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Game theory in the popular press.

FTC Files Drug Co. Complaint

Brian Ross and Jill Rackmill
March 16, 2002
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Companies Allegedly Conspired to Keep Generic Drug Off Market

Allegations first reported by ABCNEWS’ 20/20 that a pharmaceutical giant offered competitors multimillion dollar payments to keep a generic drug off the market led to federal action today.
     The Federal Trade Commission filed a complaint against pharmaceutical giant Hoechst Marion Roussel, Inc., since bought by Aventis, and the Florida-based Andrx Corp, alleging the firms stifled market competition by agreeing to delay the release of a cheap generic heart drug.
     “These types of agreements have the potential to cost consumers hundreds of millions of dollars each year,” said Richard Parker, the director of the FTC’s Bureau of Competition.
     The FTC’s complaint alleges that Hoechst paid Andrx millions of dollars to not market a competing version of a Hoechst heart drug known as Cardizem CD, used by millions of Americans to treat hypertension and other heart problems.
     Andrx had developed a cheaper version of Cardizem CD but, according to the FTC, agreed to keep it off the market in exchange for payments of $40 million per year from Hoechst.
     The FTC also announced a proposed settlement with Abbott Laboratories and Geneva Pharmaceuticals, resolving similar charges that Abbot had paid Geneva $4.5 million a month to keep a Geneva generic of Abbott’s drug Hytrin off the shelves.

Tale of Two Companies

Today’s FTC complaint against Hoechst comes seven months after ABCNEWS’ 20/20 first reported allegations that the German drug giant had also offered to pay Biovail International Corporation, a Canadian pharmaceutical company, at least $20 million to delay launching its generic version of Cardizem CD.
     The agreements between the pharmaceutical firms are significant because under federal law, the first maker of a generic drug has the exclusive right to market the drug for 180 days. No other generic manufacturer can seek approval to market the drug until after the 180 days expire.
     According to the FTC, the agreement between Hoechst and Andrx created a “bottleneck” that prevented any other potential competitors from entering the market behind Andrx.
     In this case, the next company in line was Biovail, which told ABCNEWS last summer that Hoechst had made them an offer similar to the one Andrx accepted.
     Calling the Hoechst offer in effect a bribe, Biovail president Eugene Melynk told ABCNEWS that Hoechst wanted to protect its brand-name product at any cost.
     “I’ve been in this business for over 20 years, and I’ve never heard of somebody coming into an agreement and saying, ‘I will pay you tens of millions of dollars, just don’t come to market with your product,’” Melnyk said.
     The offer came, Melnyk said, at a meeting at Biovail’s Toronto headquarters on a Sunday afternoon in August 1997.
     “I was called on Friday by a senior officer of Hoechst, indicating that he wanted to urgently meet with me,” said Ken Cancellara, Biovail’s senior vice president and general counsel.
     Hoechst denies calling the meeting, but it did take place, with Hoechst represented by Ed Stratemeir, the German company’s general counsel in the United States. Hoechst said the discussion with Biovail was simply an attempt to settle a threatened lawsuit.
     Biovail says it turned down Hoechst’s offer. Then, according to Cancellara, Hoechst reneged on a promise to provide Biovail with background testing data it needed to pursue federal approval of its generic drug. “Without that data, there was no way we could have received approval,” Cancellara said.
     Biovail filed suit in U.S. District Court in 1998, claiming that Hoechst had violated the Sherman Act in its attempt to create a monopoly in restraint of fair trade. That suit is scheduled for trial next year.
     When ABCNEWS caught up with Hoechst’s Stratemeir last year, he refused to discuss Biovail’s claims, saying that Hoechst did not discuss pending litigation.

Agreement to Delay Sales?

But it is Hoechst’s relationship with Andrx that is at the heart of today’s FTC announcement. In September 1997, the two companies signed an deal in which Andrx allegedly agreed to delay selling its cheaper, generic version of Cardizem CD in exchange for payments of $40 million a year.
     In 1996, Hoechst, the initial developer of Cardizem CD, had filed a patent infringement claim against Andrx, which was preparing a generic version of the heart drug. Hoechst and Andrx claim that their 1997 deal was intended to give both companies financial protection while they battled out the patent infringement case in court.
     Elliot Hahn, the president of Andrx, did not deny having received money from Hoechst but told ABCNEWS that it was in no way an illegal payoff.
     And in a letter to ABCNEWS, Hoechst said the millions paid to Andrx were entirely appropriate “to maintain the integrity of the Cardizem CD patent.”

Consumers Hardest Hit

Either way, experts say that the deals like the one between Hoechst and Andrx hurt the pocketbooks of the millions of American consumers who rely on prescription drugs.
     “They’re doing what’s best for their shareholders, but not what’s best for the American public,” said Dr. Stephen Shondelmeyer, a professor who specializes in health care economics at the University of Minnesota. “We’ve paid more than we would have had to pay.”
     Andrx released its drug in June 1999, and today, according to industry analysts, the Andrx version of Cardizam CD has 60 percent of the market for new prescriptions as compared to Aventis’ 31 percent.
     As for Biovail, the company eventually released its generic version of Cardizem CD in December 1999.

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