Drug industry deals attracting attention

Deals between pharmaceutical companies on generic medicines are again attracting the attention of frustrated lawmakers.

Legislators of all stripes sing the praises of generic drugs, which are identical to their brand-name counterparts but are sold at a fraction of the brand-name drugs’ costs. Congress has enacted several statutes in recent years designed to accelerate the availability of these less-expensive medicines.

The launch of the Medicare prescription-drug benefit and the revelation that the Food and Drug Administration (FDA) had accumulated a backlog of about 800 generic applications seems to have invigorated lawmakers’ interest in generic drugs.

The Senate Appropriations Committee stepped in this year to promote generic drugs. Last week, the panel approved a $10 million boost in the budget for the FDA’s Office of Generic Drugs.

Developments in the past few weeks have raised the profile of the issue.

Government programs, private health-insurance companies and individual consumers stand to reap big savings when generic versions of brand-name drugs reach the market. The real-life effect of these savings was made evident again last week when the FDA approved generic versions Merck’s multibillion-dollar cholesterol medicine Zocor. Generics for Pfizer’s antidepressant Zoloft are expected to be approved this month.

Brand-name and generic drug companies engage in several types of financial deals that some lawmakers and consumer advocates maintain delay the proliferation of generic drugs.

The brand-name companies, backed by the powerful Pharmaceutical Research and Manufacturers of America (PhRMA), and the generics firms, represented by the Generic Pharmaceutical Association (GPhA), are bitter rivals in Washington, the courts and the marketplace. Brand-name companies go to great lengths to protect and extend their exclusive patents and are opposed at every turn by the generics makers.

On Monday, the Supreme Court declined to intervene on the issue in a lawsuit brought by the Federal Trade Commission (FTC), but members of Congress are weighing getting involved.

Generic-drug companies regularly make legal challenges to brand-name companies’ patents in the hopes of getting their generic versions on the market more quickly. In some cases, the two sides will resolve their disputes out of court, with the generic companies agreeing to give up their claims in exchange for cash settlements. The generic versions of the drugs then enter the market when the patents expire.

The FTC tried to halt that practice using antitrust laws beginning in the mid-1990s but was stymied by a federal appeals court ruling last March. The Supreme Court’s refusal to hear the FTC’s appeal appears to mean the enforcement agency will not be able to prevent future financial arrangements between the drug companies. Similar FTC cases are pending in federal courts.

The Bush administration, however, is divided on the case. Solicitor General Paul Clement filed a brief with the Court last month recommending it not hear the FTC appeal.

Reacting almost immediately to the high court’s decision, four senators introduced a bill that would prohibit the arrangements. Sens. Chuck Grassley (R-Iowa), Patrick Leahy (D-Vt.), Herb Kohl (D-Wis.) and Charles Schumer (D-N.Y.), all regular critics of the FDA and the drug industry, unveiled their legislation yesterday.

“These deals between big drug companies and small generic competitors are a financial boon for everyone but the consumer,” Schumer said in a statement.

Cash settlements are not the only arrangements struck between brand and generic drug companies that raise questions for some lawmakers.

The practice of issuing so-called authorized generics also has come under scrutiny from the FTC and others.

In a complicated application of drug-patent laws, authorized generics are sold through a joint arrangement between a brand-name drug company and a generic company (or a subsidiary of the same brand-name company). Despite the participation of some generic makers in this practice, GPhA opposes it.

FDA regulations stipulate that the drugs are still classified as brand-name drugs, but they tend to arrive on the market at the same time as the newly approved generic version.

Under standard practice when a drug’s patent becomes inactive, the first generics company to file an application with the FDA is allowed to sell the drug without competition from another generics maker for 180 days. Because authorized generics are technically regulated as brand-name drugs, they can be sold at the same time.

Yesterday, PhRMA issued a report that concluded that authorized generics save consumers money by increasing price competition between drug makers.

According to the report, authorized generics are sold to pharmacies and healthcare facilities at greater discounts than regular generics. IMS Health, a drug-market research firm, conducted the analysis.

The FTC, set back by the Supreme Court on cash settlements, plans to tackle authorized generics next. The agency is preparing a comprehensive study on the effects of authorized generics on drug prices and generic competition.