The FTC staff report claims that drug companies entered into 28 potential pay-for-delay deals in FY 2011.  Emphasis on the word “potential“.  I think this report is idiotic and not because it has to do with complaining about patents.  It’s that this so-called study is completely flawed in its logic.  And, if there’s one thing patent attorneys hate, it’s the illogical.

Here’s the supposed data and the conclusions drawn from them, you be the judge:

The FTC looked at 156 final resolutions of patent disputes between a brand-name and a generic pharmaceutical makers. Out of the 156, they found the following:

1. 28 final settlements contain both compensation to the generic manufacturer and a restriction on the generic manufacturer’s ability to market its product;
2. 100 final settlements restrict the generic manufacturer’s ability to market its product, but contain no explicit compensation;
3. 28 final settlements have no restrictions on entry; and
4. of those 28 final settlements that contain both compensation and a marketing restriction, 18 involved generics that were so-called “first filers,” meaning that they were the first to seek FDA approval to market a generic version of the branded drug, and, at the time of the settlement, were eligible to exclusively market the generic product for 18 months.

So far, so good.  Up to this point, these are all just facts.  Now, look at the conclusion the FTC draws:

1. generic drugs help reduce costs for taxpayer-funded health programs such as Medicare and Medicaid.
2. generic drug prices are typically at least 20 to 30 percent less than the name-brand drugs;
3. patent settlements that include a payment or other compensation delay generic entry on average by 17 months longer than those that do not include a payment;
4. the 28 settlements involve 25 different branded pharmaceutical products with combined annual U.S. sales of more than $9 billion; and
5. prohibiting pay-for-delay settlements would reduce the federal deficit by $2.67 billion over 10 years.

Ipso facto, pay-for-delay settlements are at the root of the world financial crisis.  And global warming.  And maybe the war on Christmas.  Well, at least we know the government knows how to work a calculator.  What they lack (purposefully?) is an understanding that patent lawsuit settlements by there very nature are two sides coming up with terms that they can both agree on.

Both sides are for-profit entities with no interest in not making a profit.  Both sides are also being advised by presumably competent counsel.  The brand-name company believes its patent is perfectly valid but aware that anything can happen in litigation.  The generic company may well believe the patent is not valid but aware that anything can happen in litigation.  They have weighed the risks and rewards and decided on a settlement they can live with.

Yet, the FTC concludes that these settlement are wrong and are harming hard-working, God-fearing Americans.  Or, is it that the government really just needs to reduce the deficit and cutting drug costs sounds good?

“While a lot of companies don’t engage in pay-for-delay settlements, the ones that do increase prescription drug costs for consumers and the government each year,” said FTC Chairman Jon Leibowitz.  “Fortunately, Congress has the opportunity to fix this problem through the Joint Select Committee on Deficit Reduction — and save the government and American taxpayers billions of dollars.”

The FTC has challenged a number of these patent settlement agreements in court, contending that they are anti-competitive and violate U.S. antitrust laws.  The agency also has supported legislation in Congress that would prohibit pay-for-delay settlements that increase the cost of prescription drugs.

Inevitably, the FTC must make some difficult decisions about whether or not a particular patent settlement harms com­petition and should be challenged on antitrust grounds. But the broad conclusion that a settlement is anti-competitive if it includes compensation plus market restriction lacks a proper critical analysis.

At least you can like the FTC on Facebook.

Related posts:

1. Are There Competitive Problems in Pharmaceutical Markets? The FTC says “Yes”
2. FTC Pushes to Ensure Health Care Reform Legislation Eliminates Reverse Payment Settlements
3. FTC Position on Reverse Payments: Settlements Can Be Procompetitive

Reverse payment settlements occur during patent litigation between an innovator company with a drug protected by a patent exclusivity and a generic company challenging the validity of that patent.  Generally under these settlements the generic company will agree to drop its challenge to the patent and agree not to launch a generic drug during the patent exclusivity period in exchange for financial compensation from the innovator company.

On the same day as the press conference, the FTC also released a report that concluded that reverse payments delayed generic entry of drugs by 17 months and that reverse payments cost American consumers $3.5 billion per year.  The report also hinted that the FTC viewed  agreements by an innovator company not to launch an authorized generic during 180-day exclusivity period in exchange for delayed generic entry as anticompetitive.

The report also implied that FTC would have challenged more reverse payment settlements except for the fact that it did not have enough resources.  As the report states “The FTC has challenged some of these agreements [that involve restrictions on generic entry that were combined with compensation from the brand to the generic] as violating antitrust laws, but the agency lacks sufficient resources to investigate and litigate the legality of all of these agreements.”

FTC’s actions come on the same day that it was reported that competition officials from the European Commission were increasing their investigation of reverse payment settlements in Europe.

