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Mr. Chairman, I rise today to introduce the Preserve Access to Affordable Generics Act. This bipartisan legislation will dramatically reduce prescription drug costs by preventing one of the most egregious, anti-consumer tactics ever devised to keep generic drugs off the market.
This amendment would combat ``pay-for-delay'' agreements between brand name and generic drug companies which delay entry of low-cost generic competition. These pay-for-delay agreements are estimated by the FTC to cost consumers $3.5 billion each year, and are estimated by the CBO estimates to cost the federal government more than $2.8 billion over the next decade in higher drug reimbursement payments.
In 2008, $235 billion were spent on prescription drugs in the United States. Generic drugs play a crucial role in containing rising prescription drug costs, by offering consumers therapeutically identical alternatives to brand-name drugs, at a significantly reduced cost. Studies have shown that generic competition to brand name drugs can reduce drug prices by as much as 80 percent. However, in recent years generic entry has frequently been blocked by anti-competitive, anti-consumer agreements between brand-name and generic drug manufacturers that limit, delay, or otherwise prevent competition from generic drugs.
In pay-for-delay agreements, a brand-name drug manufacturer settles patent litigation by paying off a generic competitor with large amounts of cash, or other valuable consideration to stay off the market until expiration--or a time close to expiration--of the brand-name patent. For example, in 2006, the CEO of Cephalon, which makes the sleep disorder pill Provigil, praised the deals his company made with four generic drug-makers to keep generic versions of Provigil off the market until 2012. ``We were able to get six more years of patent protection,'' he said. ``That's $4 billion in sales that no one expected.'' Unfortunately, that $4 billion came from the pockets of American consumers.
At their core, pay-for-delay agreements permit brand-name drug companies to pay off competitors not to compete. The brand name drug company wins because it reaps the profits from eliminating competition. The generic drug company wins because they get paid millions of dollars to do nothing more than drop their patent challenge. But consumers and the American taxpayer loses, to the tune of billions of dollars in higher drug costs every year.
Agreements between competitors, like these, are the most nefarious type of antitrust violation. Unfortunately, when the FTC has challenged ``pay-for-delay'' agreements, courts have favored big industry interests over consumers. Courts have wrongly concluded that this type of basic antitrust violation is immune from antitrust law because it involves the settlement of a patent challenge. In other words, it is permissible for competitors to collude to when it involves a patented drug and in order to keep lower cost drugs out of consumers' medicine cabinets. These misguided court rulings are what make passage of our legislation so vital.
For years, we have seen the use of anticompetitive agreements increase. From 2000 to 2004, there were twenty settlements of drug patent litigation, but we saw no pay-for-delay agreements because drug companies assumed they violated antitrust law. But, these settlements became all too prevalent following three courts of appeals decisions in 2005 which effectively found them to be per se legal and prevented the FTC from taking action on behalf of consumers against these settlements.
In the 2 years following these 2005 court decisions, 28 out of 61 patent settlements had provisions in which the brand name drug company made payments to the generic manufacturer in exchange for the generic manufacturer agreeing to delay entry of generic competition. Clearly, pay-for-delay agreements are not necessary to settle a case because during that same time, 33 cases settled without delaying entry to consumers in exchange for a payment.
Last fall, the FTC released a report which found a record 19 pay-for-delay settlements in fiscal year 2009, the highest ever recorded in a single year. This report convincingly demonstrates the danger these deals pose to consumers. Each of these deals will lead to higher drug costs for millions of consumers. Each of these deals cost the Federal Government large sums in taxpayer money in higher drug reimbursement costs. Each of these deals deprive consumers of needed drug competition. The time for action to stop these anti-consumer, anticompetitive back room deals is now.
Our legislation passed the Judiciary Committee last Congress with a strong bipartisan majority. The Judiciary Committee made several changes to the legislation as it is was introduced in the 111th Congress, and the legislation I am introducing today includes all of these changes. I believe the current version of this legislation represents a well balanced approach to this problem. Under my bill, these settlement agreements will be presumed to be illegal. However, the FTC will need to pursue legal action prior to these agreements being found illegal, and the drug companies will have an opportunity to convince the Judge why these agreement are not in fact anticompetitive. If found illegal, the FTC will have the authority to assess civil penalties up to three times the profits gained by the drug companies.
I believe this measure strikes the right balance. By presuming these agreements to be illegal, and armed with strong civil penalties, this bill will deter drug companies from entering into anti-competitive and anti-consumer ``pay-for-delay'' settlements in the first place. By giving the drug companies a hearing before a neutral tribunal, the drug companies will have their day in court to go forward with those agreements which truly do not harm competition.
The evidence is clear. These ``pay-for-delay'' agreements between brand name and generic drug companies deny consumers the benefits of generic drug competition and costs consumers and the Federal Government billions of dollars. My legislation will give the FTC strong remedies to prevent these agreements when it concludes they harm competition. Millions and millions of Americans that struggle to pay their prescription drug costs and who need low priced generic alternatives are awaiting action on this amendment. I urge my colleagues support for the Preserve Access to Affordable Generics Act.
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