HHS reaches deal with Bayer on Cipro
Price lowered, but still monopolized
Following attacks with anthrax-laced letters in three U.S. cities, resulting in four deaths and confirmed infection in 22 people, demand for the popular antibiotic Cipro soared through the roof, sparking calls for the government to intervene and allow for generic production of ciprofloxacin to meet crisis demand.
However, an 11th-hour deal between the U.S. Department of Health and Human Services (HHS) and West Haven, CT-based Bayer AG will allow the pharmaceutical manufacturer to remain the nation’s sole legitimate supplier of the drug.
Under the agreement, signed Oct. 24, HHS will pay Bayer 95 cents per tablet (down from a previously discounted rate of $1.77 per tablet) for a total initial order of 100 million tablets to be shipped by year’s end. The government will have the option to buy 200 million more tablets at the newly discounted price. And Bayer will donate 200 million tablets upfront to give to emergency workers and those at high risk for contracting infection. In return, HHS will not exercise its authority to commandeer Bayer’s patent on ciprofloxacin (which expires in 2003) to allow generic production.
"I commend Bayer Corp. for its ongoing efforts to ensure a fully adequate supply of this valuable product. This agreement means that a much larger supply of this important pharmaceutical product will be available if needed," HHS Secretary Tommy G. Thompson said, announcing the settlement.
But, several consumer advocate groups charge that the agreement sells out the American public by accepting a still-inflated price for the antibiotics and by not guaranteeing adequate supplies of the drug in the event of a large-scale anthrax exposure.
"This deal puts Americans at risk so Bayer can avoid competition," states Tim Fuller, founder of the Stop Patient Abuse Now (SPAN) Coalition, a group of 110 senior and consumer advocacy groups established to ensure greater access to affordable medications. "At some point, consumers and taxpayers are going to demand accountability for the misfeasance at the Department of Health and Human Services that is putting them at risk."
The 300 million tablets are not enough to ensure that the majority of the 350 million U.S. citizens would have access to a full course of the medication, Fuller states. Most infected patients must take a 60-day regimen of the antibiotics. Allowing generic production, which the government is allowed to do in crisis situations, would allow the five other pharmaceutical companies with FDA approval to make ciprofloxacin to increase the nation’s supply much more quickly.
Prior to the anthrax attacks in September and October, Bayer was under fire already from consumer groups — and under investigation by the Federal Trade Commission — for a 1997 agreement to pay three of its competitors, Barr Laboratories, Rugby, and Hoechst-Marion Roussel, millions of dollars to drop challenges to Bayer’s patent on Cipro and to not pursue applications to produce generic ciprofloxacin.
On Oct. 25, the Washington, DC-based Pre-scription Access Litigation (PAL) Project filed suit in the Eastern District of New York asking the court to set aside the agreement, which PAL claimed, had resulted in payments to the companies that totaled $200 million.
Bayer’s Cipro is the best-selling antibiotic worldwide and has been for eight consecutive years. In 1999, Cipro was the 11th most prescribed drug in the United states and ranked 20th in total U.S. sales, with gross sales of $1.4 billion.
Such actions are not unique to Bayer and are not unusual in the pharmaceutical industry, says David Webster, an expert on pricing issues in the pharmaceutical industry and president of the Webster Consulting Group in Bethlehem, PA.
"It is a common pharmaceutical industry practice, and the [Federal Trade Commission] has actually opened several investigations into agreements of this kind. For example, Schering Plough has been another target," Webster says. "Many companies have been investigated for this, though I don’t know of any convictions yet."
Essentially, the drug companies are exploiting several legal "loopholes" that allow them to engage in what many consumer advocates consider to be antitrust behavior, he adds. "There are a couple of regulations that make it easy for them to do this, and it is not really against the law."
First, the law requires that a company seeking to manufacture a generic version of a patented drug, must file an application with the FDA. (Frequently, the second company is applying to make a compound that functions the same as the patented material, but differs in chemical makeup in a minor way, he says.) The holder of the patent for the original drug often sues that company immediately.
