Sneaky Ways to Raise Drug Profits


Two devious tactics by manufacturers of brand-name drugs to delay competition from cheaper generic drugs were appropriately slapped down recently by federal and state officials. That should help consumers, insurers and anyone else who foots the bill for prescription medicines. Generic copies, which can enter the market when patents on a brand-name drug expire, typically cost much less than branded versions and are just as safe and effective.

One tactic involves buying off the competition. According to the Federal Trade Commission, the pharmaceutical company Cephalon, which makes Provigil, a drug used to treat sleep disorders, sued four generic drug makers in 2005-2006 for patent infringement and later paid them more than $300 million collectively to drop their challenges to Provigil’s patents and to stop selling their generics for six years, until April 2012.

In a twist, one of the four companies paid off by Cephalon was Teva Pharmaceutical Industries, based in Israel, which later bought Cephalon and now has to answer for Cephalon’s improper scheme. On May 28, the F.T.C. announced that Teva had agreed to settle a lawsuit filed by the government for $1.2 billion, the largest amount ever secured by the agency. That’s probably less than what Teva might have had to pay if the case went to trial as scheduled on June 1, but it might deter other companies from trying to buy off the competition.

The other tactic that suffered a setback, at least temporarily, is known as “forced switching” or “product hopping.” The attorney general of New York, Eric Schneiderman, won a preliminary injunction to stop the drug company Actavis and its subsidiary Forest Laboratories from withdrawing an older version of Namenda, a drug to treat moderate-to-severe Alzheimer’s disease with a patent that expires in July, and replacing it with a newer version covered by a patent that would extend until 2029.

The primary difference between the two is that the older version, which releases the active ingredient immediately into the bloodstream, has to be taken twice a day, while the newer version, which releases the same active ingredient gradually, is taken once a day.

In this case, the defendant companies brought the new extended-release version to market in 2013 and spent heavily to persuade doctors and patients to change from the older version to the new. In 2014, concerned that people weren’t switching fast enough, they announced plans to withdraw the old version well before its generic competitors could enter the market, a step that would force most patients to switch to the newer version, which has a different dosage strength. Pharmacists cannot substitute generics of the old, discontinued version for the new version because most, if not all, state laws allow drug substitution only if the dosage strength and other characteristics remain the same.

These two examples of how drug manufacturers can manipulate the market show the importance of vigilant oversight by the F.T.C. and state attorneys general.