The FTC's Thinking Does Not Make It So Regarding Reverse Payment Agreements

By Kevin E. Noonan --

The Federal Trade Commission is nothing if not consistent.  Yet again, the Commission has released a Report on the negative effects of reverse payment (or, in Commission parlance, "pay-for-delay") agreements, in the face of competing studies (see "Generic Pharmaceutical Association Releases Report on Value of Pay-for-Delay Agreements") and well-reasoned appellate decisions (see "Second Circuit Denies En Banc Reconsideration in Cipro® Case") that, in the main, settlement agreements in ANDA litigation between branded and generic pharmaceutical companies are actually pro-competitive and result in generic drugs reaching the market sooner than they would in the absence of such agreements.

The Commission's latest audience is the Congressional "Super Committee" on the budget (having failed to convince the judiciary up to and including the Supreme Court).  The ostensible reason is that banning reverse payment agreements would "reduce the deficit and lower [the] nation's health care costs" (a mantra of patent reform proponents with almost equally little factual basis).  Calling it a "recent anticompetitive trend," the Report characterizes reverse payment agreements as merely a way for branded pharmaceutical companies to delay generic entry, thus delaying "the introduction of lower-cost prescription drug alternatives for American consumers."  The FTC Chairman was quoted as saying that "[w]hile a lot of companies don't engage in pay-for-delay settlements, the ones that do increase prescription drug costs for consumers and the government each year.  Fortunately, Congress has the opportunity to fix this problem through the Joint Select Committee on Deficit Reduction -- and save the government and American taxpayers billions of dollars," something the FTC has not been able to accomplish through litigation or the normal Congressional process (see "Sen. Kohl Introduces Bill to Prohibit Reverse Payments").  The Commission contends that the cost savings from a ban on reverse settlements would amount to $2.67 over 10 years due to savings from Medicare and Medicaid expenses.

Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, settlements between innovator drug companies and generic competitors must be filed with the FTC.  The text of this Report is an update of the Report released earlier this year (May 2011) providing a synopsis of such agreements between 2003 and 2010.  The update adds data from 2011:  according to the Report, the FTC received information on 156 "final resolutions" of ANDA litigation between branded and generic drug makers.  Of these, 28 contained a combination of compensation to the generic pharmaceutical company and a restriction on the ability of the generic drug maker to market the generic drug.  These settlements "involved 25 different branded" drugs having annual sales of more then $9 billion in total.  Another 100 settlements contained restrictions on marketing the generic drug without any "explicit" compensation, while the remaining 28 settlements had neither compensation nor market restrictions.  Of particular interest were settlements involving "first" ANDA filers, who were potentially entitled to a 180-day market exclusivity period.  Of these 54 agreements, 18 (one-third) had provisions that both compensated the generic drug maker and restricted access to the marketplace, with 10 of the 18 having express provisions prohibiting the branded pharmaceutical company from competing with an "authorized generic" or contained an exclusive license from the branded pharmaceutical company that permitted the generic drug maker to produce an authorized generic drug.  Another 29 settlements restricted market access by the generic drug maker but provided no compensation.  As part of the Report, a Table was provided that integrated the 2011 data with the previously released data from 2004-2010:

While the total number of settlements continues to increase, the percentage containing reverse payments is decreasing, particularly among first filers.  This trend seems to indicate that the scrutiny occasioned by FTC displeasure over these agreements (or the threat of antitrust litigation (from state as well as private "attorneys general"; see "Second Circuit Denies En Banc Reconsideration in Cipro® Case") is having the FTC's desired effect.  It is also possible that the real trend here is the overall increase in ANDA litigation settlements, which may indicate that the industry (both branded and generic) is coming to recognize that the Hatch-Waxman ANDA regime is wasteful of resources that might better be spent addressing deficiencies in the pharmaceutical pipeline (see "Maybe Hatch-Waxman Data Exclusivity Isn't So Good For Traditional Drugs After All").  It seems evident that the Commission will continue with its ideological idée fixe to ban reverse payment settlement agreements, regardless of whether they are either necessary or in the public interest.

Comments

[EG]

Kevin,

Nothing new here from the FTC. Simply a manifestation of the same FTC dogma on patents: patents are inherently "bad," no matter what the shape, size, or subject matter they cover.

[patent litigation]

While I have few objections to the FTC's position on reverse payment patent litigation settlements, I'm not entirely convinced that appealing to members of Congress is necessarily the FTC's most effective option ... considering how amenable our legislature generally is to the influence of lobbyists from the pharmaceutical industry and other areas of commerce. After all, industry pressure appears to have been the main factor in shaping the terms of the patent reform bill that Congress recently passed.
http://www.generalpatent.com/blog/