Copyright 2000 The New York Times Company
The New
York Times
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July 23, 2000, Sunday, Late Edition - Final
SECTION: Section 1; Page 1; Column
4; National Desk
LENGTH: 5409 words
HEADLINE: Keeping Down the Competition;
How
Companies Stall Generics And Keep Themselves Healthy
SERIES: MEDICINE MERCHANTS/Holding Down the Competition
BYLINE: By SHERYL GAY STOLBERG and JEFF
GERTH
DATELINE: WASHINGTON
BODY:
The stakes were high on Feb. 2, 1998, when
Zenith Goldline Pharmaceuticals and Abbott Laboratories squared off here in
patent court. For three years, the companies had been fighting about whether
Zenith could market a generic version of Hytrin, Abbott's $500-million-a-year
drug for high blood pressure and prostate enlargement. Now a federal appeals
judge would hear them out.
"Abbott makes a million dollars a day for
every day it keeps us off the market," Bill Mentlik, Zenith's lawyer, argued in
court. Without a cheaper generic, he warned, "the public is losing."
That argument, though, would soon give way to more businesslike
concerns. When the courtroom oratory ended, the two sides headed to the elegant
Hay-Adams Hotel, a block from the White House, for a private lunch.
After small talk about the weather and golf, Zenith's lawyers proposed
an end to the legal wrangles: They could become partners in an introduction of a
generic drug. Abbott's lawyer, Kenneth Greisman, declined, court records show.
His company, he said, preferred "a straight numbers deal."
The deal was
sealed on March 31, 1998: Abbott would pay Zenith as much as $2 million a month
not to produce its generic, up to a maximum of $42 million. The next day, Abbott
agreed to pay another rival, Geneva Pharmaceuticals, even more: $4.5 million a
month, as much as $101 million over the life of the contract.
And so it
was not until August 1999 -- when Geneva and Abbott, facing an antitrust
investigation, scuttled their agreement -- that Hytrin's generic equivalent,
terazosin, finally made its market debut.
That is not what Congress
envisioned in 1984 when it passed a law intended to keep drug prices down by
speeding up the entry of generic drugs. The Drug Price Competition and Patent
Term Restoration Act was intended to foster competition between brand and
generic companies, and it has. It was not supposed to prompt rivals to join
hands in keeping drugs off the market.
"The law has been turned on its
head," said one of its authors, Representative Henry A. Waxman,
Democrat of California. Referring to Hytrin, he said, "We were trying to
encourage more generics and through different business arrangements, the reverse
has happened."
The law was intended to help people like Ewald
Grosskrueger, an 80-year-old retired barn builder from rural Wisconsin. By the
time the generic version of Hytrin became available, he had been taking the
brand-name treatment for more than a year.
At $52 a month -- the generic
version costs $23 -- Hytrin is hardly the most expensive prescription drug on
the market. But it was the most expensive in Mr. Grosskrueger's medicine
cabinet. He and his 81-year-old wife, Lavera, take six prescription drugs
between them, and they are among nearly one-third of elderly Americans who have
no insurance to cover the cost.
The Grosskruegers make ends meet the way
sturdy, old-fashioned farm couples always have: by growing their own fruits and
vegetables, burning wood for fuel in the winter, clipping grocery coupons. Even
after a stroke, Mr. Grosskrueger still mows the lawn twice a week. "The
medication is so very expensive," Mrs. Grosskrueger said. "It's a problem, being
on a retirement income."
The Grosskruegers, now plaintiffs in a lawsuit
against Abbott, had little idea of the company's behind-the-scenes negotiations.
But the deals Abbott struck are hardly unique. Rather, they are part of an
increasingly aggressive effort by the industry to fend off one of its biggest
threats: competition from generics, which in the next five years could eat away
at tens of billions of dollars in sales from brand drugs whose patents are about
to expire.
To shed light on this trend, The New York Times examined
hundreds of pages of court records and other public documents in Washington and
various states, and interviewed regulators and drug company executives, with a
particular focus on Hytrin. The review showed how efforts to extend a profitable
drug's monopoly, as much as the pursuit of scientific discoveries, drive
decisions in one of the world's most lucrative, and secretive, industries.
The Hytrin deal has spawned 13 private antitrust lawsuits against
Abbott, including the Grosskruegers' and others filed by health maintenance
organizations, pharmacies and drug wholesalers. Company officials, citing the
suits, declined to be interviewed. But records show Abbott worked hard to beat
back Hytrin generics.
