How a law designed to encourage production of generic drugs has backfired

New York, NY - Two deals cut by Abbott Laboratories to stall production of generic versions of Hytrin, Abbott's $500-million-a-year drug for high blood pressure and prostate enlargement, highlight a long front-page feature in the July 23, 2000 New York Times. On successive days in the spring of 1998, Abbott agreed to pay Zenith Goldline Pharmaceuticals as much as $2 million a month not to produce its generic, up to a maximum of $42 million, and Geneva Pharmaceuticals $4.5 million a month, as much as $101 million, according to the paper.

"And so it was not until August 1999 - when Geneva and Abbott, facing an antitrust investigation, scuttled their agreement - that Hytrin's generic equivalent, terazosin, finally made its market debut. That is not what Congress envisioned in 1984 when it passed a law intended to keep drug prices down by speeding up the entry of generic drugs. The Drug Price Competition and Patent Term Restoration Act was intended to foster competition between brand and generic companies, and it has. It was not supposed to prompt rivals to join hands in keeping drugs off the market," write Sheryl Gay Stolberg and Jeff Gerth. "The law has been turned on its head," says Representative Henry A Waxman (D-CA), one of its authors. Referring to Hytrin, he says, "We were trying to encourage more generics and through different business arrangements, the reverse has happened."

Behind-the-scenes deals like Abbott's "are hardly unique," the Times reports. "Rather, they are part of an increasingly aggressive effort by the industry to fend off one of its biggest threats: competition from generics, which in the next five years could eat away at tens of billions of dollars in sales from brand drugs whose patents are about to expire."

The high-stakes wheeling and dealing about Hytrin has led to 13 private antitrust lawsuits against Abbott by individual patients, HMOs, pharmacies, and drug wholesalers, reports the Times. The newspaper's investigation shows that "Abbott worked hard to beat back Hytrin generics. It filed numerous additional patents on the drug's key ingredient, terazosin. It improperly listed a Hytrin patent in the FDA's registry, according to a federal appeals court; the move would have extended Hytrin's patent life had the court not ordered the patent struck from the registry. Abbott also filed lawsuits against five generic drug manufacturers, and countersued a sixth. No judge ever ruled in Abbott's favor, but the maneuvering kept the company's monopoly on Hytrin alive for four years after a patent on the key ingredient ran out. During that time, Abbott's Hytrin revenues totaled roughly $2 billion - most of it pure profit."

Abbott is not alone among drug manufacturers in making deals with generic rivals, according to the Times; one of several other such agreements involves Hoechst Marion Roussel's Cardizem CD. Vice President Al Gore says that such agreements "perpetrate a fraud on the American people by denying them the benefits of competition."

In addition to the courts, the Federal Trade Commission (FTC) is examining these agreements, the Times reports. "In March, it accused Abbott and Geneva (but not Zenith) of violating antitrust laws. The companies defend their agreement as proper, but signed a settlement with the FTC agreeing not to make any other similar deals. The settlement was the first of its kind for the FTC; the agency warned that companies might not be treated so lightly in the future. Last month, a federal judge declared the Cardizem agreement an illegal restraint of trade; in that case, a brand company, Hoechst Marion Roussel, paid a generic competitor, Andrx Pharmaceuticals, $90 million not to market a generic alternative. The companies have denied wrongdoing," reports the Times. What's more, the FDA is concerned that these kinds of deals may lead to higher drug prices, and "is pressing for new rules to discourage them - rules that trade groups for both brand and generic drug makers oppose," according to the paper.

When Abbott sought approval for Hytrin to treat hypertension in the early 1980s, the drug company was in need of a new product, the Times reports. The drug itself was basically a "me-too" version of Pfizer's prazosin, with the therapeutic advantage of once-a-day dosing, the report states. But "the FDA did not approve Hytrin for high blood pressure until 1987, 10 years into the life of the original terazosin patent. And it was not until 1993 that the agency gave Abbott permission to market Hytrin for its most lucrative purpose, the treatment of enlarged prostate, a condition that affects at least half of all men older than 60. By 1995, Hytrin had become a huge hit; the drug generated annual sales of more than $500 million, accounting for a fifth of Abbott's drug revenue. But a key patent for terazosin was due to expire that year, and generics were already lining up to compete," the Times reports. As other drug companies do, Abbott filed for secondary patents to delay generic versions from reaching the market, according to the paper.

