Ending Pay-For-Delay Generic Drug Deals

| About: Teva Pharmaceutical (TEVA)

Stopping manufacturers of brand-name drugs from paying potential generic competitors to stay out of the market would save consumers $3.5 billion a year, says the U.S. Federal Trade Commission. FTC Chairman Jon Leibowitz says that eliminating these so-called “pay-for-delay” settlements between brand and generic pharmaceutical firms would also result in major savings for the federal government, which pays about one-third of all prescription drug costs. Last week, Leibowitz urged Congress to pass pending legislation to ban or restrict what he describes as anticompetitive patent settlements to control prescription drug costs, restore generic competition, and help pay for healthcare reform.

“The decision about whether to restrict pay-for-delay settlements should be simple,” Leibowitz said in a speech before the Center for American Progress in Washington, D.C. “On the one hand, you have savings to American consumers of $35 billion or more over 10 years—about $12 billion of which would be savings to the federal government—and the prospect of helping to pay for healthcare reform as well as the ability to set a clear national standard to stop anticompetitive conduct. On the other hand, you have a permissive legal regime that allows competitors to make collusive deals on the backs of consumers.”

Leibowitz called eliminating pay-for-delay deals one of the FTC’s highest priorities. In these agreements, a brand-name company settles its patent lawsuit by paying the generic firm to delay entering the market, the FTC says. Such deals can cost consumers billions of dollars because generic drugs are typically priced significantly less than their branded counterparts.

More than two decades ago, Congress passed the Hatch-Waxman Act. The legislation was designed to make it easier for generic drugs to enter the market, while giving brand-name manufacturers the patent protection they need to encourage lifesaving research, the FTC says. The FTC says that the legislation initially worked in lowering prices for consumers through generic drugs. But it says, eventually drug companies found they could delay generic entry by settling patent litigation using pay-for-delay tactics.

Earlier this decade, the FTC says it had successfully stopped such illegal payments. But recent appellate court decisions have blessed these anticompetitive settlements, it adds,

with generic firms competing to be the first to get paid off to stay out of the market instead of competing to be the first to come to market.

In addition to the savings to consumers, ending such payments could save the government roughly $1.2 billion a year, or $12 billion over 10 years, because the federal government currently pays about one-third of the nation’s $235 billion prescription drug bill, the FTC says. Leibowitz says there have been some encouraging trends. Among them, the Obama Administration has created momentum for a national solution to stop pay-for-delay settlements. What’s more, the Court of Appeals for the Second Circuit has questioned its own precedent, set in the Tamoxifen case, by asking the Department of Justice to weigh in on a pending case raising similar competitive issues, the FTC adds. Also, Congress is seeking a solution, with a House subcommittee this month voting in favor of a bill that would prohibit these settlements.