by Douglas Page, © 2000
One of the most critical elements in the nation's effort to control the soaring cost of health care
is pharmaceutical competition, including competition between branded and generic drug companies.
The federal government has established two competing policy objectives with respect to the pricing of
prescription drugs. On the one hand, it wants to ensure that companies have enough incentive to invest in research and development
of innovative new drugs. On the other hand, it wants to discourage them from charging excessively high prices.
In general, the government achieves the first goal through a patent system that grants market exclusivity
for a limited period of time, which is supposed to allow companies to recoup their research investment. Generally, drug patents
are valid for 17 years. For the second goal, it relies on competition between similar drugs to hold prices down.
There is growing concern, however, that makers of brand-name drugs may be illegally colluding to keep lower-cost,
generic versions of best-selling drugs off the market, tactics that include forming anti-competitive alliances with generic
companies. As a result, the drug-purchasing public pays more for prescription medication, and the pharmacy operator is shorted
on an opportunity for greater profits since they generally have more of a profit margin on generics.
Some industry watchers believe the current pharmaceutical climate inspires conspiracy. According to
the Federal Trade Commission, drugs with nearly $20 billion in annual U.S. sales will go off-patent in the next five years.
The end of the patents means that pharmaceutical companies stand to lose profits on brand-name drugs.
To meet this crisis, the Federal Trade Commission (FTC) said in October it plans to examine the records
of several pharmaceutical companies in order to determine whether their business practices are designed to keep lower-cost
generic drugs off the market. The proposed study would examine whether brand-name and generic drug manufacturers have entered
into agreements, or have used other strategies, to delay competition from generic versions of patent-protected drugs. Among
the issues to be explored by the proposed study is whether drug companies have manipulated certain provisions of the Hatch-Waxman
Act to delay the marketing of generic drug products.
Under the Drug Price Competition and Patent Term Restoration Act of 1984,
commonly called the Hatch-Waxman Act, a drug company can seek approval from the Food and Drug Administration (FDA) to market
a generic drug before the expiration of a patent relating to the brand-name drug upon which the generic is based. In these
cases, the generic drug manufacturer certifies in its Abbreviated New Drug Application (ANDA) that the branded product's patent(s)
is invalid or will not be infringed by the generic drug for which the ANDA applicant seeks approval.
The Act then provides a 45-day window during which the patent holder may bring a patent-infringement
suit against the applicant. If such a suit is filed, the Act forbids the FDA from approving the ANDA for 30 months (a clause
called a "30-month stay"), or until the litigation is completed, whichever comes first. The provision is generally thought
to protect branded companies against patent infringement. To encourage generic competition, the first company to file an ANDA
with the FDA is given the exclusive right to market the generic drug for 180 days. No other generic can gain FDA approval
until this 180-day marketing exclusivity period expires.
The FTC Probe
The FTC probe announcement comes just five months after it filed complaints
against four drug companies for allegedly entering into agreements that effectively stopped the generic version of two brand-name
drugs, Cardizem-CD and Hytrin, from reaching the market.
The first of those complaints, against Abbott Laboratories, Abbott Park, IL, and Geneva Pharmaceuticals, Inc.,
Broomfield, CO, resulted in a negotiated settlement under which the companies agreed to not engage in similar behavior in
The FTC had charged that the companies had entered into an anticompetitive agreement in which Abbott paid
Geneva, the generic unit of Novartis AG, an alleged $4.5 million a month to delay bringing Geneva's generic alternative (Terazosin
hydrochloride) to Hytrin, Abbott's popular hypertension and enlarged prostate treatment.
According to the FTC the anticompetitive agreement kept the generic version of Hytrin off the market for 16
months beginning in April, 1998, during which time Abbott sales of Hytrin amounted to over $550 million. Last August, when
Geneva finally introduced its generic product, sales of Hytrin dropped sharply.
Both Abbott and Geneva defend their agreement as legal, Geneva saying the delay stemmed from potential
liability in a patent dispute with Abbott. Though neither party admitted to any wrongdoing in the settlement reached with
the FTC, both consented to provide FTC notice and to seek court approval if there is any future plan aimed at keeping a generic
drug off the market.