Passing health care reform legislation currently depends upon Congress’s ability to resolve the differences between the Affordable Health Care for America Act (H.R. 3962) that passed the House of Representative on November 7, 2009, and the Patient Protection and Affordable Care Act (H.R. 3590) that passed the Senate on December 24, 2009.  It has been reported that the Senate and House are planning to have informal talks to create a combined bill rather than consolidate the two bills through a formal conference committee.

How the two bills are reconciled will have a large influence over the continued survival of reverse payment settlements because the House bill generally outlawed these agreements while the Senate bill did not contain any provisions regarding reverse payment settlements.

The Affordable Health Care for America bill that passed the House of Representatives has provisions specifically dealing with reverse payment settlements (See Sec. 2573 Protecting Consumer Access to Generic Drugs Act). These provisions would generally make it unlawful:

“[F]or any person to directly or indirectly be a party to any agreement resolving or settling a patent infringement claim in which (i) an ANDA filer receives anything of value; and (ii) the ANDA filer agrees to limit or forego research, development, manufacturing, marketing, or sales, for any period of time, of the drug that is to be manufactured under the ANDA involved and is the subject of the patent infringement claim.”

The House bill does allow a patent suit to settle when the ANDA filer only receives either: (1) the right to market the drug that is the subject of the patent infringement claim before the expiration of remaining patent exclusivity or other exclusivity; and/or (2) the waiver of a patent infringement claim for damages based on prior marketing of such drug.

The House bill also gives the FTC the authority to enforce these provisions and to create exceptions through rulemaking to the general prohibition of reverse payment settlements if the FTC finds that certain agreements may be beneficial to consumers.

Because the recently passed Senate health care reform bill does not have any provisions dealing with reverse payment settlements, some Senators have already started lobbying to include a provision to outlaw reverse payment settlements in the final health care reform bill.  Recently it was reported that Senators Herb Kohl (D-WI), Amy Klobuchar (D-MN), Jeanne Shaheen (D-NH), Al Franken (D-MN) and Byron Dorgan (D-ND) wrote to Senate leaders asking them to include a provision outlawing reverse payment settlements in the final health care reform bill.  Kohl has stated that the issue of reverse payments settlements would be on the table if the two bills go to a conference committee.

Even if the final health care reform bill does not include a general ban on reverse payment settlements, Congress may take up the issue in later legislation since many Congressmen have continuously stated their open opposition to these agreements.

In the past, various Congressmen have introduced legislation independent of health care reform that would ban these reverse payments settlements (See Senate Judiciary Committee Passes Amended Bill Banning Pay-For-Delay Settlements) or ban related agreements between innovator companies and generic companies that would allow the generic company to launch an authorized generic version of the innovator drug during certain exclusivity periods (See Bill Introduced to Prohibit the Marketing of Authorized Generic Drugs).

Today’s post is by Guest Barista William Garvin, an attorney at Buchanan Ingersoll & Rooney in Washington, DC, who specializes in FDA law.

Related posts:

1. FTC Sees Increase in Reverse Payment Settlements
2. FTC Position on Reverse Payments: Settlements Can Be Procompetitive
3. Senate Committee Hears Arguments Regarding Reverse Payments

Under these pay-off agreements, brand name drug companies settle patent disputes by paying the generic drug manufacturer millions of dollars in exchange for a promise that it will keep its version of the drug off the market.

In February, the FTC filed an antitrust case challenging the latest “pay for delay” settlement. The FTC’s complaint alleges that Solvay, the brand name manufacturer of a hormone-boosting drug, entered into an agreement with two generic companies to delay the entry of their generic version of the drug for nine years. The FTC alleged that Solvay agreed in 2006 to share its profits with the generic competitors as long as they did not launch their generic versions until 2015. If these allegations are proven true, this case represents the type of agreement that would be presumed illegal by The Preserve Access to Affordable Generics Act.

Kohl introduced S. 369 in February with Senators Chuck Grassley (R-IA), Russ Feingold (D-WI), Dick Durbin (D-IL) and Amy Klobuchar (D-MN) as original cosponsors. Senators Al Franken (D-MN), Susan Collins (R-ME), and Bill Nelson (D-FL) have since signed onto the legislation.  The Act would prohibit brand-name drug manufacturers from entering into agreements with generic drug companies designed to keep cheaper generic equivalents off the market.  Sen. Grassley believes that pay-for-delay deals impede generic drug competition and keep drug costs high for Americans.

FTC Chairman Jon Leibowitz released a statement saying:

By taking this action, the Committee clearly recognizes the very real danger that these sweetheart deals pose to Americans struggling to pay their medical bills. Consumers must wait – sometimes years – for far less expensive generic drugs when branded pharmaceutical companies pay off their generic competitors to stay out of the market. We estimate that stopping these pay-for-delay settlements will save consumers about $3.5 billion per year and advance the cause of affordable health care for all Americans.

