Agreements between innovator and generic drugmakers aimed at delaying the market entry of generics will cost US consumers $35 billion in higher drug prices over the next 10 years, the Federal Trade Commission (FTC) forecast yesterday.

Moreover, the number of such “pay-for-delay” deals went up from zero in 2004 to a record 19 in fiscal 2008, says a new FTC staff report, which also finds that when these deals feature payments by branded drugmakers to generic competitors, they keep generics off the market for an average 17 months longer than those which do not include a payment.

“In other words, consumers must wait almost a year and a half longer for lower prices,” said FTC chairman Jon Leibowitz, speaking yesterday at a joint press conference held by the agency and a number of legislators who are calling for the final, reconciled version of the House and Senate health reform bills to include a ban on patent settlement deals.

The House bill does at present include a prohibition on such agreements, and the Congressional Budget Office estimates that this would save the government $1.8 billion over the next 10 years – it makes no estimates of savings to consumers.

The Senate version currently contains no such ban, but in late December a group of nine Democratic Senators wrote to Majority Leader Harry Reid calling for such a measure to be included in the final legislation. “Pay-for-delay settlement agreements are anti-consumer and anticompetitive backroom deals,” they told him.

They are also “a bad prescription for America - when drug companies agree not to compete, consumers lose. Ending this practice as part of health care reform is one simple, effective, and straightforward way for Congress to help control drug costs,” Commissioner Leibowitz said yesterday.

According to the FTC staff report, most patent settlements agreed since 2005 are still in effect and currently protect at least $20 billion in sales of brand-name drugs from generic competition.

Such “sweetheart” deals are a “win-win” for companies - because the prices of branded drugs remain high and the brand and generic share the benefits of the brand’s monopoly products – but consumers lose, because they miss out on generic prices that can be as much as 90% less than brand prices, says the report. “Brand-name medication that costs $300 per month might be sold as a generic for as little as $30 per month,” it notes.

FTC investigations and enforcement actions deterred the use of pay-for-delay deals from April 1999 through 2004, with an appeal court stating in 2003 that such agreements were automatically illegal. Yet, beginning in 2005, “a few misguided courts began to bless these deals,” and after those decisions the number of these agreements increased dramatically, said Leibowitz.

He pointed out at the press conference that this is “most assuredly, not a partisan issue,” and that “every single FTC Commissioner since 1999 – Democrats, Republicans, and an Independent – has called for an end to these unconscionable agreements.”

The FTC has relentlessly attacked such deals and pursued them through the courts, but the Department of Justice, with which it shares antitrust responsibilities, did not oppose them during the Bush administration. However, in a radical change of policy last July, the Department’s new Antitrust Division head, Christine Varney, stated that payments by brand-name drugmakers to generics firms aimed at delaying market competition are “presumptively unlawful” and that they require the defendant “to offer justifications in order to avoid antitrust liability.”

The FTC’s most recent action over such arrangements involves US biopharmaceutical company Cephalon, which the agency sued in February 2008 for allegedly paying four generics makers more than $200 million for agreeing not to market a generic version of its leading product, the sleep disorder treatment Provigil (modafinil), until 2012.

The FTC also announced yesterday that it has posted a new pill-shaped “hot topics” button called “Pay-for-Delay” on its web site, which provides information about the agency’s work in this area, including recent court cases and congressional testimony.

- The US House of Representatives reconvened after the holiday break on January 12, while the Senate will return to work on Wednesday, January 20, following a pro-forma session to be held on the 19th.