Solvay - AndroGel: the "pay for delay" scam

Solvay Pharmaceuticals is understandably pleased with AndroGel, the synthetic testosterone gel it developed in 2003. Not only does the drug bring in more than $400 million a year in sales to AIDS patients, cancer patients, elderly men and others who suffer from low levels of testosterone, but the company was granted a 17-year patent, which bars competitors from entering the market with a generic version until 2020. Unless, that is, the patent can be successfully challenged. Which is exactly what three drug makers tried to do. In applications to the Food and Drug Administration, Watson Pharmaceuticals, Par Pharmaceuticals and Paddock Laboratories argued that Solvay's patent wasn't valid and that, in any case, they could manufacture generic versions of AndroGel without infringing it.

Needless to say, Solvay was dismayed by the threat to its $400-million revenue stream. So it made a deal that has become all too common in recent years: It took its competitors aside and offered a compromise under which the companies would agree not to market a generic version for another nine years -- in return for a share of Solvay's monopoly profits.

Hooray for negotiation! Everyone's a winner!

Except, of course, the consumer. By holding generics off the market until 2015, the deal keeps prices high. When generics become available, prices can drop as much as 80% to 90%. So Solvay's gain was the consumer's loss.

Last week, the Federal Trade Commission and the California attorney general filed suit in federal court, calling the deal illegal and anti-competitive. They said the companies had chosen to "collude rather than compete." The commission also noted that Solvay's "pay for delay" deal is far from unusual. Nearly half of all agreements between generics and brand-name manufacturers in 2006 and 2007 included payments in return for staying out of the market.

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