Two senators grilled the chairman of the Federal Trade Commission (FTC) yesterday over allegations made by Watson Pharmaceuticals that the agency used its subpoena power and access to confidential information to force the company into a business deal with a rival generics firm.

During a hearing on antitrust law oversight led by the Senate judiciary committee, Sens. Orrin Hatch (R-Utah) and Arlen Specter (D-PA) questioned the FTC chairman, Jonathan Leibowitz, about the allegations, lodged last month by Watson CEO Paul Bisaro.

The subpoena, Bisaro claims, was part of an effort to broker a business deal between Watson and generics maker Apotex, or punish the firm for not doing so. That deal would have overrided a reverse-payment settlement Watson made with Cephalon by enabling Apotex to introduce cheaper copies of Cephalon’s blockbuster sleep apnea drug Provigil years prior to patent expiry, as first reported by MM&M.

At the hearing, Hatch asked Leibowitz about Watson’s allegations that FTC shared confidential FDA information with Watson and Apotex, shared confidential Watson information with Apotex, and threatened to reopen an investigation if Watson didn’t relinquish its potential exclusivity rights to Provigil.

“What concerns me is that FTC apparently did not deny any of these allegations,” said Hatch.

“The reason we haven’t responded to this yet,” responded Leibowitz, “is that…it’s a filing in response to our insistence that the CEO be subpoenaed. It’s one thing for a company to disagree with our case…It’s another to not even be deposed. We will respond in court papers.”

Asked by Specter whether confidential information was improperly shared by the FTC, Leibowitz replied, “We do not believe there was a breach.”

Specter also asked whether FTC should get involved in determining the legality of reverse payment patent settlements in the first place. “Isn’t it sufficient to have the settlement subject to court approval to make sure consumers are protected, without having the FTC intervene?” he probed.

“It’s conceivable, but I also think you want the FTC engaged in this issue so that if there’s a settlement that violates antitrust laws, we can try to stop them, subject to the court’s approval,” Leibowitz answered.

The FTC is bringing the Watson case as part of an ongoing campaign against reverse payment patent settlements or, as the agency calls them, “pay-for-delay” deals. Stopping these agreements is “right now the top competition priority of the commission,” said Leibowitz.

Watson’s reverse-payment settlement with Cephalon dates back to 2006, one of several such settlements which allowed for copy cat versions of Provigil to appear prior to patent expiry. Watson later learned that it had first-filer status on a supplemental ANDA it filed in December 2007 on a subsequent patent.