Battle over 'pay for delay' intensifies

The battle over "pay for delay" continues to heat up, and its resolution likely won't come until the nation's highest court decides on the legality of the practice.

At issue is the long-standing, but controversial, practice of "reverse payments," by which branded and generic drug makers agree to delay introduction of a no-name medicine — usually for a cash settlement or other incentive — as its branded counterpart nears the end of its patent protection. The U.S. Supreme Court agreed in December to review three cases arising from court challenges filed by the Federal Trade Commission and some pharmacy chains opposed to the practice.

The high court is expected to take up the case in March. Defending the practice will be three generic companies involved in the separate legal challenges: Watson Pharmaceuticals, Par Pharmaceuticals and Solvay Pharmaceuticals.

Typically, a generic drug maker seeking to be the first to market a generic version of a drug will file for Food and Drug Administration approval for it before the branded drug has lost patent protection. This usually prompts a patent-infringement lawsuit from the branded drug company; and while the suits often go to trial, in many cases, they will reach a settlement that allows the generic drug maker to launch at a later date.

The FTC has long been a staunch opponent of the pay-for-delay settlements, asserting that they are illegal and anti-competitive, and that they cost U.S. consumers and health plan payers $3.5 billion a year in higher-than-necessary drug costs by delaying the introduction of lower-cost generic alternatives to some branded drugs. In mid-January, the FTC intensified its opposition to reverse payments with the release of a new report. Citing an internal study, the commission reported that "the number of potentially anti-competitive patent dispute settlements between branded and generic drug companies increased significantly" in fiscal 2012, jumping to 40 such settlements compared with 28 the previous year.

"The study also found that in nearly half of these settlements, branded firms may have used the promise that they would not develop or market an authorized generic [or AG] as a payment to stall generic drug firms from marketing a competing product," the FTC reported. "Overall, the agreements reached in the latest fiscal year involved 31 different brand-name pharmaceutical products with combined annual U.S. sales of more than $8.3 billion."

"Such 'no-AG' promises are valuable to generic firms, as they significantly reduce the level of competition the new generic entrant will face, allowing the generic firm to secure greater market share and extract higher prices from consumers," the agency charged in its report.

"Sadly, this year's report makes it clear that the problem of pay for delay is getting worse, not better," FTC chairman Jon Leibowitz asserted. "More and more brand and generic drug companies are engaging in these sweetheart deals, and consumers continue to pay the price. Until this issue is resolved, we will all suffer the consequences of delayed generic entry: higher prices for consumers, businesses and the U.S. taxpayer."

Besides the FTC and pharmacy retailers, the American Medical Association also has declared its opposition to reverse payments and called them anti-competitive. But countering those charges are such industry trade groups as the Generic Pharmaceutical Association and the Pharmaceutical Research and Manufacturers of America.

"GPhA feels compelled to set the record straight," said Ralph Neas, president and CEO of the generic industry group. "Despite claims to the contrary, settlements actually help bring affordable generic medicines to market sooner, to the benefit of consumers and the healthcare system."

"Over the past 10 years, patent settlements have enabled dozens of first-time generics to come to market many months before patents on the counterpart brand drugs expired, including the top-selling medicines Lipitor, Effexor and Lamictal," Neas added. "These early launches saved patients hundreds of billions of dollars."

In addition, GPhA's top executive said, "the federal courts have repeatedly recognized that settlements can be desirable options in patent litigation. The record is clear: Settlements allow generic drugs to come to market long before patents on the counterpart brands expire, resulting in billions of dollars in annual savings. Our shared goal must be to ensure that patent settlements benefit, not harm, consumers and the healthcare system. To accomplish this, we must avoid … an outright ban on settlements as a means of resolving patent litigation."

"The FTC is wrong on the facts, wrong on the public policy and wrong on the law. If successful, the FTC position would dramatically undermine the law of the land and cost patients and consumers billions of dollars every year," Neas asserted.

Also urging the Supreme Court and FTC to exercise caution is the pharmaceutical industry research giant IMS Health. In a report last year, the company warned that "with more than a third of annual savings generated by generic medications coming from products that have entered the market since 2001, it would be misguided to enforce a ban on patent litigation settlements since most new generics get to market as the result of a settlement. In fact, 17-of-the-22 first-time generics launched in 2011 were the result of patent settlements, including [generic versions of] Zyprexa, Solodyne, Levaquin and Lipitor."

"Over the past 10 years, patent settlements have enabled dozens of first-time generics to come to market many months, and even years, before patents on the counterpart brand drugs expired," IMS asserted. "Patent litigation settlements have never delayed the launch of the generic past the expiration of the brand patent. U.S. courts repeatedly have ruled that patent settlements are pro-consumer and pro-competitive."

IMS cited a study by RBC Capital Markets, "Analyzing Litigation Success Rates," which found that generic companies succeed in bringing their product to market before patent expiration in just 48% of cases overall. "But when factoring in settlements, generics are successful in bringing the generic product to market before patent expiration in 76% of cases," the firm reported.