An editorial in last week’s Washington Post recognized the significance of banning pay-for-delay settlements and the potential benefit to prescription drug consumers. As mentioned in the editorial, the current law’s intent to allow generic drugs to come to market sooner just isn’t working and the result is costing consumers billions of dollars a year.

For example, in one case involving the brand-name maker of the drug Provigil, Cephalon, Inc. allegedly paid off four generic companies up to $136 million to delay market entry of a generic version of Provigil for at least an additional 6 ½ years. The case against Cephalon, Inc. alleges that the brand-name manufacturer recognized the weakness of its patent and the unlikelihood that it would be the victor of a patent infringement lawsuit. That is why just about a month before its patent expired, Cephalon allegedly paid its potential generic counterparts to stay off of the market. Without these agreements consumers would have been able to purchase generic versions of Provigil at much lower costs as early as 2006. Instead, as one Cephalon executive exclaimed, Cephalon earned $4 billion in unanticipated sales. Meanwhile, consumers continue to pay high prices for Provigil and have to wait until at least 2011 or a verdict against Cephalon for a generic option. You can read more about this case on our website or in an earlier blog (New Judge and New Obama Administration Position Sparking Developments in the Provigil Lawsuit Case?)

Although there are currently several patent infringement lawsuits that may involve pay-for-delay settlements similar to the agreements in the Provigil case, including cases involving the drugs Oxycontin, Protonix, and Wellbutrin, litigation may not be the best way to solve the problem. Three out of four federal circuits to hear the case have not found a violation of anti-trust laws and the U.S. Supreme Court has twice declined to hear these cases.

There is a glimmer of hope that pay-for-delay settlements will not be able to increase prescription drug costs for American consumers much longer. The Washington Post editorial sums up need for change:

As Congress embarks on major health-care reform, it has a chance to fix the system. Banning all “pay-for-delay” settlements except where they can be proven to be pro-competitive would be a good start. True, some pay-for-delay settlements inadvertently benefit consumers by allowing generic products to enter markets sooner than they would have after litigation. But that is no excuse for failing to fix a system with fundamentally flawed incentives. The only difference between one company paying another not to produce a competing product and one company paying another not to produce a competing product yet is that the second is still, paradoxically, legal. This must change.

There are two bills pending in Congress to ban such settlements (H.R. 1706 & S. 369). You can read more about pay-for-delay settlements in PAL’s blogs. (See Obama Dept. of Justice Joins FTC in opposing pay-for-delay settlements, & House Subcommittee Approves “Protecting Consumer Access to Generic Drugs Act of 2009” H.R. 1706!) Continue to watch our blog for further updates on these very important bills!

So where does lying to the Federal Trade Commission (FTC) get you? For the former vice president of Strategy and Medical and External Affairs of Bristol-Myers Squibb Company (BMS), Dr. Andrew G. Bodnar, it gets you a book deal, or at least a request by the Judge to spend the two years of his probation sentence writing a book. According to the New York Times, Judge Urbina of the United States District Court for the District of Columbia ordered Dr. Bodnar to pen a book cautioning other pharmaceutical executives not to lie to the FTC. Court documents show that on June 8, 2009 Dr. Bodnar was sentenced to two years of unsupervised probation and pay a fine of $5,000. All of this arose out of a secret deal allegedly negotiated between BMS and a generic competitor, Apotex, Inc. Dr. Bodnar brokered the deal, but then lied to the FTC to conceal parts of the agreement.

In 2006, BMS entered into a settlement with Apotex, Inc. resolving a patent infringement lawsuit involving the drug Plavix. (Plavix is a blockbuster prescription medication used to prevent blood clots in people who have suffered a heart attack or stroke. In 2008, BMS made $4.9 billion selling Plavix in the U.S. alone.) A 2003 consent order required BMS to submit any agreement resolving a patent infringement lawsuit to the FTC for an advisory opinion on whether it was anti-competitive. In March 2006, pursuant to the 2003 consent order, BMS submitted an initial agreement with Apotex to the FTC. This March 2006 agreement included a provision in which BMS agreed to refrain from introducing an authorized generic version of Plavix for six months thereby allowing Apotex, Inc. to exclusively sell the generic version. The FTC thought this agreement looked a little suspicious and questioned BMS. BMS sidestepped the FTC’s concerns and retracted the agreement.

