When a drug patent nears its end, drug companies sometimes do really stupid, potentially illegal things to delay or prevent their bottom line being dinged by a lower-cost generic version. One drug company is accused of not just paying off a generic drug maker to delay the release of its version of two medications, but further hurting consumers by agreeing to not compete with the generic.

Pennsylvania-based Endo Pharmaceuticals — maker of brand-name opioid Opana ER and lidocaine patch Lidoderm — is accused of making these sorts of illegal deals with generic companies, according to a lawsuit [PDF] filed this week by the Federal Trade Commission.

According to the complaint, back in 2009 these two brand-name drugs accounted for 64% of Endo’s annual revenue, but generic competition was in the offing for both products.

So in 2010, the FTC says that Endo made a deal with California’s Impax Laboratories — a company that was trying to introduce a generic of Opana ER — to keep that generic off the market for another two-and-a-half years.

The complaint alleges that $40 million in cash changed hands, in the form of a “development and co-promotion deal” that the FTC alleges was nothing more than a smokescreen to hide the pay-for-delay scheme.

Impax received significantly more benefit from the second part of the deal — in which Endo agreed to not market its own generic to compete with Impax.

In general, the first generic drug maker to successfully file with the FDA gets a 180-day exclusivity period on the generic. But “exclusive” might be a misnomer, as the maker of the brand-name drug is allowed to offer a generic version at any time.

Thus, Endo would have been freely within its rights to sell an “authorized generic” (AG) version of Opana ER that competed with the Impax generic. Instead, the FTC says the company entered into a “no-AG agreement” that would allow Impax to enter the generic market without any competition for six months.

In total, the FTC claims that Impax reaped $112 million in benefits from this arrangement — not to mention the revenue generated by Endo during the 2.5 year extension for its brand-name drug — all while consumers were paying more than they should have.

And this was not an isolated incident. The FTC alleges that Endo made a similar deal in 2012 to protect its Lidoderm patch.

The company, along with its partner Teikoku Pharma of San Diego, allegedly made a deal with Watson Laboratories (now owned by Irish pharma giant Allergan) to keep a Lidoderm generic off the market for more than a year.

In return, Watson got nearly eight months of being the sole marketer for the generic. Endo also provided Watson with somewhere between $96 million to $240 million in free Lidoderm patches which it was then free to sell. Unfortunately, the FTC’s estimate of how much Watson made from this deal is redacted in the court documents.

Teikoku has already reached a settlement deal with the FTC that bars the company from engaging in “no-AG” agreements and other forms of reverse-payment for 20 years.

“Settlements between drug firms that include ‘no-AG commitments’ harm consumers twice – first by delaying the entry of generic drugs and then by preventing additional generic competition in the market following generic entry,” said FTC Chairwoman Edith Ramirez in a statement. “This lawsuit reflects the FTC’s commitment to stopping pay-for-delay agreements that inflate the prices of prescription drugs and harm competition, regardless of the form they take.”

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