Health Care Blog Watch

INTRODUCTION

Health care and legal blogs have been abuzz in recent months over a Senate bill to restrict pharmaceutical companies from “pay-for-delay” patent settlements that stall generic introductions. On October 15, 2009, the Senate Judiciary Committee voted 12–7 to approve the Preserve Access to Affordable Generic Drugs Act (S. 369),¹ which would prohibit the practice whereby a generic drug company that has challenged a brand-name company’s patent accepts payment from that company in exchange for delaying its generic entry to the market.

Pay-for-delay, or “reverse payment,” settlements have been around for awhile. The first known pay-for-delay deal was in 1994 when Bristol-Myers Squibb paid $290 million to Schein Pharmaceutical to delay the sale of a generic version of the Bristol-Myers anxiety drug buspirone (Buspar).

As Pharmalot blogger Ed Silverman points out, S.369, if passed, would not completely ban the practice. However, he says, it

would allow drug makers to strike a deal only if they provide ‘clear and convincing evidence’ that an agreement doesn’t stymie competition.... [Senator] Herb Kohl, the Wisconsin Democrat who introduced the bill, opposes any attempts to lower the threshold of evidence, although the bill was originally tougher—it would have banned these deals entirely.²

The bill did indeed start out as a per se ban, making all pay-for-delay agreements illegal. However, because the Senate was unable to pass it as such, S.369 was amended to include this compromise provision. The Senate listed five competitive factors that could be used to determine whether settling parties have met that clear and convincing burden. These include the length of time remaining until the end of the life of the relevant patent, compared with the agreed-upon entry date for the Abbreviated New Drug Application (ANDA) product, and the value to consumers of the competition from the ANDA product allowed under the agreement.¹

Clear and convincing evidence is the highest legal standard of proof applied in civil cases.

“It is not going to be any easy burden for drug companies,” said Seth Bloom in an interview. He is Senior Legal Counsel for the Senate’s Antitrust Subcommittee and a staffer in Senator’s Kohl’s office.

Not surprisingly, the Federal Trade Commission (FTC) also dislikes pay-for-delay and has been fighting against these agreements for many years with mixed results in the courts. Although pharmaceutical companies have argued that the practice is an effective way to resolve expensive patent litigation, the FTC describes it as anticompetitive, a potential violation of antitrust laws, and very costly. The agency estimates that consumers, insurance companies and the federal government spend an extra $3.5 billion a year as a result of these deals. The FTC has indicated that it will continue to challenge pay-for-delay agreements even if the pending legislation is not adopted.

AUTHORIZED GENERICS—ANOTHER RELATED HOT BLOG TOPIC THIS YEAR

Authorized generic drugs, in the meantime, have played an increasingly important role in pay-for-delay agreements and, as such, have also been the subject of heated debate as brand-name manufacturers more frequently incorporate them into their life cycle management strategies. These are pharmaceutical products that were originally marketed and sold by a brand company but have been relabeled and marketed under a generic product name. What makes authorized generics so controversial is that they are allowed to be sold during the 180-day marketing exclusivity period granted to the first generic on the market by the Hatch–Waxman Act.³

Heating up the controversy, and stirring the pot online for bloggers, was a Datamonitor report released this past summer that predicted the rise of authorized generic drugs in tandem with the increasing convergence between branded and generics companies.⁴ According to the report, as pay-for-delay agreements look to be on the way out of the pharmaceutical industry in Europe and the U.S., agreements for authorized generics will flourish.

The debate over both practices is likely to continue, especially as the arrival of a new administration in Washington and the appointment of a new FTC chair seem to have re-energized momentum for ending them. In another legislative proposal, Representative Jo Ann Emerson (R-Mo.) has reintroduced bill H.R. 573, which would prohibit the marketing of an authorized generic agent during the 180-day generic exclusivity period.⁵

The Generic Pharmaceutical Association (GphA) issued a statement on its Web site in support of the measure:⁶

GphA believes that the use of authorized generics undermines the Hatch-Waxman Act by devaluing the 180-day exclusivity period incentive. Ultimately, consumers pay the price as brand companies keep drug prices high and access to affordable medicine is delayed.

The fate of H.R. 573, which is almost identical to the bill Representative Emerson introduced during the last congressional session, remains uncertain as it has yet to be scheduled for a vote.

Meanwhile, the question of what to do about pay-for-delay and authorized generics is as complex as it is controversial. In fact, a recent FTC Interim Report examining the effects of authorized generics on competition found that the use of these products may actually help drive down drug prices.⁷ According to the FTC report, retail drug prices, on average, are 4.2% lower, and wholesale prices, on average, are 6.5% lower when an authorized generic drug competes with another generic during the 180-day exclusivity period than when an authorized generic does not enter the market.

However, the FTC report also notes that authorized generics substantially decrease the first-to-file generic company’s revenue, on average, by 47% to 51% during the marketing exclusivity period. As a result, generic firms are more likely to agree to defer their market entry and enter into pay-for-delay agreements, delaying the availability of any generic drug—independent or authorized—for at least 180 days. Such brand–generic deals appear to be more common now than in the past, according to the Interim Report. From 2004 to 2008, approximately 25% of final patent settlements reviewed by the FTC were the result of an authorized generic leading to a pay-for-delay agreement.⁷

Brand–generic agreements that delay introducing generic brands, concludes the FTC report, can harm consumers in two ways:⁷

• These products would not be available to consumers as soon as they otherwise might, which would force consumers to pay higher overall prescription drug costs.

• Consumers would be deprived of the benefit of price discounts from authorized generic competition during the 180-day marketing exclusivity period.

CONCLUSION

The importance of these findings looms even larger in an increasingly contentious health care debate. True, legal experts have been arguing the pros and cons of pay-for-delay settlements for a while, but health care reform has re-energized the debate. And now that the Judiciary Committee has approved a restrictive ban, and with billions of dollars at stake, both brand-name and generic companies are expected to lobby hard against it. Lawmakers also support a curb on authorized generics, but evidence that these products might actually reduce drug prices could end up keeping a provision banning these generics out of health care reform legislation.

There is no question that everyone has a stake in how health care reform turns out and how it will affect issues such as these. Certainly, as the health care bill now moves from the House to the Senate, all sides will be watching closely.