Generic Pharmaceutical Association Releases Report on Value of Pay-for-Delay Agreements

By Kevin E. Noonan --

The Generic Pharmaceutical Association (GPhA) released a report last month on the value of generic drugs to the American consumer and economy.  Perhaps surprisingly, among the statistics and policy arguments on cost containment and all the other benefits of generic drugs touted by the Association, the Report contains an argument (contrary to the long-standing position of the Federal Trade Commission and, more recently, the Obama Administration) in favor of "reverse payment" or "pay-for-delay" agreements between branded drug makers and generic entrants to the marketplace.

The Report states that generic drugs had resulted in $1.031 trillion between January 1999 and December 2010, citing a study conducted by the IMS Institute for Healthcare Informatics and IMS Health.  The rate of savings is reported to be increasing, with $157 billion in savings in 2010 alone and one-third of the savings attributed to "new" medicines -- drugs introduced since 2001.  The Report advocates "[p]olicies that encourage generic dispensing" and that "steer clear of unwarranted restrictions on generic use" as a way to "bring even greater savings" particularly with regard to the changes mandated by the health care reform law.  Examples include increasing the use of generic drugs in the Medicaid program by 2% as a way to save an additional $1.3 billion annually, asserting that "studies" show the government "needlessly" spends billions annually prescribing branded rather than generic drugs.

The Report also advocates for increased funding for the FDA's Office of Generic Drugs (OGD), citing over 2,000 "generic drug applications" awaiting approval (with 365 of these being "first-time" generics).  As a result, "[s]avings are being left on the table each day" from the backlog, since government programs and consumers must pay for brand name drugs in the absence of an approved generic alternative.  The Report also cites the potential for generic drug companies to "provide the FDA with hundreds of millions of dollars in new user fee funding," suggesting a way to pay for more expedited review.

Regarding the new follow-on biologics ("biosimilars"), the Report characterizes this as "another opportunity to provide consumers and government with enormous savings."  However, "it is critical that the FDA maintains its commitment to funding the biosimilars program" and to develop an approval pathway "free from obstacles" that would delay entry of FDA-approved biosimilars.  The Report states GPhA's position that "the success of generics in achieving savings for consumers using traditional [small molecule] drugs can be duplicated in the biopharmaceutical market."  These range from an estimated $42 billion to $108 billion over ten years, and cites the Congressional Budget Office as estimating that prices for biologic drugs will fall by between 25-40%.  The Report also notes that the Biotechnology Industry Organization (BIO) and the Pharmaceutical Research and Manufacturers' Association (PhRMA) "recognize that competition from biogenerics and biosimilars will significantly reduce health care costs."

These conclusions are supported by data showing that savings from generic drugs has "continued to grow at an exponential rate," specifically up to $360 billion in 2010.  Generic drugs for treating cardiovascular (27%) and nervous system diseases (35%) represent 62% of the cost savings, and account for less drug spending than branded drugs despite having nearly seven times as many products on the market."  (Significant generic drug contribution to the treatment of other disease states include metabolic diseases (14%, $22 billion in savings), anti-infection drugs (8%) and skeleto-muscular diseases (5%).)  These savings are much greater than initial estimates of saving from generic drugs (which the Report asserts were $1 billion over the first ten years of the Hatch-Waxman regime; instead $8-10 billion in savings were realized between 1984 and 1994, and "[s]ince then, annual savings have grown exponentially.

The potential for savings is particularly significant for reducing healthcare spending by the Federal government, according to the Report, because there is an approximately ten-fold difference between the average monthly cost for branded drugs (~$200/mo) and the generic version (~$20/mo).  A one percentage point increase in generic drug prescriptions under government healthcare programs would result in $500 million in annual savings, according to the Report's calculations.  Direct-to-consumer costs are also affected, with the Report asserting that "the average co-payment for a generic drug was $6.06 per prescription, compare to $23.65 and $334.77 for preferred and non-preferred brand drugs."

The Report contains data regarding the drugs that accounted for these savings, identifying "blockbusters" such as Flomax® and Aricept® in 2009 and Zocor®, Norvasc® and Zoloft® between 2005 and 2009.  From 2001 through 2010, the Report ascribes $569 billion in savings from generic drugs it characterizes as "older generics," i.e., drugs with generic versions that were introduced prior to 2000, and $362 billion in savings from "newly genericized products," drugs with generic versions introduced in 2001 and thereafter.  The relative contribution of "newly genericized" drugs is expected to increase dramatically in the next few years, when branded drugs like Zyprexa®, Singulair®, Lipitor®, and Plavix® are expected to lose patent protection with the resulting entry into the marketplace of generic versions; significantly the Report notes that the latter two drugs will lose patent protection "thanks to the use of pro-consumer patent settlements."

The argument regarding "reverse payment" agreements made in the Report is that the one-third of the annual savings that result from products that entered the marketplace after 2001 implicate such agreements, because "most new generics get to market as the result of a settlement" (16 of 22 new, first-time generics launched in 2011).  The Report also asserts that, over the past 10 years, settlements of patent litigation over generic drugs "has resulted in billions of dollars in savings" due to the generic drugs at issue entering the market before they would otherwise (i.e., "prior to patents expiring on the counterpart brand drugs").  The Report characterizes such settlements as being "pro-consumer" due to the decrease in the time consumers must wait for a generic version of branded drugs involved in patent settlement agreements.  "Over the past 10 years, patent settlements have enabled dozens of first-time generics to come to market many month before patents on the counterpart brand drugs expires," the Report asserts in support of this conclusion, citing the 16 of 22 new generic drugs expected to launch in 2011 that were the result of such settlements.  The Report also cites a study by RBC Capital Markets, which "found that generic companies are successful, [and] thus able to market the generic product before patent expiration, in just 48 percent of cases, and that when factoring in settlements, generics are successful in bringing the generic product to market before patent expiration in 76 percent of cases."  While recognizing (but not acknowledging the identities of "some who contend such generic-brand agreements are non-competitive," the Report declares that "[t]he record is clear: settlements allow generic drugs to come to market long before patents on the counterpart brands expire," and that this results in "billions of dollars in annual savings."

The Report sets forth its Methodology used to make its estimates, which used data from IMS on brand and generic drug sales and unit volumes to estimate potential savings "at the molecule level."  "Branded drugs were defined as molecules from an innovator for which patent protection had expired, and generic drugs as "those introduced after [] patent protection had expired on the original reference product."  The total savings estimates were produced by considering 4,521 drugs for which both branded and generic versions were on the market.  The study excluded drugs for which there was no generic equivalent on the market and generic drugs for which there was no longer a branded version on the market.

Comments

[patent litigation]

I don't think the generics' support of pay-for-delay agreements is "surprising": after all, they're getting paid hand-over-fist in such settlements. I do think that their argument in favor of reverse-payment deals is rather disingenuous. It's not the "settlement" part that the federal government seems to object to; rather, it's the "pay" and "delay" aspects that are at issue.
http://www.generalpatent.com/blog/