FTC pushes to end patent settlements, vexing branded, generic drug industry

NEW YORK On a lot of issues, the branded and generic drug industries agree about as readily as bacteria and antibiotics, but they have united on one issue: patent settlements.

Patent settlements between brand and generic drug companies, particularly those that involve brand companies paying generics companies, have come under fire lately from the Federal Trade Commission, which released a report last month similar to one released in June 2009 that asserted such deals prevent the timely entry of generic drugs onto the market and recommended that Congress move to ban them. Bills were introduced in both houses of Congress last year to ban what the FTC has called “pay-for-delay” deals, though neither succeeded.

“The problem with these sweetheart deals is clear,” FTC chairman Jon Leibowitz said in a Jan. 13 press conference to mark the report’s release. “Branded pharmaceutical companies are literally paying their generic competitors to stay off the market. Does it seem right that a company can make money by not selling its product? Of course not.”

Patent settlements are permitted under the Hatch-Waxman Act of 1984. A generic company that wishes to market its version of a branded drug before the patent expires will file for regulatory approval with the Food and Drug Administration with a paragraph-IV certification, which asserts that the drug’s patent is invalid, unenforceable or won’t be infringed. This usually prompts a patent litigation suit from the branded drug maker, which bars the generic company from marketing its drug for 30 months or until it wins the suit or reaches a settlement with the brand company.

For the FTC, settlements become a problem when they involve the brand company paying the generic company not to immediately launch its product, with payment including anything from monetary compensation to the promise not to market an authorized generic during the generic company’s customary six months’ market exclusivity after the patent expires. According to the commission’s report, generic launch occurs, on average, 17 months later when settlements involve payment than when they do not, costing consumers $3.5 billion a year.

But the Generic Pharmaceutical Association, the Pharmaceutical Research and Manufacturers of America, and some analysts have criticized the report. For starters, an agreement to delay generic launch after the expiration of a patent would be illegal, GPhA president and CEO Kathleen Jaeger told Drug Store News, and she disputed the validity of the phrase “pay-for-delay.” Not only that, Jaeger said, but settlements often bring generic drugs to market earlier than when no settlement occurs, before the expiration of the patent. According to an analysis by RBC Capital Markets, generic companies have prevailed in 48% of patent litigation cases that have gone to trial overall over the last decade, but that figure increases to 76% when settlements are included; more than half of all cases are settled or dropped.

“They’ve couched it in a cute little phrase here, but it’s really misleading, and it’s wrong,” Jaeger told Drug Store News. “The vast majority of settlements are bringing in products so many years earlier.”

Soon after the FTC released its report, investment-banking firm Jefferies hit back with a strongly worded analysis challenging the FTC’s conclusions and methodology. Among other problems Jefferies said it found, the report didn’t consider the savings generated by generic entry before patent expiration and “falsely” assumed that patent settlements would continue to happen if payments were banned. It also, Jeffries said, didn’t take into account such variables as payment magnitude or the time of patent expiration. According to the Jefferies report, a ban on payments in settlements would make settlements generally less likely to occur.

“The end result is that our companies are not going to invest in the patent settlements that they do today,” Jaeger said.

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