The FTC's Pay-for-Delay Threat: It's All Cephalon CEO Baldino's Fault

(MoneyWatch)  Jon Leibowitz, chairman of the FTC, argued in a speech that eliminating patent settlements between brand-name and generic drug companies would save consumers $35 billion annually. More successful patent challenges would lead to more cheap generics on the market, he said.

As drug companies are currently winning the pay-for-delay battle in the courts -- the U.S. Supreme Court just handed Bayer a victory in a case in which it had paid Teva/Barr $398 million not to make a competing generic version of the antibiotic Cipro -- Liebowitz's speech will be closely scrutinized for holes by their lawyers.

They may want to blame Cephalon CEO Frank Baldino. Citing a 2006 interview with the Philadelphia Business Journal, Liebowitz said:

Take the CEO of Cephalon, a company that is the subject of a current FTC action. When announcing settlements with four generic drug makers that kept the generic versions of Provigil off the market until 2012 (in return for compensation of roughly $200 million collectively to the generics), he stated: "We were able to get six more years of patent protection. That's $4 billion in sales that no one expected."

The FTC is reviewing those settlements, in which Barr, Teva, Mylan and Ranbaxy were either paid to go away or paid to supply Cephalon with new product.

On this anecdote alone, it does seem to be the case that, as Liebowitz said:

Instead of competing to be first to come to market, generic companies compete to be first to get paid off.

But Liebowitz then blamed drug lawyers for "derailing" the law controlling patent challenges in favor of settlements. He claims the federal appeals court circuits are split on the issue:

In the courts, as many of you know, there has been a dramatic split. The Sixth Circuit says these deals are per se illegal, while other appellate courts have come close to rules of per se legality.

Er ... that might not be the case. There's a nice, detailed review of the law in this area sitting on the Patently-O blog by law professor Christopher Holman. He says:

After a close reading of the decisions, it is clear to me that the purported split between the circuits has so far failed to materialize, although the situation could change if and when other circuits weigh in on the issue.

The Supremes proved him right earlier this week by rejecting the appeal in the Cipro case. So the speech is essentially Liebowitz's way of signalling to Congress, "We're powerless, you must pass new laws banning settlements."

And finally ... Liebowitz kicked off by telling the story of Andrew Bodnar, a former svp/strategy at Bristol-Myers Squibb, who was sentenced by a judge to write a book explaining why he lied to the government about a pay-for-delay deal he struck with Apotex in a patent dispute on Plavix. Liebowitz spells Bodnar's name wrong throughout his text.

• Previously:
• Supreme Court Gives Bayer Victory in Cipro Patent Fight
• Judge Orders BMS's Bodnar to Write a Book Explaining Lies He Told the Feds