FTC staff report attacks branded-generic patent settlements

WASHINGTON — The Federal Trade Commission released a report Tuesday finding that drug companies entered 28 deals that the FTC called anticompetitive and said would increase healthcare costs for consumers and the government.



The FTC, which under the leadership of chairman Jon Leibowitz, repeatedly has attacked what it calls "pay-for-delay" deals between branded and generic drug manufacturers and has been lobbying the Congressional Joint Select Committee on Deficit Reduction, also known as the super committee, to ban the deals.



Meanwhile, the generic drug industry said the deals, technically patent litigation settlements, help ensure early arrival of cheaper generic drugs in consumers' medicine cabinets.



"While a lot of companies don't engage in pay-for-delay settlements, the ones that do increase prescription drug costs for consumers and the government each year," Leibowitz said. "Fortunately, congress has the opportunity to fix this problem through the Joint Select Committee on Deficit Reduction and save the government and American taxpayers billions of dollars."



Under the Hatch-Waxman Act of 1984, a generic drug company that wishes to launch its version of a branded drug after the latter's market exclusivity period has expired but before its loss of patent protection, may file a regulatory approval application containing a paragraph IV certification, which asserts that the patent is invalid, unenforceable or that the generic won't infringe it.



In most circumstances, the branded manufacturer will sue the generic manufacturer for patent infringement. But usually, both companies will reach a settlement of some sort. In some cases, the settlement involves the generic drug company agreeing not to immediately launch a product in exchange for a payment, which sometimes includes cash but usually means that the branded drug manufacturer agrees not to launch a so-called authorized generic — essentially the branded drug marketed under its generic name at a reduced price — during the 180-day period in which the first company to win approval for the generic gets to compete exclusively with the brand manufacturer before the drug becomes commoditized, and any company can market a generic version.



It's these settlements that have the FTC and Leibowitz, as well as members of Congress, including Sens. Herb Kohl, D-Wis., and Chuck Grassley, R-Iowa, irked the most. The FRC said the deals cost consumers and taxpayers $3.5 billion per year because they result in delayed entry of cheaper generics into the market.



But the Generic Pharmaceutical Association said such deals usually result in generics becoming available months or even years ahead of a branded drug's patent expiring, and delaying launch after a patent expired would be illegal anyway. According to a report by RBC Capital Markets, generic drug companies win 48% of patent litigation settlements that go to trial, but their success rate increases to 76% when settlements are included.



"The FTC continues to miss the fundamental point: Patent settlements speed up the availability of less costly generic drugs and safe money for everyone; banning settlements and forcing drug makers to continue lengthy litigation with uncertain outcomes will be costly," GPhA president and CEO Ralph Neas said.

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