It filed numerous additional patents on the drug's
key ingredient, terazosin. It improperly listed a Hytrin patent in the Food and
Drug Administration's registry, according to a federal appeals court; the move
would have extended Hytrin's patent life had the court not ordered the patent
struck from the registry. Abbott also filed lawsuits against five generic drug
manufacturers, and countersued a sixth.
No judge ever ruled in Abbott's
favor, but the maneuvering kept the company's monopoly on Hytrin alive for four
years after a patent on the key ingredient ran out. During that time, Abbott's
Hytrin revenues totaled roughly $2 billion -- most of it pure profit.
The legal fight to protect Hytrin culminated with the 1998 cash
payments. No one knows how many similar deals between drug makers and their
generic rivals exist; experts say most are kept confidential.
But other
agreements have recently come to light through government investigations and
private lawsuits; they involve tamoxifen, the breast cancer drug; Cardizem CD, a
heart medication; K-Dur, a potassium supplement, and Cipro, an antibiotic. And
these deals, like the Hytrin case, are causing consternation among judges and
regulators, legislators like Mr. Waxman and Vice President Al
Gore, who said in a recent interview that such agreements "perpetrate a fraud on
the American people by denying them the benefits of competition."
The
Federal Trade Commission is taking a hard look; in March, it accused Abbott and
Geneva (but not Zenith) of violating antitrust laws. The companies defend their
agreement as proper, but signed a settlement with the F.T.C. agreeing not to
make any other similar deals. The settlement was the first of its kind for the
F.T.C.; the agency warned that companies might not be treated so lightly in the
future.
Last month, a federal judge declared the Cardizem agreement an
illegal restraint of trade; in that case, a brand company, Hoechst Marion
Roussel, paid a generic competitor, Andrx Pharmaceuticals, $90 million not to
market a generic alternative. The companies have denied wrongdoing.
The
F.D.A. is also stepping in. The agency, concerned that deals like the one
covering Hytrin may be costing the public millions of dollars in higher drug
prices, is pressing for new rules to discourage them -- rules that trade groups
for both brand and generic drug makers oppose.
These regulatory moves
come in the middle of one of the election season's most closely watched debates:
the dispute in Congress about whether to expand Medicare to cover prescription
drugs. Republicans and Democrats are bickering over the size and shape of the
benefit, which might cost taxpayers more than $200 billion in the next decade,
but both sides assume generics will save money. Yet little attention has been
paid to how delays in generic competition are driving up drug costs.
"Generics have saved the American consumer billions and billions of
dollars," said Roger L. Williams, who once ran the F.D.A.'s office of generic
drugs and is now chief executive of the U.S. Pharmacopeia, a nonprofit
standards-setting organization. "In an era of soaring costs, and perhaps a
prescription drug benefit for Medicare, you are going to have to have good
generics or else your system will sink."
A Well-Timed Creation
The invention of Hytrin, roughly 20 years ago, could not have come
at a better time for Abbott Laboratories, a company with $13 billion in sales --
nearly $4 billion coming from its prescription drugs division -- that is among
the most profitable in the nation.
Abbott has long prided itself on research
and development, dating to the days of the company's founder, Dr. Wallace C.
Abbott, who tinkered with pill-making in his apartment on Chicago's North Side a
century ago. But by the early 1980's, when Abbott sought F.D.A. approval to sell
Hytrin to treat high blood pressure, the company was at a tail end of a long dry
spell.
"Nothing new had come out of Abbott pharmaceutical research in
over 20 years, until Hytrin came along," said Nelson Levy, then the company's
director of research and development.
Hytrin itself was hardly a
breakthrough. Dr. Levy said Abbott's chemists "basically knocked off" an
existing hypertension medicine, changing a few molecules to turn prazosin, a
Pfizer drug, into terazosin, a patentable compound that would later take the
brand name Hytrin. Hytrin did, however, have a therapeutic advantage: it was
given only once a day while prazosin had to be taken twice.
In the drug
business, such "copycats" are not uncommon. The Pharmaceutical Research and
Manufacturers Association of America, the industry trade group, argues that its
members spend, on average, $500 million on research for every new drug -- thus
justifying their prices. But many of today's medicines are, in industry
parlance, "me-too" drugs. In 1997, according to the Boston Consulting Group,
which provides advice to the industry, 42 of the 100 top-selling medicines were
me-too drugs.
