FTC Testifies on Barriers to the Entry of Generic Drugs

Testifying today on behalf of the Federal Trade Commission before the U.S. Senate’s Special Committee on Aging, Commissioner Jon Leibowitz described the FTC’s work in the area of branded and generic pharmaceutical competition and discussed barriers that can lead to the delay of generic entry into the U.S. marketplace. Despite the Congress’s “remarkable record of success” in working to ensure that consumers gain access to generic drugs as quickly as possible, he said “there have been, and continue to be, competitive problems in pharmaceutical markets.”

Opening with a discussion of pharmaceutical prices, the testimony noted that “pharmaceutical expenditures are a concern not only to individual consumers, but also to government payers, private health plans, and employers. Generic drugs play an important role in containing rising prescription drug costs, by offering consumers therapeutically identical alternatives to brand-name drugs, at a significantly reduced cost.” To address the cost issue, Congress passed the Hatch-Waxman Amendments to the Food, Drug, and Cosmetic Act in 1984, establishing a regulatory framework that sought to balance innovation by research-based drug companies with opportunities for entry by generic drug manufacturers. Under Hatch-Waxman, the Congressional Budget Office estimated that consumers saved between $8 billion and $10 billion on retail drug purchases in 1994 alone.

After Hatch-Waxman went into effect, however, some drug companies entered into anticompetitive agreements, effectively settling patent infringement suits in a way that harmed consumers by illegally delaying generic entry. The FTC has “aggressively protected competition” in the pharmaceutical industry by bringing enforcement actions challenging such agreements, as well as by filing amicus briefs on competition-related issues in a range of drug cases. On a policy level, the FTC has promoted greater understanding of the role of competition in the industry through multiple studies, including 2002's “Generic Drug Entry Prior to Patent Expiration.” The FTC now reviews all agreements between drug companies settling patent infringement disputes to ensure they are not illegally anticompetitive.

The testimony next addressed how patent litigation settlements can delay generic drug entry. It discussed the types of patent settlements that the Commission believes are anticompetitive – presenting possible legislative solutions to this problem – as well as how brand-name pharmaceutical manufacturers have used the 180-day marketing exclusivity period granted by Hatch-Waxman for generic first-filers to block generic entry. It also discussed how recent Court of Appeals rulings may have led to companies entering into more of such settlements.

“In the current fiscal year, we have seen significantly more settlements with payments and restriction of entry – seven of ten agreements between brand-name and generic companies included a payment from the brand-name to the generic company and an agreement to defer generic entry,” the testimony stated, citing the most recent information on such settlements provided to the Commission.

Continuing, the testimony reviewed the antitrust implications of agreements entered outside the context of patent litigation, discussing the FTC’s ongoing litigation against Warner-Chilcott and Barr Laboratories regarding the Ovcon® oral contraceptive, and its enforcement actions against agreements between generic companies that delay generic entry and competition.

Finally, the testimony discussed the Commission’s plans to study the impact of authorized generic drugs on pharmaceutical markets, stating that the FTC received public comments on the proposed study through June of this year and is now reviewing those comments prior to seeking OMB approval to collect information from drug manufacturers.

The Commission vote authorizing the presentation of the testimony and its inclusion in the formal record was 5-0.

Copies of the Commission’s testimony are available on the FTC’s Web site at www.ftc.gov. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm

(FTC File No. P052103)