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Healthy Skepticism Library item: 17009

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.


Publication type: news

Drug makers quicker to embrace settlements to delay low-cost generics
The San Francisco Business Times 2009 Dec 15^2567781


Settlements could cost consumers $35 billion over next 10 years

Full text:

Drug makers are buying time for precious revenue-producing drugs, paying off potential generic competitors to keep lower-cost alternatives off the market a few more years.

The practice – known as pay-to-delay settlements, exclusion payments or reverse payments – settles legal challenges to patents. Drug companies agree not to defend their patent against a generic challenger; but the generic maker agrees it won’t be allowed to market an alternative product for a set period, usually several years into the future.

Brand-name drug developers say the deals protect franchise products that took years and hundreds of millions of dollars to develop. Generics makers say their drugs, which can cost as much as 90 percent less than the branded products, still get to market faster than if they had to wait for brand-name patents to expire.

But others argue the settlements are anti-competitive. The deals, they say, cost consumers billions of dollars by keeping lower-cost alternatives off the market for months or years while leaving the underlying issue of the brand-name patent’s validity unsettled.

“It’s money spent gaming the system,” says Joshua Davis, a professor at the University of San Francisco School of Law.

The issue is ripe for biotech as Congress tries to create a pathway for the approval of generic biosimilars and grapples with health care reform. But the biotech industry lobbied hard and won 12 years of patent protection in both main reform bills – nearly twice that afforded to easier-to-make conventional drugs – and neither bill confronts the issue of reverse payments.

So the incentives that allow makers of conventional chemistry-based drugs to strike deals that delay the market entry of their generic equivalents potentially remain for developers of biotech drugs and their biosimilar counterparts.

Cash and carry

The pay-to-delay process typically begins when a generic maker asks the Food and Drug Administration to approve its version of the drug, claiming the underlying patent isn’t infringed or isn’t valid. The brand-name maker can sue to protect its patent, winning an automatic 30-month stay from the FDA approving the generic.

That’s where the system breaks down, critics say. Both brand and generic drug makers have an incentive to settle challenges of even weak patents – often in exchange for cash or side agreements, like product development, manufacturing and promotional service deals.

Settlements of patent challenges allowed Pfizer Inc. to hold on to its monopoly of Lipitor, the best-selling cholesterol drug, until November 2011. And Hayward-based Impax Laboratories Inc. got the right to offer its generic versions of the acne drug Solodyn in November 2011, seven years earlier than brand-name manufacturer Medicis Pharmaceuticals’ key patent would have expired.

Neither settlement reportedly involved direct cash payments. Separate to their patent settlement, however, Impax and Medicis agreed in December 2008 – the same month as the patent challenge was settled out of court – to co-develop five dermatology products, with Medicis paying Impax $40 million upfront.

Impax President and CEO Larry Hsu did not respond to interview requests.

Not all settlements include money, and not all are bad, Davis said. The problem, he said, is paying for delay.

“Reverse payments just about always are anti-competitive,” Davis said.

While the generic company gives up product revenue, it gains millions of dollars with no sales force expense – and it still gets to market sooner than if it had to wait for the brand-name patent to expire.

The brand-name drug maker, meanwhile, doesn’t have the cost of defending a patent that may not stand up in court. It also extends its product monopoly, potentially garnering billions of dollars more.

“Reverse payments give the brand that much more delay that they can purchase,” Davis said.

Faster to market

Pay-to-delay settlements will cost consumers – including government-run programs like Medicare and Medicaid – some $35 billion over the next 10 years, according to the Federal Trade Commission. But drug makers argue that the settlements resolve patent disputes quickly, often bringing generics to consumers more quickly than through protracted litigation or waiting for a patent to expire.

When litigation offers a 50-50 chance of winning, settlement is “quite appealing” for both sides, said Kathleen Jaeger, president and CEO of the Generic Pharmaceutical Association.

“It provides business certainty and brings products into the market sooner,” said Jaeger, whose organization represents the interests of makers of generic conventional and biotech drugs.

This much is sure: Deals between brand-name and generic drug markers are getting more scrutiny.

The FTC has taken an aggressive stand against pay-to-delay settlements and longer patent protections. It lobbied, for example, to provide biotech drug developers with seven years of data exclusivity that support a patent, rather than the 12 years in the health care reform bills.

“Getting health care costs under control is a daunting challenge,” FTC Chairman Jon Leibowitz said in a June speech. “But one simple step could save consumers and the federal government billions of dollars annually: stopping pharmaceutical companies from colluding with their competitors to keep low-cost generic drugs off the market.”

Additionally, in October, the agency and several national pharmacy chains sued Solvay Pharmaceuticals Inc. and generic drug makers Watson Pharmaceuticals Inc., Par Pharmaceutical Cos. Inc. and Paddock Laboratories Inc. The suits allege that the generics companies received millions of dollars to delay generic versions of the $400 million low-testosterone treatment AndroGel until August 2015.

Solvay’s monopoly on the drug would have expired in 2021.

But the FTC’s tough words haven’t necessarily translated into legal precedent-shifting victories for the agency or consumers.

The Supreme Court in June opted not to hear a case brought by the agency that centered on Bayer paying Barr Pharmaceutical some $400 million to keep the generic version of the antibiotic Cipro off the market.

A legislative solution isn’t likely, either.

Two pay-to-delay bills were introduced in Congress this year. Neither, however, stands much of a chance of being wrapped into a health care reform bill or reaching the floor on their own.

“The courts have found that a number (of settlements) are not anti-competitive,” said the generics industry’s Jaeger. “There may be one or two bad settlements, but you don’t want legislation that sweeps the good in with the bad.”

How Pay-to-delay settlements work

After years of costly research, a company brings a drug to market.
A generic drug maker seeks FDA approval of its lower-priced drug by claiming the patents of the approved brand-name drug are invalid or not infringed by the generic.
Either: As the first to file with the FDA, the generic version, if approved and unchallenged by the brand-name drug maker, receives 180 days of generic exclusivity.
Or: The brand-name drug maker files suit, delaying FDA approval of the generic for 30 months.
The generic drug maker and brand-name drug maker settle the suit. The generic gets cash to delay entry of its drug. The brand-name drug keeps its monopoly and revenue.


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Email a Friend influence multinational corporations effectively, the efforts of governments will have to be complemented by others, notably the many voluntary organisations that have shown they can effectively represent society’s public-health interests…
A small group known as Healthy Skepticism; formerly the Medical Lobby for Appropriate Marketing) has consistently and insistently drawn the attention of producers to promotional malpractice, calling for (and often securing) correction. These organisations [Healthy Skepticism, Médecins Sans Frontières and Health Action International] are small, but they are capable; they bear malice towards no one, and they are inscrutably honest. If industry is indeed persuaded to face up to its social responsibilities in the coming years it may well be because of these associations and others like them.
- Dukes MN. Accountability of the pharmaceutical industry. Lancet. 2002 Nov 23; 360(9346)1682-4.