Still, the differences between the Abbott and Pfizer drugs
were significant enough for the United States Patent and Trademark Office to
issue a series of patents on terazosin, the first on May 31, 1977.
When
terazosin was invented, patents lasted for 17 years from the date they were
awarded; under current federal law, the term is 20 years from the date the
application is filed. Then and now, though, the challenge for the drug industry
is to maximize the time its commercial product is protected by a patent.
That would become a problem for Abbott. The F.D.A. did not approve
Hytrin for high blood pressure until 1987, 10 years into the life of the
original terazosin patent. And it was not until 1993 that the agency gave Abbott
permission to market Hytrin for its most lucrative purpose, the treatment of
enlarged prostate, a condition that affects at least half of all men older than
60.
By 1995, Hytrin had become a huge hit; the drug generated annual
sales of more than $500 million, accounting for a fifth of Abbott's drug
revenue. But a key patent for terazosin was due to expire that year, and
generics were already lining up to compete.
Abbott, though, was
prepared. The company had already filed requests for six so-called secondary
patents on its compound, covering particular crystalline forms of the drug, its
manufacturing method and a special formula to release the medication in a
steady, time-delayed dose.
The idea was to lay the groundwork for future
patent infringement lawsuits against generic companies -- suits that could keep
rivals off the market, or at least delay them.
In this, Abbott was
hardly alone. Most drug makers would react the same way, said Alex Zisson, an
analyst with Chase H & Q; some have gone so far as to patent the color of
the pill, or the shape of the bottle the drug comes in.
"Big drug
companies are becoming much more aggressive in trying to use secondary patents
to delay generics," Mr. Zisson said. "They're patenting everything they can
think of, just because the stakes are so high."
A Bid to Unleash
Competition
Just two decades ago, companies like Abbott rarely had
to worry about generic competition. That changed in 1984, when Congress passed
the Drug Price Competition and Patent Term Restoration Act.
The
legislation, now known as Hatch-Waxman after its sponsors,
Senator Orrin G. Hatch, Republican of Utah, and Representative
Waxman, was a balancing act. It came on the heels of a failed
attempt by the pharmaceutical industry to persuade Congress to extend the patent
life of brand-name drugs.
On the one hand, the law gave the brand
companies the patent extensions they coveted -- a move that would, in essence,
delay generic competition. On the other hand, it eased the regulatory burden on
the generics.
Instead of running costly clinical trials to prove their
drugs' effectiveness, generic companies would now only have to prove
"bioequivalence," that is, that their drugs contained the same key ingredients
as the brand, and worked the same way.
The law also offered the generics
a bounty: a 180-day competition-free period -- in essence, a six-month monopoly
-- for the first generic drug maker to seek approval for a particular medicine.
For a small generic company, that could mean big dollars. When Geneva finally
began selling terazosin, court records show, it earned as much as $11 million a
month from the drug, a tidy sum for a company whose total sales in 1997 were
about $25 million a month.
At the same time, the law rewarded the brand
companies by giving them patent extensions of up to five years. And there was
another, little-noticed benefit for the brands that would also push back the
clock on generic competition: once a generic company had requested F.D.A.
approval, the brand company could sue for patent infringement, and the F.D.A.
was prohibited from making a decision for 30 months while the courts weighed the
issue.
When the law took effect, the generic industry took off, flooding
the F.D.A. with approval requests: 800 applications in the first seven months.
Then the lawsuits began.
At the center of some of the earliest
skirmishes was Albert B. Engelberg, a lawyer and lobbyist who helped write
Hatch-Waxman and represented generics manufacturers. In 1988,
in one of his first cases, he hit the jackpot.
The case involved a
popular muscle relaxant, Flexeril, by Merck & Company. Mr. Engelberg
recalled that a judge ruled in his favor, enabling his client, a division of
Schein Pharmaceuticals, to sell a generic. His fee, a cut of the profits, was
$75 million. It was an "unexpected bonanza," he said.
The victory
changed the legal dynamic surrounding Hatch-Waxman, Mr.
Engelberg said. Not long after, he said, a brand-name drug company offered to
settle a case by giving his client cash payments to stay off the market, a
tactic similar to the one Abbott would later try with Hytrin. The settlement was
kept secret, and Mr. Engelberg would not disclose details. But he said the
concept caught him by surprise.
