An editorial in last week’s Washington Post recognized the significance of banning pay-for-delay settlements and the potential benefit to prescription drug consumers. As mentioned in the editorial, the current law’s intent to allow generic drugs to come to market sooner just isn’t working and the result is costing consumers billions of dollars a year.

For example, in one case involving the brand-name maker of the drug Provigil, Cephalon, Inc. allegedly paid off four generic companies up to $136 million to delay market entry of a generic version of Provigil for at least an additional 6 ½ years. The case against Cephalon, Inc. alleges that the brand-name manufacturer recognized the weakness of its patent and the unlikelihood that it would be the victor of a patent infringement lawsuit. That is why just about a month before its patent expired, Cephalon allegedly paid its potential generic counterparts to stay off of the market. Without these agreements consumers would have been able to purchase generic versions of Provigil at much lower costs as early as 2006. Instead, as one Cephalon executive exclaimed, Cephalon earned $4 billion in unanticipated sales. Meanwhile, consumers continue to pay high prices for Provigil and have to wait until at least 2011 or a verdict against Cephalon for a generic option. You can read more about this case on our website or in an earlier blog (New Judge and New Obama Administration Position Sparking Developments in the Provigil Lawsuit Case?)

Although there are currently several patent infringement lawsuits that may involve pay-for-delay settlements similar to the agreements in the Provigil case, including cases involving the drugs Oxycontin, Protonix, and Wellbutrin, litigation may not be the best way to solve the problem. Three out of four federal circuits to hear the case have not found a violation of anti-trust laws and the U.S. Supreme Court has twice declined to hear these cases.

There is a glimmer of hope that pay-for-delay settlements will not be able to increase prescription drug costs for American consumers much longer. The Washington Post editorial sums up need for change:

As Congress embarks on major health-care reform, it has a chance to fix the system. Banning all “pay-for-delay” settlements except where they can be proven to be pro-competitive would be a good start. True, some pay-for-delay settlements inadvertently benefit consumers by allowing generic products to enter markets sooner than they would have after litigation. But that is no excuse for failing to fix a system with fundamentally flawed incentives. The only difference between one company paying another not to produce a competing product and one company paying another not to produce a competing product yet is that the second is still, paradoxically, legal. This must change.

There are two bills pending in Congress to ban such settlements (H.R. 1706 & S. 369). You can read more about pay-for-delay settlements in PAL’s blogs. (See Obama Dept. of Justice Joins FTC in opposing pay-for-delay settlements, & House Subcommittee Approves “Protecting Consumer Access to Generic Drugs Act of 2009” H.R. 1706!) Continue to watch our blog for further updates on these very important bills!

Bill would ban the reverse payment settlements that are keeping new generics off the market!

Yesterday, a bill to ban the “pay-for-delay” settlements between brand-name drug companies and their generic competitors cleared its first legislative hurdle.

The House Subcommittee on Commerce, Trade, and Consumer Protection reported H.R. 1706, the “Protecting Consumer Access to Generic Drugs Act of 2009” out of subcommittee, sending it the House Committee on Energy and Commerce.

If passed, H.R. 1706 would ban the “pay-for-delay” settlements between brand name drug makers and generic drug makers that postpone the entry of generic drugs on the market. The measure has the potential to make a huge difference to consumers currently unable to afford their brand-name prescription drugs. Generic drugs usually cost 80-90% less than the equivalent brand name drug. During a hearing when the bill was introduced just over two months ago, testimony before the subcommittee suggested that these settlements have cost consumers about $12 billion per year since they became common in approximately 2005. [FN1] This is supported by an FTC estimate that early market entry of the generic form of only four brand name drugs (Zantac, Prozac, Taxol, and Platinol) has saved consumers and providers over $9 billion in health care costs. [FN2]

These settlements arise in part due to the laws governing the early entry of generic drugs to the market. Under current law (the Hatch-Waxman Act) the generic drug maker may apply to the FDA for approval to market and sell a generic version of a brand name drug if they feel the drug’s patent is invalid. The brand name drug maker nearly always responds by suing the generic company for patent infringement.

Since approximately 2005, brand name drug companies have been settling these patent disputes by buying-off the generic companies with multi-million dollar settlements. (See our cases on Provigil, Oxycontin, Cipro, Tamoxifen, and K-Dur.)

Current PAL member lawsuits on Provigil and Oxycontin are challenging these ‘pay-for-delay” settlements, and other PAL member lawsuits on Protonix and Wellbutrin will likely result in such a settlement. Past PAL-member lawsuits have lost challenges to these settlements in two of the three federal circuit courts to address the issue (K-Dur in the 11th Circuit and Tamoxifen in the 2nd Circuit) while only the 6th Circuit (in a non-PAL lawsuit, In re Cardizem CD Antitrust Litig., 332 F.3d 896, 908 (6th Cir. 2003)) and the FTC continue to reject these settlements as anti-competitive. H.R. 1706 would ultimately resolve the mixed results encountered by lawsuits.

H.R. 1706 would deem any payment between a brand name drug maker and a generic manufacturer to settle a patent infringement dispute to be an unfair and deceptive practice, and an unfair method of competition under the Section 5 of the FTC Act (15 USC § 45).

These “pay-for-delay” settlements also allow a loophole under the Hatch-Waxman Act to prevent any other generic manufacturer from subsequently applying to bring that generic drug to market until 6 months after the first generic company has done so. Therefore, if a brand name drug maker pays off the first generic company, which holds this 6 month period of exclusivity, no other generic company can bring that same generic to the market until after the original patent expires. For these reasons, these settlement agreements are highly anti-competitive and harmful to consumers.

The bill al (more…)