Date accessed: 15 February 2001 July 23, 2000
By SHERYL GAY STOLBERG and JEFF GERTH
Steve Kagan for The New York Times
Trish Vandre, a benefits specialists
in Wisconsin, steered Lavera Grosskrueger to a lawyer when they
learned Abbot Labs had made deals to keep cheaper versions of Hytrin,
a blood pressure treatment, off the market. They are now suing.
ASHINGTON -- 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 café 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.
Categories: 5. Economic Theory and the Economics of Patents, 18. Value of Patents