Committee members voted pretty much along party lines at 12 to 7 for the bill.

The Act would prohibit brand name drug companies from compensating generic drug companies to delay the entry of a generic drug into the market.  According to the Senate findings:

1. Prescription drugs make up 10 percent of the national health care spending but for the past decade have been one of the fastest growing segments of health care expenditures.
2. Until recently, the 1984 Act was successful in facilitating generic competition to the benefit of consumers and health care payers – although 67 percent of all prescriptions dispensed in the United States are generic drugs, they account for only 20 percent of all expenditures.
3. Generic drugs cost substantially less than brand name drugs, with discounts off the brand price sometimes exceeding 90 percent.
4. Federal dollars currently account for an estimated 30 percent of the $235,000,000,000 spent on prescription drugs in 2008, and this share is expected to rise to 40 percent by 2018.
5. In recent years, the intent of the 1984 Act has been subverted by certain settlement agreements between brand companies and their potential generic competitors that make `reverse payments’ which are payments by the brand company to the generic company. These settlement agreements have unduly delayed the marketing of low-cost generic drugs contrary to free competition, the interests of consumers, and the principles underlying antitrust law.

The Act would amend the Clayton Act (15 U.S.C. 12 et seq.) by revising section 28 of the Clayton Act to read:

SEC. 28. PRESERVING ACCESS TO AFFORDABLE GENERICS.

(a) In General-

(1) ENFORCEMENT PROCEEDING- The Federal Trade Commission may initiate a proceeding to enforce the provisions of this section against the parties to any agreement resolving or settling, on a final or interim basis, a patent infringement claim, in connection with the sale of a drug product.

(2) PRESUMPTION-

(A) IN GENERAL- Subject to subparagraph (B), in such a proceeding, an agreement shall be presumed to have anticompetitive effects and be unlawful if–

(i) an ANDA filer receives anything of value; and

(ii) the ANDA filer agrees to limit or forego research, development, manufacturing, marketing, or sales of the ANDA product for any period of time.

(B) EXCEPTION- The presumption in subparagraph (A) shall not apply if the parties to such agreement demonstrate by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement.

(b) Competitive Factors- In determining whether the settling parties have met their burden under subsection (a)(2)(B), the fact finder shall consider–

(1) the length of time remaining until the end of the life of the relevant patent, compared with the agreed upon entry date for the ANDA product;

(2) the value to consumers of the competition from the ANDA product allowed under the agreement;

(3) the form and amount of consideration received by the ANDA filer in the agreement resolving or settling the patent infringement claim;

(4) the revenue the ANDA filer would have received by winning the patent litigation;

(5) the reduction in the NDA holder’s revenues if it had lost the patent litigation;

(6) the time period between the date of the agreement conveying value to the ANDA filer and the date of the settlement of the patent infringement claim; and

(7) any other factor that the fact finder, in its discretion, deems relevant to its determination of competitive effects under this subsection.

(c) Limitations- In determining whether the settling parties have met their burden under subsection (a)(2)(B), the fact finder shall not presume–

(1) that entry would not have occurred until the expiration of the relevant patent or statutory exclusivity; or

(2) that the agreement’s provision for entry of the ANDA product prior to the expiration of the relevant patent or statutory exclusivity means that the agreement is pro-competitive, although such evidence may be relevant to the fact finder’s determination under this section.

(d) Exclusions- Nothing in this section shall prohibit a resolution or settlement of a patent infringement claim in which the consideration granted by the NDA holder to the ANDA filer as part of the resolution or settlement includes only one or more of the following:

(1) The right to market the ANDA product in the United States prior to the expiration of–

(A) any patent that is the basis for the patent infringement claim; or

(B) any patent right or other statutory exclusivity that would prevent the marketing of such drug.

(2) A payment for reasonable litigation expenses not to exceed $7,500,000.

(3) A covenant not to sue on any claim that the ANDA product infringes a United States patent.

…

(g) Penalties-

(1) FORFEITURE- Each person, partnership or corporation that violates or assists in the violation of this section shall forfeit and pay to the United States a civil penalty sufficient to deter violations of this section, but in no event greater than 3 times the value received by the party that is reasonably attributable to a violation of this section. If no such value has been received by the NDA holder, the penalty to the NDA holder shall be shall be sufficient to deter violations, but in no event greater than 3 times the value given to the ANDA filer reasonably attributable to the violation of this section.

—————–

Violators would forfeit their 180-day exclusivity period:

Section 505(j)(5)(D)(i)(V) of the Federal Food, Drug and Cosmetic Act (21 U.S.C. 355(j)(5)(D)(i)(V)) is amended by inserting `section 28 of the Federal Trade Commission Act or’ after `that the agreement has violated’.