However, BMS was not giving up that easily. In May 2006, Dr. Bodnar entered into further negotiations with Apotex, Inc. in which he orally assured Apotex that BMS would not bring an authorized generic to the market for six months. On May 30, 2006, BMS submitted a Revised Plavix Agreement to the FTC pursuant to the 2003 consent order and reporting requirements of the Medicare Modernization Act (MMA). BMS’ Revised Plavix Agreement did not include any reference to BMS refraining from bringing an authorized generic to market for six months. A few days later, on June 5, 2006, Apotex filed their copy of the same agreement with the FTC, but also included a letter disclosing the oral agreements not to compete made with Dr. Bodnar. The FTC did not buy into BMS’ strategy. Due to the suspicious inconsistencies of the two filings, the FTC requested BMS to certify under oath that the Revised Plavix Agreement BMS filed was the complete and final agreement representing the understandings of both parties. On June 12, 2006 Dr. Bodnar certified to the FTC that the terms of the Revised Plavix Agreement were representative of the totalities of the agreement with Apotex. Still unsatisfied with BMS’ promises, the FTC notified the Department of Justice (DOJ) which conducted an investigation. The DOJ’s investigations and charges led to BMS entering a guilty plea to two counts of perjury for failing to disclose that it made assurances to Apotex not to launch an authorized generic for six months. BMS paid $1 million in criminal fines and $2.1 million in civil penalties as a result of all charges against them.

Subsequently, the U.S. filed criminal proceedings against Dr. Bodnar for his part in making false statements to the FTC. On April 6, 2009, Dr. Bodnar entered into a plea agreement with the government where he agreed to plead guilty to making false certificates or writings. With the guilty plea, Dr. Bodnar faced up to a maximum of one year in prison and a $100,000 fine. However, in a June 8, 2009 sentencing, Dr. Bodnar was relieved to find out that he would not be going to jail, but would instead face two years of unsupervised probation possibly writing a book about his experience with lying to the FTC.

Drug companies and their executives cannot continue to receive a mere slap on the wrist when they enter into settlement agreements that diminish the availability of generic drugs. Last year brand-name prescription drug prices rose by an unprecedented 8.7% in part due to deals delaying the availability of some generic drugs. Consumers are left with mounting drug costs while drug companies continue to negotiate these deals. Adding to the problem is the fact that these agreements are submitted to the FTC, but are not publicly available. Advocates working to illuminate shady pharmaceutical company tactics can often only guess at the jaw-dropping price of the payments made and the length of market delay included in this type of agreement. Likewise the FTC may not have caught on to BMS’ devious plans to conceal parts of the agreement if they were not under the 2003 consent decree to file agreements. Since 2005, drug companies have resorted to more and more of these settlements, which pass the costs onto consumers who, deprived of the option to purchase a generic, must pay for a costly brand name drug.

Getting back to Dr. Bodnar, we hope his book (if he actually writes it) and this unusual sentence will send a message to other pharmaceutical executives that the feds are not messing around.

On July 6, the Department of Justice (DOJ) filed a brief in the U.S. Court of Appeals for the 2nd Circuit expressing a new DOJ view on pay-for-delay settlements. The brief urges the 2nd Circuit to regard pay-for-delay settlements as “presumptively unlawful under Section 1 of the Sherman Act.” While the DOJ has not always supported a presumption against legality for these settlements, the Federal Trade Commission (FTC) has long been adamant that such settlements are unlawful. Now, more than ever before, the DOJ and the FTC seem to have a similar perspective on pay-for-delay settlements.

The July 6, 2009 brief filed by the DOJ signifies a stark departure from the Bush administration’s position. In 2006 and 2007, the DOJ urged the Supreme Court to refuse to hear two cases involving pay-for-delay settlements, involving the drugs K-Dur and Tamoxifen, because the DOJ felt these settlements were legal. In its latest brief, the DOJ states that “[r]everse payments are scarcely essential to the voluntary settlement of patent disputes.” The DOJ brief then goes on to discuss how such settlements have reduced the affordability of prescription drugs for consumers. The DOJ emphasized that it was not taking a stance on the specific settlement in the case at bar, involving the antibiotic drug Cipro, but made a more general statement about settlements including payments to the alleged patent infringer to keep the generic drug off of the market. The brief echoed earlier statements of Christine Varney, the new Assistant Attorney General, who announced during her confirmation hearings an intent to “align” the position of the DOJ with that of the FTC.

