Editor's note: Contrary to reporting in an earlier version of this story, Lilly and Pfizer settled with the Department of Justice, not the FTC. The Fool regrets the error.
Poor Bristol-Myers Squibb (NYSE:BMY); the company has to pay $2.1 million to settle a Federal Trade Commission investigation. The company had been trying to pay at least $40 million to generic-drug maker Apotex to delay the launch of a generic version of blood thinner Plavix, which Bristol-Myers sells with sanofi-aventis (NYSE:SNY). The deal fell apart and Apotex flooded the market with generics -- but the patent was eventually upheld in court -- and the FTC is sticking Bristol-Myers with the bill nonetheless.
Then again, it's not really very disruptive to business, considering Bristol-Myers garnered $5.6 billion in sales of Plavix last year. The federal government has been much harder on companies for doing other things. For instance, the Department of Justice accepted settlements from Eli Lilly (NYSE: LLY) and Pfizer (NYSE: PFE) that were in the billions.
But Bristol-Myers Squibb's settlement is a reminder that the FTC isn't too keen on branded-drug makers paying their generic-drug counterparts to stay off the market.
Instead, to avoid court decisions, branded-drug makers agree to let generic-drug makers launch before their patents expire -- the ones the generic-drug makers think are unenforceable. Teva Pharmaceutical (NASDAQ:TEVA) is the king of this, recently settling with Medicis Pharmaceutical (NYSE:MRX) and AstraZeneca (NYSE:AZN).
That way is a win-win for both sides because they each have something to lose if the patent challenge doesn't go their way in court. How early the launch is -- and whether the branded-drug company gets royalties -- is determined by how strong each side thinks their case is.
The big question is whether these deals will be allowed to continue. President Obama has made it perfectly clear that he wants to lower health-care costs -- and earlier generic-drug launches would certainly help accomplish that. One has to wonder whether the administration will put more scrutiny on these deals.
Our Foolishness is far from generic:
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