Brand-name pharmaceutical companies can delay generic competition that lowers prices by agreeing to pay a generic competitor to hold its competing product off the market for a certain period of time. These so-called “pay-for-delay” agreements have arisen as part of patent litigation settlement agreements between brand-name and generic pharmaceutical companies.
“Pay-for-delay” agreements are “win-win” for the companies: brand-name pharmaceutical prices stay high, and the brand and generic share the benefits of the brand’s monopoly profits. Consumers lose, however: they miss out on generic prices that can be as much as 90 percent less than brand prices. For example, brand-name medication that costs $300 per month might be sold as a generic for as little as $30 per month.
A hypothetical consumer paying $300 per month for a brand-name drug, instead of a generic price as low as $30 per month, could pay as much as $270 per month more for prescription drugs. Over a 17-month period, this could total additional expenses of $4,590.
The Federal Trade Commission’s (FTC) investigations and enforcement actions against pay-for-delay agreements deterred their use from April 1999 through 2004. In 2003, an appellate court held that such agreements were automatically illegal.
Since 2005, however, a few appellate courts have misapplied the antitrust law to uphold these agreements. Following those court decisions, patent settlements that combine restrictions on generic entry with compensation from the brand to the generic have re-emerged.
Agreements with compensation from the brand to the generic on average prohibit generic entry for nearly 17 months longer than agreements without payments, where the average is calculated using a weighted average based on sales of the drugs. Most of these agreements are still in effect. They currently protect at least $20 billion in sales of brand-name pharmaceuticals from generic competition.
Pay-for-delay agreements are estimated to cost American consumers $3.5 billion per year – $35 billion over the next 10 years.
Pay-for-delay agreements have significantly postponed substantial consumer savings from lower generic drug prices. The FTC has recommended that Congress should pass legislation to protect consumers from such anticompetitive agreements.