The second FTC complaint, concerning Hoechst Marion Roussel, Inc., (now Aventis) and Andrx Corporation, a
small generic drug maker in Fort Lauderdale, is scheduled to be heard before an administrative law judge later. Similar to
the Abbott-Geneva case, the FTC alleges that Hoechst, which makes Cardizem-CD, one of the nation's top-selling treatments
for hypertension, paid Andrx about $100 million in 1998 and 1999 to delay marketing its generic equivalent to Cardizem-CD.
Hoechst's Cardizem-CD sales in 1998 alone exceeded $700 million.
In both cases, the FTC alleged significant consumer harm through the multi-million dollar arrangements
between the companies.
"The financial arrangements between the branded and generic manufacturers were designed to keep generic
versions of Cardizem CD and Hytrin off the market for an extended period of time," said Richard Parker, who heads the FTC's
Bureau of Competition. "These types of agreements have the potential to cost consumers hundreds of millions of dollars each
Parker also said that "the proposed consents with Abbott and Geneva will provide immediate guidance to the
drug industry and the antitrust bar with regard to these kinds of arrangements, and the Hoechst-Andrx complaint will allow
the Commission to further consider the issues as it examines the arrangement in that case in light of a record developed during
an administrative hearing."
The Commission also recently confirmed it is investigating the possibility of similar anticompetitive
behavior by Bristol-Myers-Squibb, Co. and American Bioscience, Inc. regarding the cancer drug Taxol.
The Proposed Study
The FTC's proposed investigation will examine whether the 30-month
stay and 180-day marketing exclusivity provisions of the Hatch-Waxman Act have encouraged generic competition, or, instead,
have facilitated the use of anticompetitive strategies. In addition, in light of the FTC's investigations of several cases
in which the manufacturers of brand-name drug products and generic competitors have allegedly entered into anticompetitive
agreements to delay generic entry, the investigations would examine the use of agreements between pharmaceutical companies,
and any other strategies, that may delay generic drug competition.
Before beginning, the Commission is required to seek public comment on the information requests that
would be sent to approximately 30 innovator drug companies and 60 generic firms in the pharmaceutical industry. The format
of these requests is detailed in a Federal Register notice that provides additional background on why the Commission believes
such an investigation is necessary, how the information would be collected and used, and the estimated burden (both in terms
of cost and human resource requirements) of the planned study.
Not everyone believes so much ado is necessary. Some industry experts maintain brand-name companies
have a right to try to extend exclusive control of their drugs, because of the stringent and lengthy approval process involved
in bringing a drug to market in the first place.
"They are taking the opportunity to pay someone else to leave them alone for a while," said Mickey Smith,
a professor at the University of Mississippi's School of Pharmacy. "I'm not sure that's wrong. It's business."
According to the Pharmaceutical Research and Manufacturers of America, it can take a drug manufacturer
12-15 years and an average of $500 million to move an experimental drug through the testing and regulatory labyrinth from
the lab to pharmacy shelf. Even then, only five in 5,000 compounds that initially enter preclinical testing make it to human
testing, and only one of those five is eventually approved for sale.
In some cases, the companies claim they have lost several years off the 17-year patent life of their
drugs while waiting for regulatory approval.
Schering-Plough, for example, argues that it deserves an extension on its patent to sell its wildly
popular antihistamine Claritin product without generic competition because the drug was delayed so long in the FDA approval
process. Schering-Plough has taken a different tack to preserve exclusivity of several of their products, going the legislative
route in attempting to push two bills (HR 1578 and S 1172) through Congress that would extend the patents on Claritin, Cardiogen-82,
Daypro, Dermatop, Eulexin, Nimotop, Penetrex, and Relafen.
Earlier, in an effort unrelated to the pending HR 1578 and S 1172 legislation, the FDA granted Schering-Plough
an extra six months of market protection beyond the patent expiration for Claritin, based on a little-known program in which
the Agency can grant extended market exclusivity to companies that test their drugs on children. Under the program, which
attempts to satisfy an FDA complaint that 75 percent of all drugs lack pediatric labels, drug makers who perform pediatric
studies are eligible for an extra six months of market protection before lower-cost generic competition is allowed on the
Once lower cost generic equivalents are introduced the sales of branded drugs typically plunge. A six month
extension of market protection can mean a billion dollars or more for a drug like Claritin, which generated $2.3 billion in
U.S. sales last year alone.
Article appeared in the November, 2000, issue of Drug Topics