Leahy, Waxman Introduce Senate and House Bills
Targeting Sweetheart Deals That Delay Low-Cost Generic Drugs

April 26, 2001

WASHINGTON (April 26) -- House and Senate lawmakers are taking aim at pacts between big pharmaceutical firms and generic drug makers that are intended to keep lower-cost drugs off the market.

Paying off smaller rivals to delay competition is an abuse of the Hatch-Waxman law that was intended to promote generic alternatives, the lawmakers say. Companion bills to plug this loophole have been introduced this month in the Senate and the House. The Drug Competition Act (S. 754) is sponsored in the Senate by Sen. Patrick Leahy (D-Vt.), the ranking member of the Senate Judiciary Committee, and is cosponsored by Sen. Herb Kohl (D-Wisc.), the ranking member of the panel’s Antitrust Subcommittee; Sen. Charles Schumer (D-N.Y.); Sen. Richard Durbin (D-Ill.); and Sen. Russell Feingold (D-Wisc.).

The House bill (H.R. 1530) is sponsored by Rep. Henry Waxman (D-Calif.), the ranking member of the House Government Reform Committee and a senior member of the House Commerce Committee, and is cosponsored by Rep. Marion Berry (D-Ark.); Rep. Peter Deutsch (D-Fla.); Rep. Fortney "Pete" Stark (D-Calif.); and Rep. Sherrod Brown (D-Ohio).

The bills address an issue that spilled into public view again recently when the Federal Trade Commission (FTC) on April 2 brought civil charges against Schering-Plough for allegedly paying two generic drug makers to delay a generic alternative to a drug used by heart patients. The agency cited $90 million that Schering paid to American Home Products Corp. under the pact, which they said forced consumers to pay $100 million in higher prices while keeping a cheaper generic version off the market for several years.

FTC Chairman Robert Pitofsky has charged that some drug makers are "gaming the rules" with arrangements that amount to "private treaties" governing entry of generic drugs to pharmacy shelves.

The new bills would protect consumers by solving the most difficult problem faced by federal antitrust investigators: learning about improper deals in time to do something about them. The bills would expose these deals and subject them to immediate investigation and action by the FTC or the Department of Justice (DOJ). The lawmakers say their bills are a measured response that maintains the incentive for generic drugs, which can drive down the price of a drug by as much as 80 percent.

Leahy said, "If Dante were writing The Inferno today he would find a special place for those who devise anti-consumer conspiracies to gouge the public. Stifling competition hurts seniors and families and cheats healthcare providers, and it hits taxpayers through higher Medicare and Medicaid costs. Our bill discourages these sweetheart deals by giving real-time information to antitrust authorities. It points the flashlight in just the right places."

Waxman said, "This drug company collusion against consumers has got to stop. These payoffs from one company to another help no sick people get well. They just make patients’ medical bills higher. The first step to stopping this collusion is to expose it. Once it’s public, no one can defend it."

Kohl said, "We see how people struggle every day with the high costs of prescription drugs, how good health is a luxury many senior citizens and families can’t afford. This legislation will help prevent the kind of unconscionable deals that deliberately put prescription drugs out of their reach."

Durbin said, "Our bill pulls back the curtain on deals between two companies that may not have the consumers' best interests in mind when it comes to making drugs more affordable. Companies have a right to make a profit. They do not have a right to manipulate the market."

Feingold said, "I’m proud to cosponsor this bill, which simply gives the FTC and the Justice Department the information they need to enforce the Waxman-Hatch Act and ensure that sweetheart deals don’t create higher prices for consumers. There is no reason that drug companies should be allowed to keep secret agreements of this kind."

The Drug Competition Act of 2001 would facilitate FTC and DOJ confidential review of agreements between brand-name manufacturers and potential generic competitors so the agencies can more efficiently enforce existing antitrust laws. It covers brand name drug manufacturers and generic manufacturers that enter into agreements regarding the sale or manufacture of a potentially competitive generic equivalent of any brand-name drug. In cases where those agreements could have the effect of limiting sales of that generic equivalent drug, or could limit the research or development of that competing generic, the firms would be required to file the texts of those agreements with the FTC and the Attorney General within 10 business days after the agreement is executed. Failure to file is punishable by a civil penalty of up to $20,000 per day. The bills would not change the Waxman-Hatch Act, amend FDA law or slow down the drug approval process, and existing confidentiality requirements would still apply to the FTC and DOJ.

Under Waxman-Hatch, manufacturers of generic drugs are encouraged to challenge weak or invalid patents on brand-name drugs so consumers can enjoy lower generic drug prices. Current law gives temporary protection from competition to the first generic drug manufacturer that gets permission to sell a generic drug before the patent on the brand-name drug expires, giving the generic firm a 180-day head start on other generic companies. The FTC says some firms have exploited the law by entering into secret deals allowing generic drug makers to claim the 180-day grace period to block other generic drugs from entering the market, while at the same time getting paid by the brand-name manufacturer for withholding sales of the generic version.