Healthy Skepticism Library item: 5707

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: news

Saul S.
Patent Deal on a Drug Scrutinized
New York Times 2006 Jul 28
http://www.nytimes.com/2006/07/28/business/worldbusiness/28drug.html?ex=1154750400&en=978ecb1007614759&ei=5070&emc=eta1

Full text:

Patent Deal on a Drug Scrutinized

Article Tools Sponsored By
By STEPHANIE SAUL
Published: July 28, 2006

The Justice Department is investigating whether a deal involving two big pharmaceutical companies and a generic drug maker thwarted a potentially lower-priced competitor for the blood thinner Plavix, one of the world’s top-selling drugs.
Skip to next paragraph
JB Reed/Bloomberg News

Plavix, a blood thinner, is used to reduce the risk of heart attacks.

The investigation, a criminal inquiry into the drug companies, Sanofi-Aventis and Bristol-Myers Squibb, was announced yesterday. It could signal a federal crackdown on increasingly common payments by the pharmaceutical industry to stave off competition from low-cost generics.

As part of the inquiry, federal agents, armed with subpoenas, searched two offices Wednesday at the headquarters of Bristol-Myers on Park Avenue in Manhattan, including the office of the chief executive, Peter R. Dolan.

Shares of both companies plummeted on yesterday’s news. In a conference call with investment analysts, in which news of the investigation seemed to magnify the financial challenges evident in his company’s lackluster second-quarter results, Mr. Dolan said that there was nothing illegal about the agreement and that the company was cooperating with the investigation.

The generic medicine was expected to cost only a fraction of the $4 a day for Plavix, which is widely used to reduce the risk of heart attacks and strokes. Plavix had sales of $6.2 billion last year and is by far the best-selling drug for Bristol-Myers, which is based in New York.

Sanofi, which is based in France and jointly markets Plavix with Bristol, issued a statement announcing the investigation, but declined to comment further.

The federal investigation involves an agreement that the two companies reached earlier this year with Apotex, a Canadian maker of generic drugs, after Apotex indicated it was planning to market its version of the drug, which had been approved in January by the Food and Drug Administration.

Initially, Sanofi and Bristol had sued to block Apotex’s version on the ground that it violated their patent, and a trial had been scheduled to begin last month in New York. But the companies announced in March that the patent lawsuit had been settled under terms that would have involved a payment to Apotex and an agreement that the company not sell its generic version until September 2011, eight months before the United States patent for Plavix was set to expire.

“The agreement raised very serious competitive concerns,” said David A. Balto, a lawyer and a former policy director for the Federal Trade Commission. “Generic drugs are priced 30 percent, at least, below branded drugs and the potential savings to consumers would be something like $1 billion a year.”

Payments to settle pharmaceutical patent lawsuits can potentially delay the sale of generic drugs. They have recently attracted scrutiny both from the F.T.C. and Congress, where legislation to restrict such deals is under consideration.

Critics say the agreements could make it more lucrative for generic makers to collect money not to market their products than to actually sell them, a trend that could potentially increase the overall price of drugs.

The F.T.C. recently issued a report documenting a rise in the number of patent settlements in which the brand-name manufacturers paid generic makers not to market their generics. In one example, the agency contended that Warner Chilcott, maker of the Ovcon birth control pill, paid $20 million to Barr Laboratories to delay the sale of a generic version.

In Senate testimony last week, Jon Leibowitz, an F.T.C. commissioner, said that such settlements could stifle competition.

In a note to investors yesterday the investment firm CIBC World Markets said the Plavix settlement appeared to have been the most aggressive of the agreements, characterizing it as a “pay not to play” deal.

Bristol-Myers and Sanofi never gave specific details on the amount they were paying to Apotex, but Bristol announced it had set aside $40 million in the first quarter to cover the “minimum” amount of that payment.

The companies revised the agreement in June after questions from the F.T.C. and state attorneys general, agreeing to let Apotex sell the drug beginning in June 2011, rather than September of that year.

The revised agreement requires approval by the F.T.C. and states, which had been expected to rule as early as today. It was unclear yesterday what effect the Justice Department inquiry might have on the F.T.C.-state review.

Under its rules, the F.T.C. is obliged to forward evidence of any criminal activity it suspects to the Department of Justice, whose antitrust division has responsibility for criminal antitrust prosecutions. And there was speculation yesterday that the F.T.C. review had led to the Justice Department inquiry.

Without the settlement, Apotex had a significant chance of losing the patent lawsuit and would not have been able to market its drug until 2012. The two large companies had already prevailed in a patent case in Canada. Ahead of the United States trial, some investment analysts had given Apotex no more than a 40 percent chance of winning.

Apotex had run a risk in going after the generic Plavix market by seeking the F.D.A.’s clearance to sell its version. Such generic approvals are allowed while patents are still in force. But companies that market drugs in violation of another’s patent are legally subject to treble damages if they lose patent lawsuits, a deterrent to the marketing of generic drugs while patents are still in force.

C. Anthony Butler, an analyst for Lehman Brothers who covers Bristol, said the investigation’s impact on Sanofi and Bristol was uncertain, although it might result in their resuming the patent suit against Apotex. “I’m not clear that it’s a major setback,” he said. “It does scare investors. Criminal investigation is a negative phrase.”

The criminal inquiry is a psychological setback for Bristol and its chief, Mr. Dolan, who had hoped the resolution of the Plavix patent dispute would signify the end of a five-year period in which the company was the target of investor lawsuits and a criminal investigation involving its inventory practices.

Bristol is currently on a sort of federal probationary status as a result of the settlement of that case, in which former company officials were accused of lying to investors about a practice called channel-stuffing that inflated sales numbers.

In the case of the Apotex agreement, the review by the F.T.C. and states was required under a consent decree Bristol signed in 2003 after the company was accused of using patent filings to thwart generic rivals for two of its drugs: the cancer treatment Taxol and the anti-anxiety drug BuSpar.

The company announced lackluster second-quarter financial results yesterday that showed Plavix, which accounted for $3.8 billion of revenue at the company last year, has been one of Bristol’s growth products during the period.

The company said it earned 35 cents a share for the second quarter, on revenue of $4.87 billion, compared with 47 cents a share on revenue of $4.89 billion in the quarter last year.

On the New York Stock Exchange, shares of Bristol-Myers fell $1.95, or 7.5 percent, to $24.04. American depository receipts of Sanofi-Aventis closed at $47.16, down $2.84, or 5.7 percent.