What's stalling generic drugs?

Low-cost generic drugs aren't making it to the marketplace as early as they could. In many cases, that's because manufacturers of brand-name prescription medications have agreed to pay makers of generics to delay their introduction, according to a Federal Trade Commission analysis of drug patent settlements. As a result, consumers may be overpaying billions of dollars for medications.

"It's becoming the new way of doing business," says Jon Leibowitz, a commissioner at the FTC. Nearly half of all patent settlements between the makers of brand-name drugs and generic equivalents—28 out of 61 in fiscal years 2006 and 2007—include some type of payment to the generic, he says, and the generic's agreement to stay out of the market. "Some of them are presumably pay-for-delay settlements, some of them are wholly innocent, and some of them probably fall in between," Leibowitz said. "All require commission review."

In the latest settlement that raised eyebrows at the FTC, Solvay Pharmaceuticals, the maker of AndroGel, a top-selling prescription testosterone-replacement drug, agreed to pay generic drug makers Watson Pharmaceuticals, Par Pharmaceutical Companies, and its partner Paddock Laboratories to abandon their patent challenges and delay generic competition until August 2015, the FTC and the State of California allege in a complaint lodged Jan. 27 in U.S. District Court for the Central District of California. The complaint further alleges that agreements dating back to 2006 were "anticompetitive, unlawful, and unfair." In written statements, Solvay, Watson, and Par defend their settlements and agreements as lawful or court-approved; Paddock had no comment on the case.

Now, legislators are weighing in on so-called "pay-for-delay" settlements. On Feb. 3, senior Senate Judiciary Committee members Herb Kohl (D-Wisconsin) and Chuck Grassley (R-Iowa) unveiled legislation known as the Preserve Access to Affordable Generics Act that would prohibit brand-name drug companies from compensating generic drug companies to delay the entry of a generic drug into the market.

The Pharmaceutical Research and Manufacturers of America (PhRMA), which represents brand-name pharmaceutical research and biotechnology companies, says "legislation imposing a blanket ban" on such patent settlements could "reduce incentives for future innovation of new medicines." PhRMA and the Generic Pharmaceutical Association, an industry group based in Arlington, Va., both say that a sweeping ban is unnecessary because the FTC and the Justice Department already have the authority to review and evaluate any patent settlement agreement on a case-by-case basis to ensure that they are not harmful to competition.

Consumers Union, non-profit publisher of Consumer Reports, endorses the legislation. CU has long advocated the use of generics, which can cost up to 80 percent less than their brand-name versions and save consumers an estimated $8 billion to $10 billion a year.

CR's Take. If you or a family member take a prescription medication, check out our free CR Best Buy Drugs reports to find out whether generics are more cost-effective for treating your ailment. And whenever possible, talk with your doctor about your prescription as it's being written. Ask whether the prescription is for a brand-name or generic drug and why the doctor has prescribed one or the other. It makes sense to let the doctor know that you would prefer the less-expensive generic choice, given that safety and effectiveness are equivalent.

—Doug Podolsky, senior editor

Read more on saving money on prescription drugs, and see our Health-Care Savings Series for more ways to cut costs, without cutting care.