Taking Aim at ‘Pay-to-Delay’ Tactics for Generic Drugs

When brand-name drug makers want to keep a competitive advantage over companies that market cheaper generic versions of the same drugs, they’ll sometimes pay generic drug companies to hold off on releasing the drugs for a few years.

The idea is simple: It’s a better deal in the long run for big drug companies to pay off generic drug makers not to market their versions, than to have the brand name drug compete with less-expensive generics.

The practice may seem underhanded and a bit sleazy, but it’s not against the law. It’s called “pay to delay” and is mostly a dirty little secret of the pharmaceutical industry that few consumers know about, even though it forces millions of them to pay more for their prescriptions.

But now, the Justice Department is taking a stand against the practice, which has been upheld by numerous courts and was approved by the Justice Department under then-President George W. Bush. It’s just one way President Barack Obama is parting ways with previous administrations and taking on corporate fraud and back-room dealing, all done at the ultimate expense of American consumers.

Pay-to-Delay Practices Challenged

Federal law enforcement officials have thrown their hat into the ring of a federal appeals court case involving pay-to-delay agreements. The case pending in the 2^nd U.S. Circuit Court of Appeals centers around a legal challenge by drug buyers, including nationwide pharmacy chains CVS Caremark and Rite Aid, who claim the arrangements between drug companies violate the Sherman (Antitrust) Act.

In the case (Arkansas Carpenters Health and Welfare Fund, et al., v. Bayer, AG, et al.), Bayer AG and Barr Pharmaceuticals entered into pay-to-delay agreement in which Barr would keep its generic drug, ciprofloxin, off the market for six years to avoid competing with Bayer’s blockbuster antibiotic, Cipro. For its trouble, Barr was paid $347 million by Bayer. Not a bad deal, right? Not unless you’re a patient who takes the antibiotic, in which case, you’ve been forced to pay way more than should have to.

Government Weighs in on Appeal

The pharmacies that were forced to buy the more expensive Cipro cried foul in court, but a lower court upheld the companies’ pay-to-delay arrangement. An appeal followed, and the Justice Department was asked by the court to weigh in on the legal controversy by filing a brief.

Christine Varney, the Justice Department’s assistant attorney general for antitrust who authored the government’s brief, officially did not take a stand on the merits of either party’s case. However, her brief seemed to tip the government’s hand in support of the drug buyers and against upholding the pay-to-delay agreement.

“The anticompetitive potential of reverse payments … is sufficiently clear that such agreements should be treated as presumptively unlawful under Section 1 of the Sherman Act,” Varney wrote on behalf of the Justice Department.

Only if the drug companies can rebut the presumption of undue restraint of trade should such agreements be allowed to stand, Varney wrote.

The Justice Department said it also believes that other courts have wrongly upheld pay-to-delay agreements before, including one such decision in 2006 involving the cancer drug Tamoxifen.

They’re Legal, for Now

President Obama has made reforming the U.S healthcare system a major priority and ending ways companies cost consumers and government health programs millions of dollars a year by forcing them to pay more for their prescription drugs figures to be an easy target toward achieving that goal.

Congressional leaders also are talking about legislation that would formally ban pay-to-delay agreements, but until then, they remain legal – even if they are a bit shady.

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