During a speech last month at the Center for American Progress, FTC Chairman Jon Leibowitz estimated that prohibiting pay-for-delay settlements would save consumers $3.5 billion per year. The anti-pay-for-delay sentiment in the FTC and DOJ has also reached Congress. Two bills in Congress, S.369 (introduced by Sens. Herb Kohl (D-WI.) and Chuck Grassley (R-IA)) and H.R. 1706 (introduced by Rep. Bobby Rush (D-IL-1.)) would help bring generic drugs to market sooner. These bills would prohibit brand name and generic drug companies from entering into agreements in which the brand name company pays off the generic company in return for the delay of the generic onto market. You can find out more about this legislation here.

The European Union also recently investigated the legality of pay-for-delay settlements. The EU study found that it took an average of seven months after expiration of the brand name company’s patent for a generic drug to come to market. This delay cost consumers about 3 billion euros (roughly U.S. $4.2 billion) from 2000 to 2007. You can read more about the EU investigation in the NY Times. http://www.nytimes.com/2009/07/09/business/global/09drug.html

Recently, a new judge was assigned in a PAL-member national class action lawsuit, In re Modafinil Antitrust Litigation (“Provigil”). The case has been all too quiet since late 2006, when Defendant Cephalon filed for a still-pending motion to dismiss. However, in late April 2009, the case was assigned to a new judge, the Honorable Mitchell S. Goldberg. On July 14, 2009, the plaintiffs in the related patent anti-trust action by direct purchasers asserted that the court should deny defendant Cephalon corporation’s motion to dismiss, based on a supportive new policy taken by the Obama administration’s new Department of Justice. A recent brief filed by the Department of Justice state its new view that there should be a presumption against lawfulness of pay-for-delay settlements. (This brief by DOJ was filed in an appeal pending before the Second Circuit concerning the antibiotic drug Cipro).

Unfortunately for consumers, while this litigation drags on, Cephalon has continued to force consumers to pay a premium price for Provigil.

Background on the Provigil lawsuit:
The Provigil lawsuit is being heard in the Eastern District of Pennsylvania. A separate but related case against Cephalon initiated by the FTC was transferred to the court in April 2008 to proceed alongside the consumer class action. [See previous post “Federal Trade Commission case on Provigil is moved to Eastern Pennsylvania.”]

The lawsuit alleges that Cephalon paid generic drug manufacturers substantial cash payments in exchange for delayed generic market entry. However, it is uncertain as to the amount received because pay-for-delay settlement agreements are not made available to the public. The settlement agreement challenged by plaintiffs in the Provigil case includes agreements made with one potential generic competitor, Teva, to keep its version of the sleep disorder drug Provigil off of the market until at least 2011 unless another generic competitor enters the market.

The lawsuit alleges that the settlement was intended to delay a generic version of Provigil from entering the market, continuing Cephalon’s monopoly on Provigil.

Although settlements may be useful to more fairly resolve a dispute in litigation, pay-for-delay settlements such as those between Cephalon and its generic competitors have been challenged as unfair or deceptive acts in violation of FTC Act § 5 and a restraint on trade in violation of §§ 1 and 2 of the Sherman Act. Cephalon maintains that the cash payments paid to Teva were part of a bargain for (1) licenses to intellectual property and (2) agreements relating to the manufacture and supply of the active ingredient in Provigil. Plaintiffs contend that the payments are only a ruse to conceal the underlying purpose and that the agreement does not reflect a reasonable compromise between the generic manufacturers and Cephalon.

Cephalon also entered into similar agreements with three other potential generic competitors (Ranbaxy, Mylan, and Barr). It is estimated that, in total, Cephalon paid as much as $136 million for the pay-for-delay settlements.

Consumer and FTC lawsuits challenging such pay-for-delay settlements face an increasingly uphill battle: three out of the four federal circuits to hear the issue have declined to hold them illegal. The U.S. Supreme Court has decline to consider the issue twice. Nevertheless developing public interest in eliminating these costly pay-for-delay settlements is growing. Pending federal legislation (H.R.1706 and S.369) has the potential to change the hostile atmosphere confronted by plaintiffs in Provigil and other pay-for-delay settlement cases deeming such settlements illegal. [See our blog “Protecting Consumer Access to Generic Drugs Act of 2009” H.R. 1706!] If current legislation passes, the FTC and consumer advocates may not have to wage such protracted lawsuits and campaigns against brand name drug makers. Stay tuned for developments on the Provigil case and updates on the legislation.