Senator Charles E. Schumer

FOR IMMEDIATE RELEASE: June 20, 2006

Schumer Reveals Merck Offering Payoffs To Discourage Health Plans From Using Generic Version Of Zocor

If Deals Are Allowed to Prevail, Could Be First Step In Massive Rollback of Consumer Access to Generic Drugs

Senator Calls On FTC to Immediately Investigate Anti-Competitive Arrangements that Could Devastate the Market for All Generic Drugs – Also Asks Health Plans Not To Accept Deal

Today, U.S. Senator Charles E. Schumer blasted the pharmaceutical company Merck, the manufacturer of the cholesterol drug Zocor, for offering payoffs to major health insurers to prevent consumers from buying the new generic version of Zocor. Schumer called on Merck to immediately withdraw these offers and asked the Federal Trade Commission to begin an investigation into possibly anti-competitive behavior. Schumer’s office has learned that Merck is offering hefty rebates to some of the nation’s largest health insurance companies if they raise the cost to the consumer of the generic alternative in an effort to maintain the brand’s market share.

Specifically, Merck is offering rebates to health insurance plans that charge their lowest co-pay for the brand drug and their highest co-pay for the generic drug. It is unclear to what extent any of these rebates will be disclosed or passed along to purchasers and consumers. The result will be employers, pharmacies, and ultimately consumers paying more for prescription drugs. Even if consumers themselves don’t pay more for Zocor at the point of sale, the cost to the health care system as a whole from using the brand instead of the generic will be higher, and those costs eventually will come out of consumers’ pocket. Schumer announced that at least one company, United Health Group, has accepted Merck’s offer.

“This could close the door on future generics,” Schumer said. “It’s a desperate move to keep prices high and generics out of the market. The big pharmaceutical companies are trying to deny tens of millions of families and seniors the cheaper generic drugs that they rely on so desperately. Too many seniors have to choose between paying the bills and taking their medication, and if these deals are allowed to go through, it will make it even harder for those most in need.”

Generic drugs typically offer consumers a cheaper alternative than the brand name drug and are usually the best option for patients and seniors faced with the rising cost of prescription drugs. Schumer, the author of The Greater Access to Affordable Pharmaceuticals Act which became law in 2003, called these deals blatantly anti-competitive, potentially denying tens of millions of patients’ access to cheaper generic drugs.

In order to protect its market share of Zocor, whose patent expires this month, and disincentivize the use of a generic alternative, Merck is colluding with insurance companies to raise the price of the cheaper generic, simvastatin, which is set to hit shelves at the end of this week. Merck is offering to provide rebates to insurance companies in exchange for inverting co-pays to favor the dispensing of the brand over the generic. The deals would most likely last for only 180 days and would be intentionally designed to interfere with the 180-day exclusivity period that the first generic drug on the market relies on to recoup the costs of ensuring timely patent challenges and market entry. Once the 180 day period is over, it is likely that the arrangement will change. By then, however, the harm to the generic from losing its 180-day exclusivity period would already be done.. If schemes like this are allowed, fewer patent challenges will occur and few generic drugs will come to market over time, leaving consumers no choice but to buy higher priced brand drugs.

Zocor is Merck’s cholesterol-cutting drug whose sales totaled $4.4 billion in 2005. Zocor has been proven to reduce coronary heart disease events, such as heart attack and angina, and deaths due to heart attack. The Food and Drug Administration approved the generic alternative and therapeutic equivalent to Zocor earlier this year.

In his letter to the FTC Chairman Deborah Platt Majoras, Schumer said “The availability of generic drugs have made life-saving pharmaceuticals more affordable and accessible to all Americans, and manipulation of the consumer price of these drugs to preserve the market share of the more expensive product is unconscionable. Time is of the essence given the imminence of the generic drug's entrance into the market, and I urge you to begin an investigation of these anti-competitive behaviors expeditiously.” Schumer also said that if Merck continues this effort to reduce the public’s access to cheaper generic drugs, he will introduce legislation to prohibit these anti-competitive deals.

This is yet another onslaught in the recent attacks against consumer access to affordable medications. Last month, Schumer revealed the recent dramatic rise in settlements in which brand-name pharmaceutical companies pay off generic drug companies to keep cheaper generics off the market. Schumer and Representative Henry A. Waxman wrote to the heads of the two major pharmaceutical trade organizations asking them to take a strong, public stance against these deals that decrease competition and result in a drastic increase in the price of prescription drug prices, according to experts.

In 1999, the Federal Trade Commission successfully challenged these types of patent settlements, which deprive consumers of cost-savings from generic competition while allowing branded and generic companies to share in the monopoly profits. Until recently, most drug companies have followed the precedent set by the FTC and abandoned settlements that included these types of payoffs.

However, two recent appellate decisions, Schering-Plough Corp. v. FTC, and In re Tamoxifen Citrate Antitrust Litig., paved the way for the increase by holding that these settlement agreements do not violate antitrust laws. Since the decision, there has been a resurgence in these types of arrangements. According to the FTC in the six months following the March 2005 court decisions, more than two-thirds of brand name-generic settlement agreements included such terms.

Merck’s conduct here is similar in many respects to the practice recently adopted by many brand name drug companies of launching so-called “authorized generic” versions of their own product at the same time that a true generic launches. Authorized generics significantly decrease the profit earned by generic manufacturers during the statutory 180-day exclusivity period. These profits are a key incentive for generic manufacturers to pursue entry prior to patent expiration, and taking them away will cause harm to consumers. This spring, the FTC announced that it would conduct a major study of the anticompetitive effects of authorized generics. Merck’s conduct here is even more pernicious.

Schumer is also the author of the Greater Access to Affordable Pharmaceuticals Act with Senator John McCain (R-AZ). The Schumer-McCain law, which was enacted in 2003, shut down loopholes that drug companies created in Hatch-Waxman law, enabling generic drugs to be brought to market sooner, and lowering the cost of prescriptions for millions of Americans.

For a copy of Schumer's letter click here.

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