Pay-for-Delay: Using Patent Settlements to Preserve Market Exclusivity

Dr. D’vorah Graeser weighs in on the increasingly popular practice of using pay-for-delay arrangements to settle disputes over pharmaceutical patent ownership.

The onslaught of new generic products entering the pipeline as a result of the impending patent cliff has caused drug innovators to employ various strategies to ensure that their drug retains a position in the marketplace, even after the patent on their product has expired. These methods can even include direct payments to the generic companies in exchange for keeping copycats of their blockbuster at bay, a practice known in the industry as “pay-for-delay.” According to an article in The New York Times, some pharmaceutical companies consider this type of agreement as just a “cost-effective way of settling patent litigation.”

Specialty Pharmacy Times spoke to intellectual property expert D’vorah Graeser, PhD to learn how pay-for-delay works, its history in the pharmaceutical industry, and if it will become a general practice within the specialty field.

Dr. Graeser is the founder and chief executive officer of Graeser Associates International (GAI), an international intellectual property firm specializing in the preparation, filing, and prosecution of medical device, biotechnology, pharmaceutical, bioinformatics, and medical software patents. She has been a United States patent agent for more than 15 years and has extensive experience and expertise in the biomedical field.

Q: Give us some background on pay-for-delay. When was this strategy first used and how does it affect drug delivery?

A: The earliest case of which I am aware occurred in the spring of 1998, when Abbott agreed to pay Zenith Goldline Pharmaceuticals and Geneva Pharmaceuticals not to produce Abbott's drug Hytrin (terazosin hydrochloride).There may have been earlier cases, but pay-for-delay really took off in 1998-1999. In "pay-for-delay,” the originator manufacturer (in this case Abbott) pays (typically significant sums) to generic drug firms not to manufacture generic versions of a particular drug. Sometimes more than one generic drug is paid, but frequently one generic drug firm receives the money — the firm which first applies to the FDA —and also receives 180 day marketing exclusivity, during which other generic firms cannot sell the generic drug.

Q: Do you think pay-for-delay deals cause consumer harm? Why or why not?

A: Yes. These deals prevent generic competition from starting as soon as a patent expires or is shown to be invalid, meaning that consumers continue to pay the much higher price for the originator drug, instead of the much lower price for the generic drug.

Q: When a generic or biosimilar company agrees to accept a payment from a big pharma company, how are patients affected?

A: Patients are affected directly through their insurance payments, co-pays, or even out-of-pocket expenses (for drugs not covered by their insurance or for patients who have no insurance), as well as through increased funding required for taxpayer-funded Medicaid and Medicare. Therefore, this practice directly takes money out of the pockets of patients. The FTC also estimated in a study that such deals typically cost the consumer $3.5 billion dollars per year.

Q: Do you foresee pay-for-delay being a popular practice for specialty medications? What about for drugs for orphan diseases?

A: Pay-for-delay can work for any market involving drugs that go off patent. Orphan drugs are often protected by orphan exclusivity, which does not rely upon a patent, so this is not necessarily true for orphan drugs.

Q: Is pay-for-delay anti-competitive?

A: It is anti-competitive because it preserves the originator manufacturer's monopoly for a particular drug past the date when that monopoly would otherwise have ceased, due to the expiration of the patent (or due to the patent being invalid). Furthermore, it effectively involves collusion between two companies in order for the monopoly status to be preserved, which is highly anti-competitive. According to the FTC, in 2010 alone, such deals protected $9.3 billion dollars in sales of drugs from generic competition. The FTC also estimated in a study that such deals typically cost the consumer $3.5 billion dollars per year.

Q: What is the status of pay-for-delay in Europe?

A: The European Commission (antitrust regulators in Europe) brought its first case against a pay-for-delay situation in late July 2012, against Lundbeck, a Danish company, and multiple generic firms, for Lundbeck's agreements with generic drug companies related to the antidepressant citalopram. However, as far as I know, Lundbeck has not yet answered the accusations in the case, apart from stating that they were groundless.

Q: Are financial agreements like pay-for-delay lawful, in your opinion?

A: The FTC (Federal Trade Commission) does not feel that they are lawful and, in fact, has gone to court on a number of occasions in attempt to stop this type of financial agreement. On the other hand, the FTC has also urged Congress to specifically ban the practice, indicating some doubt as to the actual illegality of this practice. The FTC has never actually won a case in court against pay for delay; it has either lost or settled out of court with the companies in question. Therefore, these agreements seem to fall into a gray area of the law.

For more information on pay-for-delay, visit this FTC website: Pay-for-Delay: When Drug Companies Agree Not to Compete