"It never occurred to me that you could
settle a case by paying one of your opponents," he said.
Hatch-Waxman, he said, was supposed to give generic
companies an incentive to compete, not to take money in exchange for not
competing. "It's the evolution," he complained, "of greed versus need."
Now,
a decade later, such deals are only starting to come to light. In March,
protracted delays in marketing a cheaper alternative for tamoxifen, the breast
cancer drug made by AstraZeneca, prompted sharp criticism from Federal District
Judge Ricardo M. Urbina for the District of Columbia, who said he found the
situation absurd.
"Hatch-Waxman," Judge Urbina wrote,
"intended to provide an incentive for drug companies to explore new drugs, not a
market 'windfall' for crafty, albeit industrious market players."
Expectations of Big Sales
Like Abbott, Geneva was stuck in a dry
spell when it sought F.D.A. permission to market its generic version of
terazosin. The company, based in Broomfield, Colo., at the foot of the Rocky
Mountains, had not introduced a significant new product in years. Hytrin, said
Charles T. Lay, the company's former president and chief executive, looked like
a good bet.
"It was a $500 million seller," Mr. Lay said in a recent
interview. "That was certainly attractive."
With 800 employees, Geneva is a
relatively small company. But it has a big parent: Novartis A.G., the Swiss
health and agricultural conglomerate, a company nearly twice the size of Abbott.
A number of brand-name drug makers have entered the generic business, only to
abandon it later. Not so Novartis. Mr. Lay said the parent company's secret was
simple: "They pretty much left us alone."
Terazosin would prove an exception
to that rule.
Geneva set its sights on a Hytrin alternative as early as
1990, court records show. On Jan. 12, 1993, the company became the first generic
maker to file with the F.D.A., angling for the coveted six-month period of
exclusivity, according to the terms of Hatch-Waxman. Eighteen
months later, Zenith Goldline Pharmaceuticals filed similar plans. Eventually,
four other companies would do the same.
Abbott responded as the drafters
of Hatch-Waxman envisioned: it sued. But for all its
litigiousness, the big drug company made a crucial misstep. In filing patent
infringement claims against Geneva, Abbott's in-house lawyers sought to block
only a tablet version of Hytrin, neglecting the generic maker's plans for a
terazosin capsule, the most popular form of Hytrin.
Later, Abbott's
outside counsel, Jeffrey I. Weinberger, would be called upon to explain the
omission to Federal District Judge Patricia Seitz in Miami. It was, he said, "a
botch-up" that the company did not discover until two years later, when Geneva
received F.D.A. approval for terazosin.
The omission was important
because it meant Geneva would not be tied up in litigation about the capsule
when the F.D.A. decided. But it did not leave Geneva completely free of legal
liability; Abbott could still sue for patent infringement once the generic
capsules came to market.
By early 1998, according to Mr. Lay, the former
Geneva president, and F.T.C. documents, Geneva was going ahead with plans to
make and market a generic Hytrin. On Feb. 2 of that year -- the same day lawyers
for Zenith and Abbott met for lunch at the Hay-Adams in Washington -- those
plans were on the agenda at Geneva's board meeting in Boca Raton, Fla.
Mr. Lay was gung-ho. He wanted to introduce the generic as soon as the
F.D.A. granted approval. "I was convinced," he said, "that we had as strong a
case as you could want, and that we would not lose in the courts."
But the
board's new chairman, Jerry Karabelas, the head of the pharmaceutical sector for
Novartis, took a different view. Mr. Karabelas was new at Novartis; he had
arrived just six weeks before. As an experienced American drug executive, he
said, he believed that marketing the terazosin capsules was risky.
With
Abbott still suing Geneva over the tablet, Mr. Karabelas worried that a loss in
court could throw its subsidiary, Geneva, into a financial tailspin, costing
$100 million or more -- money that, in the end, Novartis might have had to pay.
"Nobody," he said, "can absorb that kind of loss."
In the end, Mr. Karabelas
prevailed. "I was overruled," Mr. Lay said.
An Alternative to
Selling
On March 30, 1998, Geneva got what it wanted: F.D.A.
approval. While the lawsuits about the tablet were continuing, the 30-month
waiting period required by Hatch-Waxman had expired, clearing
the way for the agency to make a decision. Geneva, being first in line, was well
positioned to go to market. But, records show, company officials responded not
by shipping the drug, but by calling Abbott that same day, to inform their
counterparts of their intention to go to market -- unless they were paid not to.
