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The Federal Trade Commission's recent $1.2 billion settlement over the drug Provigil has brought so-called "pay for delay" deals for generic drugs back into the spotlight. Opponents say these deals delay generic medications to market, costing consumers billions. But drug companies say that the deals help get generics to market by avoiding lengthy patent litigation. NewsHour's Megan Thompson reports.
In 2004, Karen Winkler was diagnosed with multiple sclerosis, a debilitating disease affecting the nervous system. The 47-year-old mother of three, who lives in Clarkston, Michigan, struggles every day with numbness, pain and extreme fatigue.
It's so overwhelming. You wake up tired. And as the day progresses, it just gets worse and worse.
In 2005, Winkler's doctor prescribed a brand-name medication called Provigil. It was one of the only drugs for fatigue on the market that had minimal side effects. It was made by a company called Cephalon, which earned $475 million dollars on Provigil that year. Winkler's doctor put her on a half pill, every day.
It was perfect, you know. I had three young kids and I could still do- pretty much do everything that I did. And, you know, if I had 10 things on the to-do list, you know, I could either get the 10 things done or at least eight or nine of them.
Better yet, Winkler says her doctor told her Provigil was expected to go generic soon – possibly within a year, which could have saved her more than a thousand dollars a year.
Then it didn't go generic. And it was a whole different story.
Not only did it not go generic … the price inexplicably started to rise.
It was six-something a pill. And then it was seven-something a pill. In 2010, it had gone up to, like, 16-something a pill. It was astronomical at the time.
Winkler's insurance only covered half the price…and her out-of-pocket cost for a six-month supply went from around $300 in 2008 to more than $700 in 2010.
So, could you afford that?
No. That was a car payment and plus. And with three young kids and, you know, feeding them, and I felt guilty that I was taking away from the family budget.
So she decided to go off Provigil, and try a less expensive generic version of a different drug. It turned out not to be as effective, and made her shaky and jittery. Her reaction to not getting the drugs she said she needed?
I thought, how can this be legal, how can this be – It's definitely not moral. It's not humane.
Why hadn't Provigil gone generic? And why was the price of it rising so sharply? As Winkler discovered through online research, the company manufacturing the drug, Cephalon, was using two common but little known business strategies that critics say end up costing consumers. First, there's something that opponents call, "pay for delay."
Here's how "pay for delay" works. According to the Federal Trade Commission, when generic manufacturers challenge a drug's patent, the brand-name manufacturer sometimes offers them compensation to drop the challenge.
In the case of Karen's drug, Cephalon offered payments and business deals worth around $300 million to four generic companies in exchange for a guarantee that no generic would come to market for another six years.
At its simplest level, we're talking about an agreement between a brand company and a generic company, in which the brand company pays the generic company not to launch a generic in competition with the brand.
Markus Meier is an assistant director in the Federal Trade Commission's Bureau of Competition. He says fighting these so-called "pay for delay" deals is one of the FTC's top priorities.
In 2008, the FTC sued Cephalon, alleging "anticompetitive conduct by Cephalon to prevent lower-cost generic competition." A separate class action lawsuit was also filed by drug wholesalers and retailers against Cephalon – and the four generic manufacturers – alleging "unlawful exclusion of generic competition from the market."
And in 2013, the Supreme Court issued a major ruling in another FTC case that could open the door for more lawsuits against drug manufacturers involved in similar practices.
If you can keep the generic out, the brand can continue to make all the sales at the monopoly price and still pay the generic to make it worthwhile for them to stay out of the market. We've done a study of this back in 2010 where we really studied this very carefully and we estimated that it cost American consumers about $3.5 billion a year.
Deals like this have affected the rollout of generic versions of popular drugs such as Tamoxifen for cancer, Lipitor for high cholesterol, and Nexium for heartburn.
