Delaying Generic Competition — Corporate Payoffs and the Future of Plavix

link 4 NEJM

Miriam Shuchman, M.D.

In August, pharmacies began selling a cheaper, generic version of the blockbuster antiplatelet agent Plavix (clopidogrel). This was good news for patients with cardiac disease or stroke who cannot afford to buy the medication at more than $4 a day. But to Bristol-Myers Squibb and Sanofi-Aventis, who produce and market the drug, it was a financial disaster. Plavix is the world's second-best-selling drug — 48 million Americans use it on a daily basis — and with sales of more than $6 billion last year, it accounts for about 30 percent of Bristol-Myers's total earnings. In an effort to keep the generic version off the market, Bristol-Myers and Sanofi had agreed to pay its Canadian manufacturer, Apotex, $40 million not to release it until 2011. If this agreement fell through because it was deemed unapprovable by government authorities, Bristol-Myers–Sanofi would pay a break-up fee of at least $60 million and they wouldn't take legal action in advance to stop Apotex from releasing the generic. If part of this payoff was late, Apotex would claim "interest at a rate of $20,000 per day," Chief Executive Officer (CEO) Barry Sherman informed a Bristol-Myers executive by e-mail after the companies' pay-off settlement was rejected by government reviewers.

Until Apotex stirred up trouble, Bristol-Myers and Sanofi had expected to profit from Plavix until its final patent expired in November 2011. But under the Hatch–Waxman Act that regulates their industry, generic-drug companies are not obliged to wait for the expiration of all patents — several of which are often in play, covering different aspects of any given drug. A generics firm can copy a drug and submit its product to the Food and Drug Administration (FDA) for approval, certifying either that its version does not infringe the relevant patent or that it intends to challenge the patent's validity. The system includes a strong incentive to challenge weak patents: if a generics company succeeds, it wins 180 days of market exclusivity. At the same time, Hatch–Waxman protects the brand-name company by giving it the right to sue immediately to enforce its patent and by blocking FDA approval of a generic for 30 months once such a lawsuit is filed.

In the case of Plavix, after the authorities rejected the initial settlement between Apotex and Bristol-Myers–Sanofi, the companies reached a second settlement, but by the end of July 2006, it, too, had unravelled in the wake of revelations that the Department of Justice was launching a criminal investigation of the deal. A week later, Apotex began flooding the market with generic clopidogrel, and within days, more than 60% of Plavix prescriptions were being filled with the generic, priced up to 20% lower than the brand-name product. On August 31, Bristol-Myers and Sanofi won an injunction preventing further sales, but by then, Apotex had shipped quantities that industry analysts expected to last until 2007.

The case offers a rare glimpse of the high-stakes arrangements through which pharmaceutical companies delay sales of generics and keep drug prices high — all under the watchful eyes of the Federal Trade Commission (FTC) and the Department of Justice. Though the cash payments at the heart of this deal are shocking, such "reverse payments" from a brand-name drug producer to a generics company are not illegal. What's unusual about the case isn't the millions promised to Apotex, it's that the settlement fell apart and generic clopidogrel was released for sale. In recent years, such settlements have generally stuck, despite federal authorities' efforts to undo them, and generics have been kept off the market.

Since 1998, federal antitrust enforcers have delved into these settlements repeatedly. In one case, the makers of the heart drug Cardizem CD (diltiazem) paid a generics company nearly $100 million to keep its version off the market. In another case, the manufacturer of the antihypertensive and prostate drug Hytrin (terazosin) was set to pay $54 million to delay the release of a generic. The FTC filed complaints against both companies for violating antitrust laws and forced them to sign consent decrees placing restrictions on similar behavior in the future. In 2003, amid reports of "secret deals" between brand-name and generics companies, Congress passed a law requiring that all settlements between such companies be reviewed by the FTC and the Department of Justice — as a way of discouraging large cash deals, according to Ed Barron, counsel to Senator Patrick Leahy (D-VT).

