FTC Finally Sues Pharma Companies Over 'Pay For Delay' Deals

from the and-what-about-all-those-overpayments? dept

For some time now, Techdirt has been following the “pay for delay” scandal, whereby a big pharma company buys off manufacturers of generics so that the former can continue to enjoy monopoly pricing long after its patents have expired. As we’ve reported, the authorities have finally started to clamp down on this abuse of the patent system. At the end of last year, two drug companies were fined by the European Commission, and now it looks like the FTC wants to follow suit, as the Wall Street Journal reports:

For the first time since the U.S. Supreme Court ruled last year that so-called pay-to-delay deals may be subject to greater antitrust scrutiny, the U.S. Federal Trade Commission has filed a lawsuit charging drug makers with violating anti-trust laws and hurting consumers in their collective pocketbooks.

Specifically, the agency charged several drug makers — including AbbVie, Abbott Laboratories, which spun off AbbVie, and Teva Pharmaceuticals — for striking deals that delayed the availability of the widely promoted AndroGel testosterone replacement therapy, a $1 billion seller.

The article includes some details on how the “pay for delay” deals worked:

In its lawsuit, the FTC charges that AbbVie, Abbott and Bevins Healthcare filed ?sham? patent litigation against potential generic rivals, including Teva, and then entered into an allegedly illegal patent settlement in order to thwart competition.

Although it’s great that the FTC is finally tackling this problem, it’s regrettable that it had to wait so long for that ruling by the Supreme Court (pdf) to give it the legal basis for pursuing pharma companies:

The FTC had spent years trying to convince Congress and the courts that pay-to-delay deals hurt the economy. The agency, in fact, regularly released reports estimating the deals cost consumers dearly. In the last such report, which was issued in early 2013, the agency estimated the deals cost Americans $3.5 billion annually and contributed to the federal deficit.

The delay in bringing these cases doubtless means that the companies engaging in this behavior have made some serious profits as a result — and that the public has been forced to pay billions of dollars unnecessarily.

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Companies: abbott laboratories, abbvie, bevins healthcare, teva, teva pharmaceuticals

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Comments on “FTC Finally Sues Pharma Companies Over 'Pay For Delay' Deals”

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Anonymous Coward says:

Problem: Patents

Yet again patents are the root of the problem.

When a patent allows a company to make profit margins of over over 90%, there is a problem.

Exclusivity is one thing, abusing that exclusively is another.

Thats my suggestion for patent reform, prevent abusive monopolistic behaviours (price gouging) from all patent holders.

Sure you should be the only one to make a profit for a limited time with your patent, but you should not be allowed to abuse that exclusivity.

Anonymous Coward says:

Re: Problem: Patents

Really bad idea. Who is going to decide what is abuse of exclusivity? What is going to prevent corruption in this area?

I also disagree about exclusivity be one thing and abuse of exclusivity another. They are one and the same thing. IP monopolies are unnecessary and harmful, decreasing rather than increasing innovation, increasing the power of legacy industries, creating damaging IP “rents” (ask Mike, he’s an economist) and a slippery slope where IP “protection” always ratchets up and never down. Individuals rights are plowed under the sacred cow of IP in the name of “progress” that can never happen – because of the IP itself.

There are legitimate issues that IP legislation is supposed to address, but it largely doesn’t and imposes a cost that ought to be intolerable. Worse still, there are much fairer and cheaper alternatives to legislated monopolies – and an ever expanding pantheon of “right” – that address all the legitimate issues at much lower social and economic costs.

Editor-In-Chief says:

Re: Problem: Patents

When a patent allows a company to make profit margins of over over 90%, there is a problem.

profit margins of 90% are not a problem, this can be quite reasonable levels. There are many products where the profit margin is well over 900% and people pay quite happily for these. The thing to note is that it is usual to be paying these kinds of mark-ups on products that are sold for maybe less than a dollar to a couple of dollars (or euros, etc). Big priced items generally have profit margins between 5% and 20%.

I think what you are trying to say is that when pharma company’s are making 90 times the cost of manufacturing the drugs in question after they have fully recovered their development costs that this is a serious problem. 90 times is equivalent to 9000% not 90%.

David Oliver Graeme Samuel Offenbach

Anonymous Coward says:

Re: Problem: Patents

The electronics industry has a general rune-of-thumb about pricing that applies to all new products (notice that this rule goes out the window when a product becomes commoditized): the shelf price should be somewhere in the vicinity of five times the Bill-Of-Materials cost – including labor. I’d LOVE to see the cost breakdown on ANY commercial drug,, and would be willing to bet the ratio is far greater than 5 to 1 – more like 1000 to 1.

FM Hilton (profile) says:

About time!

Better late than never, or should consumers not have the option to sue the pharmaceutical companies themselves for having done their very best to keep the lower-priced generics out of the consumers’ hands?

We shall never know because I’m sure that this regulatory action will preclude any kind of messy thing..like class action lawsuits.

Heaven forbid that most consumers ever learn of this…as a pharmacy tech, I’ve seen some drugs that will bankrupt you in less than 6 months if you don’t have insurance, and the pharmaceutical companies like it that way, even when they pay off their rivals to keep their cheaper generics out.

It’s called ‘pure profit’.

Oh, and by the way-those drugs coming in from Europe and other countries? Don’t worry about their safety, as they’re made by the exact same manufacturers -no matter what the FDA and the DEA say.

That One Guy (profile) says:

Make the punishment fit the crime

If they made billions off of the pay-for-delay deals, the only way the pharmacy companies will be forced to care about the lawsuit is if the fine is in the billions range. Even if the fine comes out to be a couple hundred million per company, they would still be coming out ahead, and so would have no reason not to continue on as usual.

Anonymous Coward says:

Re: Re: Make the punishment fit the crime

The other problem I see is the fact that these are all multinational corporations. They owe no fealty to ANY country. If we, for example, start putting pressure on them, like actually enforcing the laws and regulations we already have on the books, there’s nothing to stop them from pulling up stakes here and moving their headquarters to another country that’s more accommodating. They already have headquarters, and are registered and incorporated in all major markets anyway. No problem moving there and dropping the US corporation.

That threat alone would tend to make cowards of any government. Think financial, oil, automotive, you name it, companies. They pull out, we’re dead. We have NO in-house capability any more. We’ve sold our souls to the furriners for money. Name one major corporation that doesn’t have substantial foreign ownership. You can’t. So either we make nice or we lose. It’s as simple as that.

Anonymous Coward says:

Re: Make the punishment fit the crime

I’m not sure this is effective. I seem to recall several large pharma companies getting hit with hundreds of millions on fines and judgments. They seem to regard this as “Cost Of Doing Business” pocket change, pass it on to their customers, and keep right on violating with impunity. IMHO, the ONLY way this will change is if the people running the companies start seeing jail time.

That One Guy (profile) says:

Re: Re: Make the punishment fit the crime

Which is why even a couple hundred million would be too low. If the FTC really wants to crack down, and give the drug companies real incentive to never do something like this again, the fine needs to be at least equal to the amount they gained from the pay-to-delay deals, with 150-200% of that amount making an even better amount. If that comes out to be a couple billion, too bad, should have thought of that beforehand.

Best of all though would be jail time for those running the companies, I agree, though that’s even less likely to happen.

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