Senate, courts debate legality of patent settlement deals

First-to-file paragraph-IV filings Source: RBC Capital Markets, “Pharmaceuticals: Analyzing Litigation Success Rates,” Jan. 15, 2010

NEW YORK —For all its successes, the generic drug industry has had a lot to worry about this year. Its main lobbying organization in Washington, the Generic Pharmaceutical Association, gained a pyrrhic victory with the creation of an abbreviated approval pathway for follow-on biologics in the healthcare-reform bill—the pathway is now law, but with a much longer period of data exclusivity for innovator biologics than the group hoped for—while Teva Pharmaceutical Industries left the organization, as did former president and CEO Kathleen Jaeger. Now, on top of that, one of its most important legal assets is under fire with the hair-thin passage of a ban by a Senate committee two months ago.

Generally, companies seeking to market generic versions of drugs before the expiration of the patents protecting the branded drugs have done so by filing regulatory approval applications containing a paragraph-IV certification, a legal assertion that the patents covering a branded drug are invalid, unenforceable or won’t be infringed by a generic version. When this happens, the branded drug maker will sue the generic drug maker, but the cases often result in a settlement between the two parties that allows the generic drug maker to launch its product after waiting a while, but usually before the patent expires.

For generic drug makers and the GPhA, this is a way to get generic drugs on the market earlier than they would if the cases went to trial or if the generic companies waited until all the patents had expired, as well as a way to avoid the costly legal fees of going to trial. Not only that, but the first company to get the generic version of a drug on the market gets six months in which to directly compete with the branded version, which has been a tremendous source of profit for generic drug makers over the years. But for the Federal Trade Commission, such politicians as Sen. Herb Kohl, D-Wis., and the editorial board of The New York Times, the settlements are sneaky “pay-for-delay” deals in which branded and generic drug makers, normally competitors, conspire to keep cheaper alternatives to expensive branded drugs out of patients’ hands.

The latest political blow to patent settlements came in July when the Senate Appropriations Committee passed a ban on them by a 15-to-15 vote. “The anti-consumer provision was slipped into the Financial Services and General Government appropriations bill in the latest attempt to move forward legislation that has been unable to pass as a freestanding bill,” a GPhA statement in response to the passage read. “Forcing policy changes into an appropriations bill is a procedural facade with highly negative impact; it will result in fewer generics medicines coming to market prior to patent expiration.”

According to a report released in January by RBC Capital Markets, over the last decade, generics companies have prevailed in 48% of patent litigation cases that have gone to trial but in 76% of cases when settlements are included, while more than half of all cases are settled or dropped. Meanwhile, the FTC contended that patent settlements cost consumers $3.5 billion per year and keep generic drugs off the market for an average of 17 months longer than when deals don’t include payment.

But the term “pay-for-delay” might be misleading, however. Under the law, the GPhA’s Jaeger told Drug Store News in an interview earlier this year, a generic drug company is forbidden from delaying launch after the patents covering the branded drug have expired. In addition, the “payment” often isn’t in the form of money, but in the form of an agreement by the branded drug maker not to launch a so-called “authorized generic.” An authorized generic essentially is a branded drug marketed under its generic name, usually through a third-party company, which would give the branded drug company an extra weapon in its marketing arsenal by providing a competitor to the actual generic drug during the latter’s customary six months’ exclusivity. The FTC has spoken in favor of authorized generics, saying they help keep drug prices down overall, while the GPhA opposes them.

But soon after the Senate committee’s political punch in the nose came a legal ice pack. The U.S. Second Circuit Court of Appeals in New York declined Sept. 7 to reconsider a ruling made earlier this year in favor of Bayer and Teva Pharmaceutical Industries subsidiary Barr Labs concerning the companies’ settlement over the anthrax treatment Cipro (ciprofloxacin), affirming that the deal did not violate antitrust laws.

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