Between 2000 and 2004, thanks to the FTC judgments, the consent decrees, and the new law, no drug companies made deals delaying generics by paying off manufacturers, and several generics were marketed earlier than expected. In a speech last April, FTC Commissioner Jon Leibowitz gave the examples of Prozac (fluoxetine), available as a generic in 2001, 3 years before the final Prozac patent expired; Prilosec (omeprazole), released as a generic in 2002, 15 years before all patents expired; and Paxil (paroxetine), available as a generic in 2003, 3 years before the final patent expired. The FTC estimates the value to consumers of these early generic entries at nearly $10 billion.

Generic fluoxetine was introduced in August 2001, generic omeprazole in December 2002, and generic paroxetine in September 2003. Data are from Scott-Levins Source Prescription Audit, published in Drug Topics.


But since 2004, judges and justice officials have disagreed with the antitrust authorities on several occasions. One case involved K-Dur, Schering-Plough's long-acting potassium supplement for patients with cardiac disease. Schering had paid one manufacturer $60 million not to market a generic version for 4 years and another $15 million not to market its product for 6 years. The FTC ruled that this was an antitrust violation, but Schering won on appeal and proceeded with the agreements. In another case, Zeneca paid the generics company Barr $21 million to keep its version of tamoxifen off the market until 2002, when all patents had expired, and the appeals court upheld the agreement, even though the final patent on tamoxifen had already been ruled unenforceable.

The Sixth Circuit Court of Appeals had found the Cardizem payments illegal, however, staking out a position on cash payments from brand-name to generics companies "way at the other end of the spectrum" from other appeals courts, according to Karen Bokat, a former FTC litigator. So the FTC petitioned the Supreme Court to weigh in on the K-Dur case to resolve the issue, but the Court declined to review it.

An FTC study released in April showed the consequences of the K-Dur and tamoxifen decisions. In 2004, there were no settlements between brand-name and generics companies that included payments to delay a generic's release, but in 2005, the year of the appeals court decision in the K-Dur case, 3 of the 16 deals reached included such payments, and in 2006, after the tamoxifen decision, nearly two thirds of settlements have included such payments. "These settlements are becoming very common, and it's not surprising, because the courts seem to have given their imprimatur to some extent," the FTC's Leibowitz said in an interview.

Leibowitz views the release of generic Plavix as a unique situation. "This isn't a harbinger of more competition to come," he said. "It's the exception that says if we don't change the rules, every other time what we're going to see is reasonable companies . . . making payments to keep generics out of the market and generics [companies] accepting those payments because they make more money by staying out of the market than by competing. For the most part, consumers are going to be left . . . footing the bill, while pharmaceutical companies make these anticompetitive agreements that keep drugs out of the market." Representatives of the generic-drug industry, such as Kathleen Jaeger, president of the Generic Pharmaceutical Association, argue that these agreements have a "proconsumer" component, because the generic comes to market before the patent would expire, without the courts becoming clogged with litigation.

In the Plavix case, Apotex's ability to enter such an agreement had been building since 2001, when two generics companies believed they'd found cause to challenge the patent that expires in 2011. Apotex experts thought that the patent covered claims that would be obvious to any chemist who had seen Sanofi's earlier — expired — patent on the drug, and obviousness invalidates patents. The generics companies raced to submit their drugs to the FDA in order to win the 6-month monopoly. Apotex came in first, applying for FDA approval late in 2001 and declaring its intention to contest the patent. Bristol-Myers and Sanofi sued Apotex for patent infringement, triggering the 30-month stay of FDA approval for the generic product, and after a long course of discovery and motions in the case, the trial was scheduled for March 2006.