"The law says that whenever there is a lawsuit, there is an immediate 30-month hold put on the generic, unless the litigation is resolved," Webster explains.
If the original manufacturer feels it may lose the suit, it may work out a deal with the other company, which wants to avoid the expense of lengthy litigation, he explains. The original manufacturer remains the only supplier of a particular drug and the second company is paid a certain amount of money not to go forward. "It is a win-win for the generic and the pharmaceutical company, but it is often a lose’ for the consumer."
"There is another loophole that allows the first generic on the market 180 days of exclusivity from the day they go on the market," Webster adds. "If the original pharmaceutical company can delay when the filer goes on the market, they have essentially extended the life of their patent."
Instead of reaching the agreement with Bayer, HHS had a number of options, Webster explains.
One, the agency could have "broken" Bayer’s patent on Cipro and allowed other companies to produce ciprofloxacin. Federal law allows the government to do this in certain situations.
"But once they break the patent, they are required to compensate the patent holder and they were concerned about the litigation and the consequences of that clause," he says. "I think members of Congress were considering legislation that would absent them from that component of the law, but that would have been extremely controversial, costly, and time-consuming."
Two, the government could have used what is known as "compulsory licensing" to commandeer Bayer’s patent and allow other manufacturer’s limited rights to produce Cipro, or the government could allow importation of generic medications from abroad, Webster says.
"Buying it internationally might have been their fastest option," he says. "There are four or five manufacturers who are lined up and approved by the FDA to produce ciprofloxacin once the patent expires in 2003. They could have used compulsory licensing to grant them the power to begin producing immediately. But it would have taken them a month or two to get up and running and produce significant quantities. If they bought it on the open market, it would have been a little quicker," notes Webster.
There’s no guarantee that the other options would have resulted in better pricing, he says. "Each party has their own interests, those competing against Bayer would have benefited greatly if the patent had been broken. Whoever got the generic award would have made a lot of money." The current deal was a fairly creative strategy on the part of HHS to get more price concessions on a supply of the drug they knew they could get right away, he says.
"They backed Bayer into a corner," Webster says. "Bayer didn’t want to get into a situation where, if the patent was broken, then, eventually, they would have to come back and sue the U.S. government for damages for seizing the patent. This would not be great public relations in a national crisis."
Government purchases were already getting enormous discounts on Cipro ($1.77 per tablet compared to $4 per tablet retail in some markets), he continues. And there can be enormous consequences in terms of drug availability and research if patents are not honored and protected, he says.
"Essentially, the incentives for pharmaceutical companies and researchers to conduct the research go down a great deal," he says. "Bayer, for example, has very few other drugs coming out in their pipeline in the next couple of years. They need the money [from Cipro] to fund their research and development of new medications."
Should drug companies make a profit?
The key ethical issue comes down to a debate that goes beyond just the pharmaceutical industry, Webster says. "You’ll hear a lot of rhetoric about Bayer is capitalizing on a national crisis and it is all going into their pockets.’ I know many physicians have the overall opinion that drug companies make a profit off the suffering of others. They question all sorts of practices with these companies that we would never question with a computer company or someone who makes automobile tires."
For example, many critics complain about the amount of money drug makers spend on advertising, lobbying of government officials, compensation for top executives, etc.
"Other industries do the same thing without question," he adds. "I don’t think it is right or wrong. But I think it needs to be part of the debate about health care in this country. Are pharmaceuticals different? Or are they like any other business in the country? Some people think access to good health care is a fundamental right, while others think "gold-plated" medical care is a luxury, like a Jaguar, that citizens should pay for, he says. "That is a question that we, as a society, have yet to address."
Sources
- Tim Fuller, 733 15th St. N.W., Suite 437, Washington, DC 20005.
- David Webster, 1525 Valley Center Parkway, Suite 130, Bethlehem, PA 18017.