It might not surprise you that what opponents call "pay for delay" deals, the drug companies describe completely differently. The generic manufacturers say the negotiated settlements they reach with brand -name drug manufacturers actually serve consumers well. How? Because, they say, under those deals, generic drugs hit the market before the brand drug's patent expires — and only because they challenged those patents in the first place.
Do we work out compromise? Proudly, I say yes.
Ralph Neas is president and CEO of the Generic Pharmaceutical Association. Neas says the settlements help avoid costly and time-consuming court trials over the drug patent challenges. And, he points to one study showing generic manufacturers succeed less than half the time when they do end up in court.
RALPH G. NEAS:
We may have no better than a 50/50 chance of winning, maybe less. Maybe we can put something on the table that would be a bridge to a compromise. This has been part of the successful equation that have gotten affordable medicines to consumers sooner.
Your opponents would say that if it weren't for these payments that were being made, these drugs may have come to market even sooner.
Sometimes you go all the way and you might get ten years or eight years sooner. But if you are pretty sure you can get five or six or seven years, it's better taking that five or six or seven years rather than rolling the dice and getting nothing for the consumers you're trying to serve.
In each of these cases, the generic does end up coming to market months, sometimes even years before that patent in question expires. So, isn't that good for consumers?
Well, the fact that the generic comes in earlier could, in theory, be better, but you have to compare it to the likelihood that the generic would have come even earlier. So, take, for example, Provigil. It's true that there is a generic in the market today. But we contend that but for this agreement, consumers would have had access to a generic all the way back in 2006.
But because of what critics describe as those "pay for delay" deals, Provigil didn't go generic. So Karen Winkler and other consumers paid the price. And it turns out she paid even more because of that second controversial business strategy that Cephalon used then and other drug manufacturers continue to use today — something opponents call "evergreening."
The idea is to get consumers off the drug they're taking and on to another brand drug the same company is making.
In Winkler's case — off Provigil whose patent was going to expire — and onto a new drug, Nuvigil, whose patent had several more years to run. Companies sometimes do this by raising prices on the first drug. Sure enough, when Winkler complained about the rising price of Provigil, her doctor suggested Nuvigil, which was cheaper. But Winkler says it gave her pounding headaches. So she went online to figure out what was going on.
And what they were trying to do was to get patients off of Provigil, because they knew it was going to be going generic shortly, to start taking this Nuvigil that had this new, extended patent period.
It's very rare for patients to switch back once the generic comes into the marketplace. So, it's a strategy for the brand to be able to hold on to the market longer- even after there's a generic in the marketplace.
This is one area where the Generic Pharmaceutical Association and the FTC agree.
That's keeping affordable medicine from people who desperately need it. And we're very much against it and it's a big issue.
What does Provigil's manufacturer, Cephalon, have to say about the two strategies? In 2011, the company was acquired by Teva – the world's largest generic drug company. In a statement last year to NewsHour, Teva declined to comment on evergreening.
As for the so-called "pay for delay" strategy, the company said it believed the agreements were "lawful and served to increase competition" and that it would "defend them vigorously." But just last week, a major development in the FTC's case.
I want to announce that the Federal Trade Commission has reached a landmark settlement resolving our antitrust suit against Cephalon Incorporated…
Teva agreed to settle for $1.2 billion – the largest settlement ever in FTC history. The money will refund wholesalers, pharmacies and insurers the FTC says overpaid for Provigil. Teva also agreed not to enter similar deals in the future.
A spokesperson said, "We are pleased to have reached an agreement with the government. …Teva believes it is the right path for our Company, for the industry and for the patients we serve."
Teva also settled the other, class-action suit earlier this year for half a billion dollars – an amount the FTC will fold into its settlement.
I believe this settlement brings us one step closer to stopping these illegal arrangements.
Individuals like Karen Winkler likely won't see money from the settlement anytime soon. But, she says, she hopes it will make other companies think twice about making similar deals. Provigil did go generic in 2012, and the price for Winkler fell from more than $700 to $16 for a three-month supply. She went back on the drug, and says it's made all the difference.
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