The largest drug company in Canada, Apotex is known for being aggressive and litigious. The company is privately held, and Sherman is both chair and CEO — characteristics virtually unheard of in U.S. and European drug companies. As a result, Sherman, who owns 90 percent of the company, can take risks without answering to investors or disclosing his losses. According to Apotex court filings, in early 2006, when the company learned that the FDA would soon approve its generic clopidogrel, it began to produce a large inventory of the drug, and Apotex sales staff began taking orders from customers — risky moves, since the lawsuit with Bristol-Myers and Sanofi remained unresolved. Under another Hatch–Waxman rule, if Apotex lost its case after releasing its clopidogrel, it would owe Plavix's makers three times what it had earned on the drug. Analysts believed there was a good chance Apotex would lose.

But Bristol-Myers couldn't take a chance on the courts' deciding otherwise. Its lawyers contacted Apotex lawyers to negotiate a settlement, and in March the three companies reached the aforementioned initial agreement: in exchange for a multimillion-dollar cash payment and some valuable legal concessions, Apotex would not sell its generic product until September 2011. One concession was that if the authorities did not approve the deal and Apotex released generic clopidogrel, it would not have to pay triple damages to Bristol-Myers and Sanofi, even if it lost its patent challenge.

The companies submitted the settlement for a review that entailed extra scrutiny from the FTC and a group of state attorneys general: all of Bristol-Myers's settlements required prior approval, owing to a consent decree stemming from a 2003 settlement over charges that it had illegally blocked generic competition for three other drugs. When the authorities rejected the Plavix settlement, the companies negotiated a new one that gave Apotex even stronger assurances that it could launch the generic with limited damages — and ensured that those aspects of the settlement would persist even if the overall agreement fell through.

Again the agreement was submitted to the authorities, but what happened next was a surprise. Apotex lawyers informed the FTC that the companies had entered into several oral side agreements that they had kept secret from the authorities. In an e-mail filed with the court that reads as if Sherman sent it to three Apotex executives, he claims that Bristol-Myers said it would still honor certain agreements from the March settlement but not put them in writing because the FTC had previously objected to them. One was Bristol-Myers's promise not to launch its own "authorized generic" clopidogrel to compete with Apotex in 2011. If Sherman's allegations are true, the companies may have violated both federal laws and Bristol-Myers's consent decree. According to Apotex court filings, Sherman "expressly certified to the FTC that these agreements had been made, and how they were negotiated." Bristol-Myers's lawyer, Evan Chesler, disputes Sherman's claims. But in late July, probably because of these allegations, the Department of Justice began its criminal inquiry into the settlement, and FBI agents arrived at Bristol-Myers's New York headquarters with a warrant to search the CEO's office. Days later, the second agreement was rejected by its reviewers.

On the evening of August 7, a beaming Barry Sherman sat in his office at the Apotex complex in a Toronto suburb, talking on the phone. His was the only car in the executive parking area, and Apotex security staff were off duty for a Canadian holiday. No one could have guessed that generic clopidogrel, a billion-dollar drug, would be in pharmacies the next day. "The trucks are rolling," Sherman said in an interview that night, calling it "the biggest launch ever" and revealing that one customer had placed a $75 million order for the drug. "You'd think everyone would be on our side because we're doing what's right for consumers," Sherman told an Apotex colleague who called his office that night.

Officially, the drug was still under patent, but all the standard protections Hatch–Waxman affords brand-name drug producers had been forfeited by Bristol-Myers and Sanofi in their attempts to settle with Apotex. New York Judge Sidney Stein, who halted sales of the generic, raised doubts about the entire negotiation by noting that Apotex hadn't convinced him there was any question about the patent's enforceability. The case has cost Bristol-Myers CEO Peter Dolan his job but Sherman will keep his, all three companies will testify before a grand jury in the criminal case, and they'll meet again in Judge Stein's court when the patent case continues next year.

Meanwhile, other brand-name pharmaceutical companies will probably continue making cash payments to fend off generics. Senators Leahy, Chuck Grassley (R-IA), Charles Schumer (D-NY), and Herb Kohl (D-WI) have proposed outlawing such payments, and the Senate held hearings on the issue in July. As the criminal investigation continues to make headlines, the legislative work will proceed more quietly, but experts say that ultimately, Congressional action may be what's required to stop drug companies from paying off their competition.