Jeremiah McIntyre, Geneva's general counsel, placed the call to Mr.
Greisman, a senior lawyer for Abbott. Mr. Greisman, through an Abbott
spokeswoman, declined to be interviewed. Mr. McIntyre declined to discuss
details, except to say what he has since said in court: the demand was a bluff,
because Geneva was not yet ready to go to market, because of technical problems
manufacturing the drug.
Bluff or not, F.T.C. documents and court
records, including Mr. Greisman's notes of the conversations, show the
nitty-gritty calculations that both sides relied on during two days of phone
discussions between the two lawyers and other company executives.
Mr.
Greisman was a day away from closing his "straight numbers deal" in which Abbott
would pay the other generic rival, Zenith Goldline, as much as $2 million a
month not to market its version of terazosin. In that deal, Zenith would settle
its lawsuit with Abbott by agreeing not to contest the validity of the Hytrin
patent. But the settlement would let Zenith enter the market for terazosin if
another generic did.
Knowing that, Mr. Greisman was inclined to listen
to Geneva's pitch, because Geneva held the rights to 180-day exclusivity. Thus,
Geneva could block other generics, including Zenith, from coming to market
simply by not introducing its own product.
And now, for the first time,
Mr. Greisman was learning that his and Abbott's negotiating position was even
weaker than he had thought, because Abbott had neglected to sue over the
terazosin capsule. It was "a total surprise and shock," Abbott's outside lawyer,
Mr. Weinberger, would later say in court, explaining that the company was
willing to pay because Geneva had such powerful negotiating leverage.
For both companies, the negotiations hinged on the bottom line: How much
would Geneva lose if it stayed out of the terazosin market, and how much would
Abbott lose if Geneva entered?
Generic competition would drastically reduce
Hytrin's profits. A recent study of 30 top-selling drugs in the last decade
found that generic competition would eventually reduce their prices by 60
percent to 70 percent.
That is consistent with Abbott's internal
projections about Hytrin; the company forecast losing 70 percent of its market
to generics, or $185 million, in just six months.
Geneva, meanwhile,
regarded terazosin as its own blockbuster, forecasting $84 million in profits
before taxes from the drug during the first year of sales.
So when the
talks began that day, March 30, 1998, Geneva threw out an opening bid: $7
million a month. Too high, Abbott said. It had its own projections of Geneva's
earnings, suggesting the company would bring in no more than $1.5 million a
month from terasozin, because Geneva would not always have the generic market to
itself.
Even so, Arthur Higgins, the president of Abbott's
pharmaceuticals products division, was prepared to be generous. When
negotiations resumed the next day, March 31, he told Geneva officials that
Abbott was willing to pay "a premium in the range of $2 million to $3 million a
month."
That offer would later raise the eyebrows of federal antitrust
investigators, who viewed the large payments as evidence of restraint of trade.
"It certainly bore no relationship to the money that Geneva could have made if
they entered the market," the F.T.C. chairman, Robert J. Pitofsky, said
recently.
For the next several hours, the two companies haggled over the
monthly fee. At 1:45 p.m., Chicago time, they settled on $4.5 million. "4.5
works!" Mr. Greisman wrote in his notes.
The courts were never told;
there was no need for it, because Geneva, unlike Zenith, was not settling its
case. Under terms of the deal, Abbott would pay Geneva until the Supreme Court
reached a decision in the Hytrin case, or February 2000, when a Hytrin patent
was to expire -- whichever came sooner. During the life of the contract,
Abbott's payments to Geneva would exceed $101 million. If Geneva won the suit,
its right to come to market would be preserved.
In Switzerland, Mr.
Karabelas, the Novartis official who beat back Mr. Lay's efforts to go to
market, learned of the deal, and sent Mr. Lay a congratulatory note. Mr. Lay
himself was apparently satisfied. When the deal was signed, according to the
F.T.C., he proclaimed it "the best of all worlds."
Wall Street was
delighted. On April 1, 1998, Abbott put out a release on both deals, announcing
"agreements on Hytrin patent litigation," but omitting details. The news lifted
Abbott's stock by about 5 percent, and prompted several analysts to issue "buy"
recommendations for Abbott shares.
