The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 requires drug companies to file certain agreements with the Federal Trade Commission and the U.S. Department of Justice. The FTC’s Bureau of Competition has now issued a summary of agreements filed with the Commission in fiscal year 2005 by generic and branded drug manufacturers. The summary provides information regarding the 20 agreements that were filed with the FTC in FY 2005, involving 16 different products.

For the first time since 1999, brand and generic companies are entering settlements in which the generic receives compensation from the branded manufacturer and there is a restriction on the generic’s ability to market its product. Based on the information reported in the Commission’s 2002 study and on settlements reported between 1999 and 2004, no patent settlements included both compensation to the generic and a restriction on the generic’s ability to market its product. In contrast, three settlements submitted in FY 2005 included those terms.

The summary also concluded that 1) 11 of the 20 agreements filed in FY 2005 were final settlements of patent litigation between a branded and generic company; 2) five were interim agreements that occurred during patent litigation between a brand and a generic company, but did not resolve the litigation; 3) the remaining agreements were between a first-filer generic company and a subsequent generic filer.

Drug companies began entering into these agreements in the 1990s, but the FTC concluded they were unfair to consumers and anti-competitive and the agency successfully challenged them.

However, the U.S. Court of Appeals for the 11th Circuit concluded that the FTC had overstepped its authority when it blocked an agreement between Schering-Plough Corp. and Upsher-Smith Laboratories Inc. The FTC has appealed to the Supreme Court.

The Washington Post reported that in a speech on Monday to the In-House Counsel’s Forum on Pharmaceutical Antitrust, FTC Commissioner Jon Leibowitz said that if the appeals court decision remains in effect, drug makers will have “carte blanche to avoid competition and share resulting profits.” Leibowitz said the agreements mutually benefit the brand-name and generic drug makers because the brand-name company gets to maintain its patent exclusivity, while the generic competitor receives a payment. In addition, the “generic companies … often enter into agreements to produce lower-priced version of the brand-name company’s drug at a predetermined date — far in the future,” the Post reports.

For example, Cephalon earlier this year made agreements with four generic companies over the drug Provigil, a sleep disorder treatment. Under the agreements, the generic companies pledged to stay out of the market until 2011, and Cephalon agreed to pay them licensing payments of $136 million. Leibowitz said, “Until recently, payments by brand-name companies to generics were the exception, but now they’re the rule.” (Washington Post, 4/24).

Copies of the Bureau’s summary of agreements filed in FY 2005 are available on the FTC’s Web site.

For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws.”

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