The Pros and Cons of Patent Settlements

There is no question that genericmedications save patients andinsurers a great deal of money.According to the National Associationof Chain Drug Stores, in 2005 the averageprices for brand name drug productsand generics were $95.54 and$28.71, respectively.¹

Because generics are such a value,payers are keen to increase the numberof brand competitors. The landmarksuccess in these efforts is the Hatch-Waxman Act of 1984, which facilitatesgeneric approvals and grants the companythat receives the first FDAapproval of a copy of an innovator drug6 months of market access withoutother generic competition.² Over thepast 2 decades, the number of genericson the US market has skyrocketed.

Despite this fact, advocates forgenerics have repeatedly claimed thatbrand manufacturers have exploitedprovisions of Hatch-Waxman to keepgeneric drugs off the market. Sucharguments led to a revised version ofthe law being included in the MedicareModernization Act that, in part, requiresparties to a settlement of adrug-patent dispute to submit theterms for federal antitrust review.³

These settlements have sparkednew debate over whether as manygeneric-drug options are available asthere could be. The stakeholders madetheir respective cases on January 17during a hearing before the SenateJudiciary Committee.⁴ Little commonground was identified.

"Substantial Harm to Consumers"

Judiciary Chairman Patrick Leahy (D,Vt) opened the session by commentingthat bipartisan efforts to "provide consumersmore choice and lower-costmedicines" were being derailed by "secret,and potentially criminal, deals" betweenbrand and generic drug makers.

These deals involve negotiated paymentsfrom drug patent holders topotential competitors who agree tostop developing or delay marketing acopy of the innovator product for someperiod before its original patent expires.Such "reverse payment" schemesare legal, but Leahy said they violatethe spirit of Hatch-Waxman, and he issupporting legislation to ban them. Ifthe Preserve Access to AffordableGenerics Act (S 316) becomes law,generic drug companies would be prohibitedfrom "receiving anything ofvalue" for agreeing to vacate a patentchallenge or hold a product off themarket. Settlements in which patentholders allowed the market entry ofgenerics would be allowed.⁵

For fiscal year (FY) 2006, the FederalTrade Commission (FTC) found that 14of 28 completed patent challenge settlementsinvolved reverse payments?up from zero in FY 2004.⁶ In congressionaltestimony, FTC CommissionerJon Leibowitz called this "a disturbingnew trend" that poses "substantialharm to consumers and others whopay for prescription drugs."⁴

Leibowitz noted that his agency interpretedHatch-Waxman as being antitheticalto any attempts to block or forestallgeneric drug competition andexpressed the FTC's support for further"legislation [that] could provide a speedierand more comprehensive way" toget generic drugs marketed than courtcases or reverse payments.

Consumers Union Project Director forConsumer Education and OutreachMichael Wroblewski told the senatorsthat reverse payments "restrict genericcompetition at the expense of consumers,whose access to lower-pricedgeneric drugs may be deferred foryears." He then argued that the "dynamicsof generic drug competition createpowerful incentives for brand name andgeneric companies to settle patent litigation in a way that harms consumers."

According to Wroblewski, patentholders can pay less than they wouldlose if a generic equivalent were available,and potential competitors cancollect more in settlement fees thanthey could make in sales. The only wayto remove such incentives, Wroblewskisaid, is "to create a bright line rule toend the use of patent settlements thatinclude compensation."

Getting Generics to Market Sooner

Drugmakers' concerns over a ban onpatent litigation settlements are understandableand do not involve "greed,"as Leahy claimed. Bruce Downey,chairman and chief executive officer(CEO) of Barr Pharmaceuticals Inc, toldthe senators, "the proposed legislation?would stifle a generic company'sability to resolve patent disputes?Thesimple fact is that, in some instances,litigation settlements turn out to be themeans by which consumers gainaccess to generic drugs before patentexpiration."

As examples, Downey cited his company'sability to sell generic ciprofloxacinand tamoxifen "years beforepatent expiration" after settling withthe brand products' manufacturers."These settlements all provided valueto the consumer that would not havebeen achieved if the generics had proceededto litigate and lose," he said.

Billy Tauzin, chairman and CEO of thePharmaceutical Research and Manufacturersof America, explained thatthe expense and uncertain outcome ofpatent challenges divert resourcesfrom the development of new medicationsand products. He also claimed, "Atotal ban on settlements in which thebrand company gives something ofvalue to the generic could stop proconsumersettlements, reduce the value ofpatents, and reduce incentives forinnovation."

According to Downey, the result of aban on reverse payments would bevery few generics becoming availablebefore innovators go off patent. As heexplained, "In deciding whether tochallenge a patent, the generic challengermust consider the potentialgains from the challenge?includingthe possible settlement alternatives?against the risk of recovering nothing.The generic challenger will lack thenecessary resources to litigate everypatent challenge to final judgmentupon appeal, particularly when there isthe risk that the challenger might ultimately win nothing."

Mr. Lamb is a freelance pharmacy writer living in Virginia Beach, VA, and is president of Thorough Cursor Inc.

References

1. Generic Pharmaceutical Association Media Kit. GPhA Web site. Available at:http://www.gphaonline.org/AM/Template.cfm?Section=Media_Kit&Template=/CM/ContentDisplay.cfm&ContentID=2235. Accessed February 13, 2007.

2. Mossinghoff GJ. Overview of the Hatch-Waxman Act and its impact on the drugdevelopment process. Food Drug Law J. 1999;54(2):187-194.

3. Medicare Prescription Drug, Improvement, and Modernization Act of 2003.Conference Report to Accompany H.R. 1. November 21, 2003. 108th Congress. 2dSess. Available at: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_reports&docid=f:hr391.108.pdf. Accessed February 13, 2007.

4. US Senate. Committee on the Judiciary. Paying Off Generics to Prevent Competitionwith Brand Name Drugs: Should It Be Prohibited? January 17, 2007. 110th Cong. 1stSess. Available at: http://judiciary.senate.gov/hearing.cfm?id=2472. AccessedFebruary 13, 2007.

5. Preserve Access to Affordable Generics Act. S. 316. January 17, 2007. 110th Cong.1st Sess. Available at: http://www.govtrack.us/data/us/bills.text/110/s/s316.pdf.Accessed February 13, 2007.

6. Federal Trade Commission. Bureau of Competition issues FY 2006 summary ofpharmaceutical company settlement agreements. Press release. January 17, 2007.Available at: http://www.ftc.gov/opa/2007/01/drugsettlements.htm. AccessedFebruary 13, 2007.