"Despite being off patent since 1995,
Hytrin ($519 million in 1997 United States sales) continues to enjoy market
exclusivity through successful litigation," Hambrecht & Quist, the precursor
to Chase H & Q, told investors in a report written by Mr. Zisson, a week
after Abbott's announcement. It added that "Two settlements last week hold the
two leading contenders at bay."
The Effect of a High Price
The good news for Wall Street was bad news on Main Street, where
customers without health insurance were paying full freight for Hytrin. Among
them were Ewald and Lavera Grosskrueger.
For all but one of their 54 married
years, the Grosskruegers have lived in the same house in Loganville, Wis., a
picturesque town of 228 people and countless big red barns, a bank, a gas
station, a cafe and no stoplight. The nearest pharmacy is 12 miles away in
Reedsburg, but until June 1998, the Grosskruegers had little need for it.
A
car accident changed that. The Gross krueger's Buick was hit broadside; Mr.
Grosskrueger apparently suffered a slight heart attack. He spent a week in the
hospital, where doctors had trouble keeping his blood pressure under control.
They prescribed Hytrin; Mr. Grosskrueger was familiar with it, having taken the
bright red capsules once before to treat an enlarged prostate.
Even so,
Mr. Grosskrueger's health began to slide, culminating in a stroke that October.
Today, husband and wife both require pills to regulate their blood sugar. He
takes a blood thinner, and medicine for gout. Of all the drugs, Hytrin cost the
most, slightly less than $60 a month at the Reedsburg pharmacy. The price is a
bit more than some city drug stores charge, which is typical, according to a
recent White House report that found that rural Americans often pay the most for
their prescription drugs.
Neither destitute nor wealthy, the Gross
kruegers are, like many elderly Americans, getting by with what they have. Their
income is fixed at $1,261 a month in Social Security payments and a small
pension from Mrs. Grosskrueger's 18-year career as a cook at the local
elementary school. Of that, more than a tenth, $148, goes toward prescription
medicines. It is an expense the couple has had trouble absorbing.
Help
arrived in the form of Trish Vandre, a benefits specialist for the Sauk County
Commission on Aging. Like an old-style circuit judge, Ms. Vandre travels the
little towns of Wisconsin's dairy country, working as a consumer advocate for
the elderly. More often than not these days, she said, the big problem is
prescription drug prices.
In July 1998, when Ms. Vandre was at the
village hall in Loganville, the Gross kruegers came out to meet her. She told
them they might qualify for help from the drug makers, which run patient
assistance programs for people who cannot afford their medicine. Typically,
companies provide the medication for a limited time, with patients making a
small co-payment to the pharmacist or no co-payment if the drug is sent directly
to the doctor.
Abbott runs such a program for Hytrin, but the
Grosskruegers, with their income of slightly more than $15,000 a year,
apparently earned too much to qualify. Instead, Abbott enrolled them in a rebate
plan that offered patients who buy a one-month supply of Hytrin a $10 check and
a $10 certificate toward the next purchase.
The arrangement irked Ms.
Vandre. "My client has to lay out the upfront money, which infuriates me," she
said. "A $60 medication and a $10 rebate is no great shakes."
The first
check came in December 1998. By this time, Mr. Grosskrueger had had his stroke,
and the medicine bills were mounting. His wife appreciated the assistance.
"Every little bit helps," she said.
It was not until nearly a year later
-- when Steve Meili, a lawyer from the nearby city of Madision, alerted Ms.
Vandre -- that the Grosskruegers learned of Abbott's deals with its generic
rivals. Mr. Meili was considering a lawsuit; Ms. Vandre told the Gross kruegers
to get in touch if they were interested. The usually taciturn Mrs. Gross krueger
summed up their reaction with startling bluntness. "We thought we got ripped
off," she said.
Mr. Meili now represents the Gross kruegers in their
lawsuit against Abbott and Geneva. The case, filed in October and seeking
certification as a class action, seeks damages for patients who bought Hytrin
when the generic was not available. It is pending before Judge Seitz in Miami,
who is also considering other Hytrin-related suits, filed mostly by pharmacies
and drug wholesalers, some of which have sued Geneva and Zenith as well.
The Grosskruegers were not the only ones feeling the pinch. As head of
drug purchasing for the Kaiser Foundation Health Plan in Oakland, Calif., one of
the country's largest health maintenance organizations, Dale Kramer was counting
on a Hytrin generic. Kaiser doctors prescribe about 2 percent of all
prescription drugs in the United States; to stock its 300 pharmacies, the H.M.O.
buys $1.5 billion a year in medicines. So Mr. Kramer keeps tabs on when patents
expire and when copycats can hit the market.
