRL) to delay producing a generic version of
Cipro, an antibiotic drug.
A New York federal appeals court is considering the case and
invited the Justice Department to express its views on whether
so-called "pay for delay" settlements violate the antitrust
laws.
The Federal Trade Commission, which shares antitrust authority
with the Justice Department, has been an adamant opponent of the
settlements, saying that brand companies have paid potential
generic competitors handsomely to sit on the sidelines.
In a public split between the agencies, the Justice Department
under the Bush administration did not embrace the FTC's viewpoint
that the deals violated antitrust laws. The department's change in
position under the Obama administration goes a long way toward
resolving that split.
"This is a critical development for American consumers because
it shows the Justice Department now fundamentally understands the
nature of the pay-for-delay problem," FTC Chairman Jon Leibowitz
said.
Leibowitz said in a speech last month that banning the
settlements could save consumers $3.5 billion annually in
health-care costs, an estimate disputed by drug makers.
Justice Department spokeswoman Gina Talamona, when asked about
the policy change, said, "The views of the United States have
evolved as we have formulated the standard that we recommend."
Christine Varney, who heads the department's Antitrust Division,
said during her confirmation hearings in March that she supported
the FTC's opposition to the drug settlements.
Defenders of the settlements say the deals are
pro-competitive.
"Settlements resolve costly and time-consuming patent litigation
and often allow the generic version of a medicine to enter the
market before the patent is due to expire," said Ken Johnson,
senior vice president of the Pharmaceutical Research and
Manufacturers of America, the leading industry lobbying group.
In the Cipro case, Bayer paid $398 million to Barr and other
generic drug makers, who in turn agreed not to market a generic
version of Cipro until Bayer's patent on the drug expired.
It's not clear what effect the government's position will have
on the Cipro litigation pending in New York. The Justice
Department, while expressing its legal views, declined to take a
position the drug purchasers' challenge to the Cipro
settlement.
Bayer and the generic companies already won a portion of the
case that was decided by a Washington, D.C., federal appeals court
last year. That part of the case involved a lawsuit brought by
health plans.
The New York-based 2nd U.S. Circuit Court of Appeals, which is
considering the current dispute, had previously adopted a
permissive approach to allowing the drug settlements.
The court's request for the Justice Department's viewpoint
suggests that at least some judges on the court are rethinking that
position.
The Justice Department said Monday that the 2nd Circuit's
approach was incorrect.
Lawmakers in the House and Senate have proposed legislation to
bar patent settlements that delay generic drugs. A House
subcommittee approved the legislation last month, while a Senate
committee is expected to take up the bill soon.
The FTC has challenged some drug agreements in court but has had
limited success.
Most recently, the agency sued a group of drug makers in
February, alleging that Brussels-based Solvay Pharmaceuticals Inc.
(SVYSY), the maker of the testosterone drug AndroGel, entered into
an illegal agreement with generic drug companies Watson
Pharmaceuticals Inc. (WPI) and Par Pharmaceutical Cos. (PRX) to
delay the introduction of a generic competitor.
The Justice Department's policy shift on drug settlements is one
of several areas in which the Obama administration is taking a more
rigorous approach to antitrust enforcement.
In May, the department withdrew a controversial Bush
administration report that advocated a more hands-off approach to
regulating dominant companies. Last week, the department objected
to a proposed airline alliance between United Airlines parent UAL
Corp. and Continental Airlines Inc. The department also has opened
an informal inquiry into whether large U.S. telecommunications
companies have abused their market power.
-By Brent Kendall, Dow Jones Newswires; 202-862-9222;
brent.kendall@dowjones.com