The instances of 'pay-for-delay', the practice of brand-name pharmaceutical companies paying to generic competitors to delay the product, have been on the rise at the cost of consumers, notwithstanding the opposition by the public interest groups and in the recent past by some Congressmen in the US.
The number of known cases has gone up from just three in 2005 to 19 in 2009 in the United States alone, according to an investigation report by the Federal Trade Commission (FTC). It could not find any such agreement in 2004. But the number went to 14 in 2006 and 16 in 2008, as per the study. It did not name the companies and it is immediately known, some firms from India, which touted as the generic powerhouse of the world, are also the beneficiaries.
Brand-name pharmaceutical companies can delay generic competition that lowers prices by agreeing to pay a generic competitor to hold its competing product off the market for a certain period of time. These so-called 'pay-for-delay' agreements have arisen as part of patent litigation settlement agreements between brand-name and generic pharmaceutical companies.
“Pay-for-delay' agreements are “win-win” for the companies: brand-name pharmaceutical prices stay high, and the brand and generic share the benefits of the brand’s monopoly profits. Consumers lose, however, and they miss out on generic prices that can be as much as 90 per cent less than brand prices. For example, brand-name medication that costs $300 per month might be sold as a generic for as little as $30 per month,’’ the study by the FTC staff said.
The FTC investigations and enforcement actions against pay-for-delay agreements deterred their use from April 1999 through 2004. In 2003, an appellate court held that such agreements were automatically (or per se) illegal. Since 2005, however, a few appellate courts have misapplied the antitrust law to uphold these agreements. Following those court decisions, patent settlements that combine restrictions on generic entry with compensation from the brand to the generic have re-emerged, the study said.
Agreements with compensation from the brand to t he generic on average prohibit generic entry for nearly 17 months longer than agreements without payments, where the average is calculated using a weighted average based on sales of the drugs. Most of these agreements are still in effect. They currently protect at least $20 billion in sales of brand-name pharmaceuticals from generic competition. 'Pay-for-delay' agreements are estimated to cost American consumers $3.5 billion per year – $35 billion over the next 10 years, it said.
Following the study, the commission has recommended that Congress should pass legislation to protect the consumers from such anti-competitive agreements. FTC chairman Jon Leibowitz recently said the consumers were forced to pay inflated prices or forgo their medication because of these 'pay-for-delay' deals.