Column: Sneaky deals are keeping cheaper generic medicines off the market

It’s bad enough drug companies charge sky-high prices for brand-name prescription meds and raise those prices with regular frequency. Some also cut secret deals to keep cheaper generic alternatives off the market — a practice known as pay for delay.

It’s a bad-faith ploy that affects millions of people, potentially endangering the lives of patients who can’t afford needed medicine.

And it could become illegal in California.

A bill — AB 824 — now making its way through the Legislature would prohibit agreements among drug companies involving “anything of value� changing hands to delay introduction of a generic alternative to a brand-name medicine.

The legislation already has been passed by the Assembly. It’s scheduled to be voted upon Wednesday by the Senate Health Committee.

“We know these agreements happen. Everyone knows it,� Assemblyman Jim Wood (D-Healdsburg), the author of the bill, told me.

“We’re saying that if drug companies do it, in California it would be a violation of the law and they could be sued by the attorney general,� he said.

Atty. Gen. Xavier Becerra told me he’s ready to enforce AB 824.

“Right now, families across California are paying excessive prescription drug prices because drug companies enter into collusive agreements to keep less expensive, often lifesaving drugs off the market,� he said. “AB 824 will put the brakes on these lucrative backroom drug company deals.�

The stakes couldn’t be higher.

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About 90% of all U.S. drug sales involve generics, which are intended to be cheaper alternatives to brand-name drugs once a sufficient amount of time has passed for the original maker to recoup its research and development costs.

Healthcare advocates say pharmaceutical companies figured out years ago that they can reap even greater profits by encouraging generic manufacturers to stay away from some of the most lucrative brand-name meds.

This is typically done by direct payments or promises of profit sharing, or by the brand-name maker pledging not to bring out its own “authorized� generic to compete directly with the generic manufacturer. The deals are often reached during settlements of patent litigation.

The Federal Trade Commission estimates that pay-for-delay deals cost American consumers $3.5 billion a year in the form of higher drug prices.

“Pay-for-delay agreements are ‘win-win’ for the companies,� the FTC said in a 2010 study. “Brand-name pharmaceutical prices stay high, and the brand and generic share the benefits of the brand’s monopoly profits.�

A more recent analysis by the California Public Interest Research Group found that pay-for-delay deals keep cheaper generics off the market for an average of five years after patent rules allow their introduction.

This allows drug companies to charge for a brand-name med as much as 33 times what a generic alternative would cost, the analysis found.

“It’s outrageous that drug companies get away with making sweetheart deals to keep lower-priced generic medicine off the market,� said Emily Rusch, executive director of CalPIRG.

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Many pay-for-delay deals are made in the shadows of the drug industry and are difficult to prove. Sometimes, however, they’re so shamelessly anti-competitive that they tumble into the sunlight.

A case now pending in federal court in New Jersey involves the epilepsy drug Lamictal, manufactured by GlaxoSmithKline. Plaintiffs allege that Glaxo persuaded generic drug company Teva Pharmaceutical Industries in 2005 not to come out with a cheaper version of Lamictal until 2008.

In return for staying on the sidelines for several years, the suit alleges, Glaxo pledged not to bring out its own authorized generic and said Teva could sell a chewable version of Lamictal before the patent expired.

Glaxo and Teva don’t deny cutting a deal. They say that because no money changed hands, this wasn’t a pay-for-delay arrangement.

Nevertheless, by CalPIRG’s calculation, the agreement allowed Glaxo to continue charging as much as $465 a dose for the drug, whereas a generic version could have cost patients as little as $14.

The United States places no limits on how much can be charged for prescription drugs. The idea, primarily championed by conservative lawmakers, is that the market will arrive at fair prices and prevent price gouging.

But Wood, the author of AB 824, said pay-for-delay deals show the market is rigged.

“If these agreements were truly good ones, they’d be good for consumers as well as drug companies,� he said.

Wood said he’s asked drug companies and their lobbyists for examples of deals between brand-name manufacturers and generic makers that benefited consumers.

“They haven’t produced a single one,� he said. “Not one.�

Priscilla VanderVeer, a spokeswoman for Pharmaceutical Research and Manufacturers of America, an industry group, said patent deals “generally permit generic drugs on the market earlier than patent expiration does, generating significant savings for consumers.�

She said even though the lobbying organization opposes AB 824, “we are trying to work with lawmakers to amend the legislation and strike a balance that will allow patients to continue benefiting from these pro-competitive agreements.�

The Drug Price Competition and Patent Term Restoration Act, commonly known as the Hatch-Waxman Act, was intended to facilitate introduction of generic alternatives to brand-name drugs as patents expire.

Pay-for-delay deals are a deliberate effort to circumvent the 1984 law and shield high-priced drugs from competition for as long as possible.

This is, not to put too fine a point on it, evil.

We’re not talking about sneakers or toasters here. We’re talking about medicine. We’re talking about people’s lives.

If California can make a dent in the practice, good.

State lawmakers shouldn’t hesitate to place patients before profits.

David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to [email protected].