On January 13, the Federal Trade Commission (“FTC”) Chairman Jon Leibowitz held a press conference with Congressional members Chris Van Hollen (D-MD), Bobby Rush (D-IL), and Mary Jo Kilroy (D-OH) arguing that health care reform legislation should include a prohibition to the patent settlements referred to as “reverse payment settlements” or “pay-for-delay settlements”.

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.

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