Last summer's discussion of generic Revlimid attracted an unusual amount of attention, so I thought I would expand a bit on the regulatory environment for generics.
In the United States, competition law is administered and enforced by two distinct government entities: The Federal Trade Commission and the Department of Justice Antitrust Division. The relationship between them is complicated, and I am greatly oversimplifying here, but in general the FTC pursues the enforcement of antitrust and consumer protection laws in civil courts, while the Antitrust Division has the power to bring criminal charges in cases of violations of antitrust laws. In recent years, maneuvers undertaken by patent-holding pharmaceutical companies and their generic-making competitors have attracted the attention of the FTC, and prompted legal actions by it.
Consider the hypothetical case of MegaFarma Inc., the holder of patents on, and exclusive manufacturing and marketing rights to, a very expensive therapeutic agent, wigglidomide (brand name Skeezix). Skeezix is coming off patent soon, and a maker of generics, LoPillCo, is known to be working on a much less expensive, bio-equivalent version of wigglidomide, to be pushed onto the market the moment that happens. There are a couple of things that MegaFarma thinks it might do to delay this event.
In a "pay-for-delay" agreement, MegaFarma would simply bribe LoPillCo to delay the introduction of its generic wigglidomide for some period of time. During that time, MegaFarma's domination of this particular market would remain unimpaired, LoPillCo would get substantial sums of cash for doing literally nothing, and everyone is happy. Everyone, that is, except the consumers (and notably the much-maligned medical insurers), who would continue to pay the usual elevated prices for Skeezix. And the FTC. The FTC is not at all happy with pay-for-delay, and in at least one case has chased the appeals process in a case against such an agreement all the way to the Supreme Court.
A somewhat subtler move for MegaFarma would be to introduce, or rather threaten to introduce, its own "authorized generic" wigglidomide, i.e. a repackaging of Skeezix itself as a generic, when it goes off-patent. Doing this could be assumed to be deleterious to LoPillCo's business model around wigglidomide. In fact MegaFarma has no desire to win a race to the bottom of the market for generic wigglidomide; what it really wants is a "No-AG" agreement with LoPillCo, in which LoPillCo would delay the introduction of its generic for some period of time, at the end of which MegaFarma would not counter with its own generic, thus leaving to LoPillCo unmolested (at least by MegaFarma) control of the market for generic wigglidomide. The FTC is unhappy with No-AG agreements as well, for pretty much the same reasons, and has undertaken similar actions against them.
These agreements are not an occasional problem. By law, agreements between brand and generic companies resolving patent disputes must be filed with the FTC; of 140 such agreements filed during the fiscal year ending 30 September 2012, the FTC believes that 40 of them involve some form of pay-for-delay or no-AG. It estimates that these agreements cost consumers an estimated $3.5 billion annually.
Finally, MegaFarma may choose to try to evade the generic competition altogether, rather than reach some sort of rapprochement with it. Thus, the phenomenon of "product hopping", a term applied to a process involving the dropping of a branded product altogether, and its reintroduction into the market in some slightly altered form -- rarely if ever a therapeutically improved form, incidentally -- thus moving the target for LoPillCo rather late in the game. News flash: The FTC doesn't care for this gambit, either, and has said so in court.