By 1997, Mr. Kramer said,
it was well known among health plan managers that Geneva and Zenith Goldline had
applied to the F.D.A. to sell terazosin. He called officials from both
companies, as he often does, and said that after those talks, he was "pretty
well convinced that someone would have the product in '98."
So convinced, in
fact, that when he submitted his 1998 budget to state regulators, he projected
$5 million in annual savings from a generic Hytrin. The company, a nonprofit
corporation, was held to that budget, Mr. Kramer said. In the end, he said, such
miscalculations inevitably led to higher premiums for patients. Abbott, he
complained, took "advantage of the situation" to extend its patents "at the
expense of individual consumers."
The Cost of Doing Business
In August 1999, Abbott lost its monopoly on Hytrin's market. Geneva
walked away from the deal, leaving $45 million on the table.
Mr. Lay had
already retired from Geneva. But, as he had predicted, the courts had ruled in
Geneva's favor. In September 1998, just six months after their deal was signed,
Geneva beat Abbott in federal district court. In July 1999, an appeals court
upheld that finding. And there was another complication: The F.T.C. was
investigating.
With the victories in the lower courts, Geneva could no
longer justify staying off the market. Now that the product was commercially
viable, Mr. Karabelas said, the company had an obligation "to do the right
thing."
Terazosin -- the long-awaited generic alternative to Hytrin -- hit
the marketplace on Aug. 13, 1999. That same day, Miles White, the chief
executive of Abbott, sent a note to his subordinates, notifying them of the
development.
Abbott had made the costly mistake of not suing Geneva, and
incurred the losses in court, as well as the decision by a panel of appeals
judges to strike one of its patents from the F.D.A. registry. Even so, in Mr.
White's view, all the company's legal maneuverings were a smashing success.
"I'd like to take this opportunity," Mr. White wrote, "to recognize the
truly outstanding work of our legal team, which successfully defended Hytrin's
patent protection against challenges for nearly four years. This has been one of
the most important contributions to Abbott's success in this decade."
Mr. Lay, not surprisingly, takes a different view. He is irritated at
the brand companies' penchant for filing what he calls "facetious lawsuits," and
said the litigation drives up the cost of developing a generic drug from an
average of $500,000 a decade ago to more than $5 million today. That, in turn,
raises the price of generics, he said.
"To the brand companies," Mr. Lay
complained, "throwing $10 million or $20 million in legal fees at a product is
chicken feed, so long as they can keep away generic competition."
As for
Ewald Grosskrueger, he switched to Geneva's generic terazosin last September, a
month after it came out. Ms. Vandre, the patient benefits specialist, had called
Abbott asking for another $10 certificate. The rebate program for Hytrin, she
was told, was over.
Medicine Merchants
Later articles
will continue this examination of marketing and business practices in the
pharmaceutical industry.
Articles in this series will remain available
at The New York Times on the Web:
www.nytimes.com/drugs
http://www.nytimes.com
GRAPHIC: Photo: Trish
Vandre, a benefits specialist in Wisconsin, steered Lavera and Ewald
Grosskrueger to a lawyer when they learned Abbott Labs had made deals to keep
cheaper versions of Hytrin, a blood pressure treatment, off the market. They are
now suing. (Steve Kagan for The New York Times)(pg. 14)
Chart:
"CASE HISTORY: A Generic's Impact"
When terazosin, a generic equivalent to
the brand-name drug Hytrin, was introduced, it immediately affected both
prescriptions and sales of Hytrin, which treats high blood pressure and prostate
enlargement.
Charts track terazosin and Hytrins' effect since
1998
(Source: IMS Health)(pg. 14)
Chart:
"MARKETPLACE -- Generics Making Slow Inroads Into Market"
While generic
drugs now make up roughly 40 percent of all prescriptions filled, they are less
than 10 percent of total prescription sales. The cost of filling a prescription
with generic drugs has remained stable while brand-name drugs have climbed.
Chart shows brand named drugs verses generic since 1991
(Sources: IMS Health prescriptions filled ; Henry J. Kaiser
Family Foundation)(pg. 14)
LOAD-DATE: July 23, 2000
