Senate bill seeks to ban generic payoffs

Judiciary Committee to consider bill blocking payments by big drug companies to keep drugs off the market.

By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The Senate Judiciary Committee will consider a bill to get rid of Big Pharma's payoffs to generic drugmakers that keep their low-cost drugs off the market, according to the committee chairman.

"A drug company will actually pay a generic [company] not to put a drug on the market so they can keep drug prices high," said the committee chairman, Sen. Patrick Leahy, D-Vt., at a hearing Wednesday.

Leahy said Big Pharma was "driven by greed."

Committee member Sen. Herbert Kohl, D-Wis., said the bill "will end anti-competitive abuse" and "end payoffs between brand-name competitors and generics."

Kohl said that these payments - some of them in the hundreds of millions of dollars - are eclipsed by the Big Pharma savings that result from eliminating generic competition. To illustrate the impact of this bill on consumers, Kohl said that even a one percent increase in generic drug use would save Americans some $4 billion in annual healthcare costs.

The bill has bipartisan support. Sen. Charles Grassley, R-Iowa, a committee member, is one of the bill's co-authors.

The bulk of sales for many drug companies come from name-brand drugs that are protected by patents. When the patents expire on drugs, generic competitors are permitted to produce low-cost versions of them. This can drive down drug prices and revenue by 80 percent in the six months following patent expiration.

Name-brand drug companies and generic companies often battle over the validity of patents in court. Sometimes this results in the name-brand company paying a settlement to the generic company to keep its product off the market.

But Bill Tauzin, chief executive of PhRMA, an organization that represents the drug industry, said that some of the settlements result in getting generic drugs on the market before the patents expire. Tauzin urged the committee members to use discretion before they eliminate these types of settlements.

"I ask you please not to shoot the good, while you're trying to kill the bad and the ugly," said Tauzin, at the hearing. "You ought not to sweep away the good settlements that work to bring generics sooner to the marketplace."

Pfizer (up $0.10 to $26.87, Charts) is the biggest drug company in the world, followed in the U.S. by Johnson & Johnson (up $0.49 to $67.03, Charts), Abbott Laboratories (up $0.46 to $51.07, Charts) and Merck (up $0.03 to $44.98, Charts). Abbott produces generics as well as name-brand drugs.

The biggest generic drugmaker in the world is Teva Pharmaceuticals (up $0.06 to $32.96, Charts), based in Israel.

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.