Senate Bill Creates New Incentive Structure to End Pay-for-Delay Deals

By Donald Zuhn --

Last week, Sen. Jeff Bingaman (D-NM) introduced a bill in the Senate (S. 1882) that would eliminate the 180-day exclusivity period for a generic applicant that enters into a disqualifying agreement as defined by the legislation.  In introducing the bill, also known as the "Fair And Immediate Release of Generic Drugs Act" or "FAIR Generics Act," Sen. Bingaman (at right) asserted that the legislation was "an important step in addressing the root cause of the growing cost of healthcare--the delay of generic drugs entering the market."  Noting that "[p]ay-for-delay patent settlements [between] brand and generic pharmaceutical manufacturers . . . are delaying timely public access to generic drugs, which costs consumers and taxpayers billions of dollars annually," and that "[m]any experts and consumer advocates have called for legislation to address this problem and ensure access to affordable medicines for all Americans," the Senator stated that S. 1882 "addresses the root cause of anti-competitive pay-for-delay settlements between brand and generic  pharmaceutical manufacturers -- the unintended, structural flaw in the Hatch-Waxman Act that allows 'parked'' exclusivities to block generic competition."  According to the Senator:

The legislation would prevent "parked exclusivities'" from delaying full, fair, and early generic competition by modifying three key elements of existing law.  First, the legislation would grant the right to share exclusivity to any generic filer who wins a patent challenge in the district court or is not sued for patent infringement by the brand company.  The legislation also maximizes the incentive for all generic challengers to fight to bring products to market at the earliest possible time by holding generic settlers to the deferred entry date agreed to in their settlements.  Finally, in order to create more clarity regarding litigation risk for pioneer drug companies and generic companies, the legislation requires pioneer companies to make a litigation decision within the 45 day window provided for in the Hatch-Waxman Act.

In a statement posted on Sen. Bingaman's website, the Senator indicated that the legislation would, if enacted, "save American consumers and the federal government hundreds of millions of dollars and level the playing field among generic manufacturers."  He explains that:

Unfortunately, in many instances, the "first-filer" [i.e., first generic filer] is paid by or settles with the name brand company to delay selling their generic drug.  This leaves only the expensive brand name drug on the market, while both the name-brand company and the generic company financially benefit.  During this delay, the brand name company enjoys market exclusivity, reaping 100 percent of profits from drug sales.  The generic company may enjoy a settlement payment, and blocks other generics from coming to market.  In the meantime, American consumers and the federal government (through Medicaid, Medicare, and other federal healthcare programs) are forced to purchase more expensive medications for longer periods of time.

Sen. Bingaman notes that his bill would remedy this situation by "allow[ing] any generic company that wins a patent challenge in district court or is not sued by the brand name company to share most of the 180 day market exclusivity that was originally reserved for first filers only."

Among other changes, S. 1882 would amend § 505(j)(5)(B) of the Federal Food, Drug, and Cosmetic Act to delete section (bb) in clause (iv)(II), and re-designate sections (cc) and (dd) as (bb) and (cc), respectively.  The current version of § 505(j)(5)(B)(iv) reads as follows:

(iv) 180-day exclusivity period.
    (I) Effectiveness of application. Subject to subparagraph (D), if the application contains a certification described in paragraph (2)(A)(vii)(IV) and is for a drug for which a first applicant has submitted an application containing such a certification, the application shall be made effective on the date that is 180 days after the date of the first commercial marketing of the drug (including the commercial marketing of the listed drug) by any first applicant.
    (II) Definitions. In this paragraph:
        (aa) 180-day exclusivity period. The term "180-day exclusivity period" means the 180-day period ending on the day before the date on which an application submitted by an applicant other than a first applicant could become effective under this clause.
        (bb) First applicant. As used in this subsection, the term "first applicant" means an applicant that, on the first day on which a substantially complete application containing a certification described in paragraph (2)(A)(vii)(IV) is submitted for approval of a drug, submits a substantially complete application that contains and lawfully maintains a certification described in paragraph (2)(A)(vii)(IV) for the drug.
        (cc) Substantially complete application. As used in this subsection, the term "substantially complete application" means an application under this subsection that on its face is sufficiently complete to permit a substantive review and contains all the information required by paragraph (2)(A).
        (dd) Tentative approval.
            (AA) In general. The term "tentative approval" means notification to an applicant by the Secretary that an application under this subsection meets the requirements of paragraph (2)(A), but cannot receive effective approval because the application does not meet the requirements of this subparagraph, there is a period of exclusivity for the listed drug under subparagraph (F) or section 505A, or there is a 7-year period of exclusivity for the listed drug under section 527.
            (BB) Limitation. A drug that is granted tentative approval by the Secretary is not an approved drug and shall not have an effective approval until the Secretary issues an approval after any necessary additional review of the application.

The bill would add an additional clause to § 505(j)(5)(B) that would essentially move section (bb) to the end of § 505(j)(5)(B), and additionally require that the first applicant "has not entered into a disqualifying agreement under clause (vii)(II)."  Clause (vii)(II) states:

(II) AGREEMENT THAT DISQUALIFIES APPLICANT FROM FIRST APPLICANT STATUS.—An agreement described in this subclause is an agreement between an applicant and the holder of the application for the listed drug or an owner of one or more of the patents as to which any applicant submitted a certification qualifying such applicant for the 180-day exclusivity period whereby that applicant agrees, directly or indirectly, not to seek an approval of its application or not to begin the commercial marketing of its drug until a date that is after the expiration of the 180-day exclusivity period awarded to another applicant with respect to such drug (without regard to whether such 180-day exclusivity period is awarded before or after the date of the agreement).

The legislation, which was supported by co-sponsors Sen. Sherrod Brown (D-OH), Jeff Merkley (D-OR), Bernard Sanders (I-VT), and David Vitter (R-LA), has been referred to the Senate Health, Education, Labor, and Pensions (HELP) committee.

Comments

[Kevin E. Noonan]

Of course, the 180 day exclusivity period was thought to be a major motivator for generic drug development, so it should be interesting to see whether this motivation is diminished if the bill is enacted into law. Also, the Senators seem unaware that the first generic filer frequently charges just a little less than the innovator during the 180-day exclusivity period.

[patent litigation]

First the FTC, now Congress: so many government interests have started mobilizing against pay-for-delay patent litigation settlements (court rulings notwithstanding) that it seems like it's only a matter of time before these "reverse payment" arrangements become extinct ... at least in their current form.
http://www.generalpatent.com/blog/