US court decisions may be moving away from their generally lenient approach to “pay-for-delay” deals between originator and generic drugmakers, the US Congress has been told.

Such deals - under which the brand-name drugmaker pays a potential generic competitor to abandon a patent challenge and delay its cheaper drug’s market entry - cause “enormous consumer harm,” costing the US public at least $3.5 billion a year, Federal Trade Commission (FTC) chairman Jon Leibowitz has told a Senate subcommittee.

Stopping the deals is one of the Commission’s highest antitrust priorities, because they limit competition at the expense of consumers - whose access to cheaper generics is delayed, sometimes for many years - and raise the costs of prescription drugs for businesses and the government, Commissioner Leibowitz told the panel, as he presented the FTC’s budget request for fiscal 2011.

As a result of some courts’ lenient approach, it has become increasingly difficult to halt the deals through litigation and they have become a common industry strategy, he said, but added, “we have reason to believe that the tide may be turning.”

For example, in late April, the Second Circuit Court of Appeals in New York, “which had previously adopted a permissive legal standard” to such deals, “took the extraordinary step of questioning its own standard and explicitly encouraging consumer plaintiffs to request the full court’s consideration of the pay-for-delay issue,” he said.

The three-judge panel had said it was reluctantly upholding the dismissal of a challenge to Bayer’s deal with Teva covering the anthrax drug Cipro (ciprofloxacin), and suggested that those bringing the challenge should ask the full court for a deeper review of the issues involved.

And in March, a federal district court judge in Philadelphia denied a defense motion to dismiss the FTC’s pending case against Cephalon, maker of the sleep disorder drug Provigil (modafinil), whose annual US sales are close to $1 billion.

The FTC devotes “substantial resources” to tackling pay-for-delay cases and continues to conduct new investigations into them, said Commissioner Leibowitz. It has also, in the past year, issued studies which show that the number of agreements is increasing - from zero in fiscal 2004 to 19 in fiscal 2009, that the deals delay generics’ availability by an average of 17 months and that if not stopped they will, conservatively, cost consumers $3.5 billion a year.

The FTC has also acted aggressively to stop anticompetitive health care mergers, he added; its actions have included challenging Ovation’s acquisition of a drug for premature infants with congenital heart defects, showing evidence in court that Ovation acquired its only competitor and took advantage of its monopoly to raise prices by 1,300%.

It has also reviewed several pharmaceutical mergers, requiring divestitures in Watson/Arrow, Merck/Schering Plough and Pfizer/Wyeth to preserve competition that otherwise would have been lost, and sued to block Talecris’ acquisition of CSL, on the grounds that this would have raised prices for plasma derivative protein therapies used to treat a variety of illnesses, including immunodeficiency diseases. Talecris and CSL abandoned the deal in the face of the FTC’s challenge, said Commissioner Leibowitz.

Moreover, the Commission is following the activities of pharmacy benefit management (PBM) companies which, while they can help health care plans manage the cost and quality of the prescription drug benefits provided to enrollees, have been criticised for a lack of transparency in their operations, improper use and inadequate protection of consumer information, and utilising their market position to undermine competition.

Last year, the FTC took action against leading PBM CVS Caremark to protect consumers’ personal information, and is current investigating whether certain of the firm’s business practices may violate the FTC Act, he said.

“Our efforts to protect and promote competition in the health care system are critical to reduce costs, improve quality, and encourage innovation,” Commissioner Leibowitz told the panel, and he ended its budget testimony with a request for $314 million to support 1,207 full-time equivalent (FTE) employees for fiscal 2011, which is $22.3 million and 40 FTEs more than fiscal 2010. The FTC’s current staff level is considerably lower than it was at its peak in 1979, when the Commission had about 1,800 FTEs to serve a much smaller population, he pointed out.