Related posts:

1. Bill Introduced to Preserve Access to Affordable Generics
2. Senate Committee Approves Follow-On Biologics Bill: Fear and Trepidation Follow
3. Senate Committee Hears Arguments Regarding Reverse Payments

The Act would prohibit brand name drug companies from compensating generic drug companies to delay the entry of a generic drug into the market.  According to the Senate findings:

1. prescription drugs make up 10 percent of the national health care spending but for the past decade have been one of the fastest growing segments of health care expenditures;
2. 67 percent of all prescriptions dispensed in the United States are generic drugs, yet they account for only 20 percent of all expenditures;
3. generic drugs, on average, cost 30 to 80 percent less than their brand-name counterparts; and
4. the FTC found that 1/2 of the settlements made in 2006 and 2007 between brand name and generic companies, and over 2/3 of the settlements with generic companies with exclusivity rights that blocked other generic drug applicants, included a pay-off from the brand name manufacturer in exchange for a promise from the generic company to delay entry into the market.

The Act would amend the Clayton Act (15 U.S.C. 12 et seq.) by inserting after section 28 the following:

SEC. 29. UNLAWFUL INTERFERENCE WITH GENERIC MARKETING.

(a) It shall be unlawful under this Act for any person, in connection with the sale of a drug product, to directly or indirectly be a party to any agreement resolving or settling a patent infringement claim in which–

(1) an ANDA filer receives anything of value; and

(2) the ANDA filer agrees not to research, develop, manufacture, market, or sell the ANDA product for any period of time.

(b) Nothing in this section shall prohibit a resolution or settlement of patent infringement claim in which the value paid by the NDA holder to the ANDA filer as a part of the resolution or settlement of the patent infringement claim includes no more than the right to market the ANDA product prior to the expiration of the patent that is the basis for the patent infringement claim.

—————–

Violators would forfeit their 180-day exclusivity period:

Section 505 of the Federal Food, Drug and Cosmetic Act (21 U.S.C. 355(j)(5)(D)(i)(V)) is amended by inserting `section 29 of the Clayton Act or’ after `that the agreement has violated’.

Related posts:

1. Will the ‘Preserve Access to Affordable Generics Act’ Really Preserve Access to Affordable Generics?
2. Bill Introduced to Limit Authorized Generics
3. GPhA Says PhRMA Study on Authorized Generics Lacking

According to the Commission’s complaint, filed in the United States District Court for the Central District of California, Watson and Par, through its partner Paddock Laboratories, each sought regulatory approval from the FDA to market generic versions of AndroGel. In their FDA filings, both companies certified that their products did not infringe the only patent Solvay had relating to AndroGel, and that the patent was invalid. The complaint charges that Solvay agreed to pay the generic companies to abandon their patent challenges and agree not to bring a generic AndroGel product to market for nine years, until 2015.

The court action seeks to promote competition between Solvay and generic drug makers that had sought to introduce generic versions of the branded prescription drug AndroGel. AndroGel, Solvay’s second highest selling pharmaceutical product, is a pharmaceutical gel containing synthetic testosterone. It is approved for testosterone replacement therapy in men with low testosterone levels, which often are associated with advancing age, certain cancers, and HIV/AIDS, among other conditions.

The complaint alleges that Solvay acted unlawfully to eliminate generic competition by paying Watson and Par a share of its AndroGel profits to abandon their patent challenges and agree to delay generic entry until 2015 (known as “reverse payments“). As a result, the complaint states that the defendants are cooperating on the sale of AndroGel and sharing the monopoly profits, rather than competing.

According to the Commission’s complaint, defendants’ agreements to eliminate generic AndroGel competition were, and continue to be, unfair methods of competition that violate Section 5(a) of the FTC Act. The FTC says that such payments, also called “exclusion payment settlements,” hinder the intent of the Hatch-Waxman Act of 1984.

The Commission is seeking a final court judgment declaring that Solvay’s agreements with Watson and with Par and Paddock violate Section 5(a) of the FTC Act, and injunctive relief restoring competitive conditions and barring the defendants from engaging in similar or related conduct in the future.

Today, senior Senate Judiciary Committee members Herb Kohl (D-WI) and Chuck Grassley (R-IA) unveiled The Preserve Access to Affordable Generics Act to prohibit brand-name drug manufacturers from using reverse payment agreements to keep generic equivalents off the market.

Sen. Herb Kohl (D-Wis.) had proposed a bill last year along with Sens. Dick Durbin, D.-Ill., and Charles Grassley, R.-Iowa; and now-President Barack Obama.

See the Civil Complaint [Public Version]

Related posts:

1. Paying Off Your Generic Drug Competition? No Problem.
2. Apotex To Launch Generic Plavix At Its Own Risk
3. FTC Eyes Impact of Authorized Generic Drugs