Big Pharma Deals to Preserve High Drug Prices 'Skyrocketed' in FY 2010

It sounds illegal, but it's not: Major drug companies are essentially bribing generic rivals to delay the release of cheaper drugs, costing consumers billions of dollars a year -- and the number of these deals surged by more than 60 percent last year.

According to a new report by the Federal Trade Commission, pharmaceutical companies made an "unprecedented number of deals" with generic manufacturers in Fiscal Year 2010, postponing the introduction of lower-cost generic drugs onto the market."Collusive deals to keep generics off the market are already costing consumers and taxpayers $3.5 billion a year in higher drug prices," FTC Chairman Jon Leibowitz said in a statement. "The increasing number of these deals is a win-win proposition for the pharmaceutical industry, but a lose-lose for everyone else."

The volume of these deals "skyrocketed" more than 60 percent, according to the FTC report, ballooning from 19 in FY 2009 to 31 in FY 2010 (October 1, 2009 to September 30, 2010). The agreements included 22 different brand-name drugs with combined annual U.S. sales totaling approximately $9.3 billion.

Thirty-one of these deals included payoffs to generic manufacturers and restrictions on their ability to market their products, the report found. Another 66 of these "final settlements" hamper the ability of generic competitors to market their products "but contain no explicit compensation," the report noted.

Another three of these deals included a declining royalty structure the report said "could be characterized as potentially involving pay-for-delay."

Generic drugs are typically 20 to 30 percent cheaper than brand-name drugs, the FTC said, and sometimes as much as 90 percent cheaper. Millions of consumers depend on generic drugs to treat illnesses and medical conditions without busting their budgets. The FTC also noted generic drugs are crucial to holding down the costs of government health programs such as Medicare and Medicaid.

As generic competitors cut into their extraordinary lucrative profit margins in recent years, drug giants have dipped into their bottomless pockets and thrown money at them to settle patent challenges and postpone the introduction of lower-cost medicines onto the market.

A 2010 FTC report, Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions, found that settlements that include a payoff typically delay the introduction of generic drugs by 17 months longer than those that include no payment.

The FTC maintains these so-called patent settlement agreements are anticompetitive and violate U.S. antitrust laws. The agency has challenged some of these deals in court and supports Congressional attempts to ban agreements that increase the cost of prescription medicine.

The staff report summarizes data on 113 patent settlements filed with the FTC and the Department of Justice in FY 2010, of which 31 included payoffs to generic competitors and marketing restrictions on their products. Of the 31 settlements, 26 involved "first filers," which means they were first to seek FDA approval to market a generic version of a branded drug.

Due to the existing regulatory framework, the FTC said, when first filers decide to delay the manufacture of a new generic drug, other generic manufacturers may also be prevented from entering the market, making these patent settlements "particularly harmful to consumers."