The Senate Judiciary Committee recently passed a compromise version of Senator Herb Kohl’s (D-WI) bill banning pay-for-delay settlements that keep generic drugs off the market.
According to the Committee’s press release, the Preserve Access to Affordable Generic Drugs Act (S. 369) “will reduce the anti-consumer practice of brand-name drug manufacturers using pay-off agreements to keep cheaper generic equivalents off the market by making the practice illegal.” Mr. Kohl believes that this bill will save consumers millions.
These so called “pay-offs” occur when brand name drug companies settle patent disputes by paying the generic drug manufacturer millions of dollars in exchange for a promise that it will keep its version of the drug off the market. What Mr. Kohl seems to ignore is that “two 2005 appellate court decisions have permitted these payoffs.”
In fact, prior to the 2005 decisions, “no patent settlement reported to the FTC contained these kind of payments between brand name manufacturers and generics. Interestingly, the development of such agreements only started two years after, when the FTC found that nearly half of all patent settlements fell into this category.
While the obvious legal nature of such agreements is well established, the Pharmaceutical Care Management Association (PCMA) asserted in a study that health plans and consumers could save $26.4 billion over the next five years by using the generic versions of 14 popular drugs that are scheduled to lose their patent protections before 2010.
The FTC estimated that eliminating such settlements could save consumers at least $35 billion over the next ten years. FTC also believes that the federal government could save $12 billion over ten years which is approximately one-third of all prescription drug costs. To aid their efforts in creating such savings, the FTC filed an antitrust case this past February challenging the latest “pay for delay” settlement.
The FTC’s complaint alleges that Solvay, the brand name manufacturer of a hormone-boosting drug, entered into an agreement with two generic companies to delay the entry of their generic version of the drug for nine years. The FTC hopes that in proving such allegations they can eliminate such pay-offs.
Bill Summary
The Federal Trade Commission may bring a legal action to enforce any agreement settling a patent infringement claim in connection with the sale of a drug product.
Under the bill, an agreement in which a generic drug manufacturer receives anything of value from a brand name drug manufacturer that contains a provision in which the generic drug manufacturer agrees to limit or forego research, development, marketing, manufacturing or sales of the generic drug will be presumed to have anticompetitive effects and unlawful.
Such an agreement is valid if the parties to such an agreement demonstrate by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anti-competitive effects of the agreement.
In determining whether the settling parties have met this requirement, the following factors are considered:
(1) The length of time remaining until the end of the life of the relevant patent, compared with the agreed upon entry date for the abbreviated new drug application (ANDA) product;
(2) The value to consumers of the competition from the ANDA product allowed under the agreement;
(3) The form and amount of consideration received by the ANDA filer in the agreement resolving or settling the patent infringement claim;
(4) The revenue the ANDA filer would have received by winning the patent litigation;
(5) The reduction in the ANDA holder’s revenues if it had lost the patent litigation;
(6) The time period between the date of the agreement conveying value to the ANDA filer and the date of the settlement of the patent infringement claim; and
(7) Any other factor that the fact finder, in its discretion, deems relevant to its determination of competitive effects under this subsection.
In determining whether the settling parties have met their burden under subsection the fact finder cannot presume:
(1) That entry would not have occurred until the expiration of the relevant patent or statutory exclusivity; or
(2) That the agreement’s provision for entry of the ANDA product prior to the expiration of the relevant patent or statutory exclusivity means that the agreement is pro-competitive, although such evidence may be relevant to the fact finder’s determination under this section.
The bill will not prohibit a resolution or settlement of a patent infringement claim in which the consideration granted by the new drug application holder to the ANDA filer as part of the resolution or settlement includes only one or more of the following:
(1) The right to market the ANDA product in the United States prior to the expiration of (A) any patent that is the basis for the patent infringement claim; or (B) any patent right or other statutory exclusivity that would prevent the marketing of such drug.
(2) A payment for reasonable litigation expenses not to exceed $7,500,000.
(3) A covenant not to sue on any claim that the ANDA product infringes a United States patent.
Civil penalties outlined in the bill cannot exceed 3 times the value received by the party that is reasonably attributable to violations of the Act. If passed, the legislation will apply to all agreements entered into after November 15, 2009. The civil penalty provision however, does not apply to agreements entered into before the date of enactment of this Act.
Generic Drug companies violating these criteria forfeit their right to a 180 period of exclusivity of marketing of their generic drug. The FTC must bring any action within three years of being notified of the agreement under the Medicare Prescription Drug Improvement and Modernization Act of 2003.