The Times recounts how the Hatch-Waxman legislation in 1984 offered, in effect, a 6-month monopoly to the first generic drug company to seek approval for a drug. "When Geneva finally began selling terazosin, court records show, it earned as much as $11 million a month from the drug, a tidy sum for a company whose total sales in 1997 were about $25 million a month. At the same time, the law rewarded the brand companies by giving them patent extensions of up to five years. And there was another, little-noticed benefit for the brands that would also push back the clock on generic competition: once a generic company had requested FDA approval, the brand company could sue for patent infringement, and the FDA was prohibited from making a decision for 30 months while the courts weighed the issue," the paper reports.

The legislators did not foresee that brand-name manufacturers would offer to pay cash to keep generic rivals off the market. "Now, a decade later, such deals are only starting to come to light," according to the Times. "Hatch-Waxman intended to provide an incentive for drug companies to explore new drugs, not a market 'windfall' for crafty, albeit industrious market players," wrote Federal District Judge Ricardo M Urbina for the District of Columbia in March, who is presiding over a case involving the breast cancer drug tamoxifen.

"Like Abbott, Geneva was stuck in a dry spell when it sought FDA permission to market its generic version of terazosin," the Times reports. Geneva, a subsidiary of Novartis AG, filed the first application with the FDA for a generic version of Hytrin in early 1993; 18 months later, Zenith Goldline Pharmaceuticals filed similar plans, the Times reports. As expected, Abbott sued Geneva, but "for all its litigiousness, the big drug company made a crucial misstep. In filing patent infringement claims against Geneva, Abbott's in-house lawyers sought to block only a tablet version of Hytrin, neglecting the generic maker's plans for a terazosin capsule, the most popular form of Hytrin," according to the paper. "The omission was important because it meant Geneva would not be tied up in litigation about the capsule when the FDA decided. But it did not leave Geneva completely free of legal liability; Abbott could still sue for patent infringement once the generic capsules came to market."

Geneva got its FDA approval in March 1998, but "company officials responded not by shipping the drug, but by calling Abbott that same day, to inform their counterparts of their intention to go to market - unless they were paid not to," the Times reports, adding that FTC documents and court records "show the nitty-gritty calculations that both sides relied on during two days of phone discussions" between lawyers and company executives. At the same time, Abbott was making a "straight numbers deal" to pay the other generic rival, Zenith Goldline, not to market its version of terazosin, the paper reports.

"In that deal, Zenith would settle its lawsuit with Abbott by agreeing not to contest the validity of the Hytrin patent. But the settlement would let Zenith enter the market for terazosin if another generic did," the Times reporters write. Knowing that, Abbott agreed to pay a premium to Geneva, according to the paper. "The courts were never told; there was no need for it, because Geneva, unlike Zenith, was not settling its case. Under terms of the deal, Abbott would pay Geneva until the Supreme Court reached a decision in the Hytrin case, or February 2000, when a Hytrin patent was to expire - whichever came sooner," the Times reports.

Now Federal District Judge Patricia Seitz in Miami is considering Hytrin-related suits, filed mostly by pharmacies and drug wholesalers, some of which have sued Geneva and Zenith as well, according to the Times. Individual patients and large HMOs were expecting to receive the benefits of having a generic version of the drug available in 1998, including Kaiser Foundation Health Plan in Oakland, CA, one of the country's largest HMOs, the Times reports. Dale Kramer (Kaiser's head of drug purchasing) told the paper he believes that Abbott took "advantage of the situation" to extend its patents "at the expense of individual consumers."

As expected, the courts ruled in Geneva's favor in September 1998, which was upheld in an appeals court in July 1999, the Times reports. Even so, the company believes that its legal maneuverings were "a smashing success," according to the paper, since they allowed Abbott to protect against patent challenges for 4 years.

Charles T Lay (Former President and CEO, Abbott Laboratories) "is irritated at the brand companies' penchant for filing what he calls 'facetious lawsuits,' and said the litigation drives up the cost of developing a generic drug from an average of $500000 a decade ago to more than $5 million today," reports the Times. Lay told the paper, "To the brand companies, throwing $10 million or $20 million in legal fees at a product is chicken feed, so long as they can keep away generic competition."

Heartwire from Medscape © 2000 

Cite this: How a law designed to encourage production of generic drugs has backfired - Medscape - Jul 24, 2000.