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March 11, 2013

Preserve Access to Affordable Generics Act: Congress Proposes End to Pay for Delay

Drug Manufacturing
As we noted earlier this year, the U.S. Supreme Court agreed to hear a case to decide whether agreements between brand-name pharmaceutical companies and generic makers to delay the entry of generic drugs to the market—so called “pay for delay” deals—violate antitrust laws.  “In a typical case, a generic rival challenges the patent of a brand-name competitor, which then pays the rival a sum of money to drop its challenge,” reported Reuters.   

Patents on drugs can last as long as 20 years and drug companies can sometimes extend the protection for their products by obtaining separate patents for a coating or a slightly different product that includes inactive ingredients.  

As the Los Angeles Times noted, several federal courts in the last decade “have upheld such agreements on the grounds that they are settlements of disputes over patents.”  The FTC case will be decided by an eight-member court.  Justice Samuel Alito recused himself, without giving a reason.  Oral arguments will be in the spring, with a decision expected by the end of June.   

The Federal Trade Commission (FTC), however, has been challenging these agreements as illegally stifling competition and preserving monopolies.  Last year, FTC said that 28 such deals were made, and between 127 of such arrangements were struck between 2005 and 2011, at an annual cost to consumers of $3.5 billion in artificially higher prices.  “When drug companies agree not to compete, consumers lose,” FTC Chairman Jon Leibowitz said.  FTC added that generic-drug makers in the 1990s and early 2000s won about 75 percent of the patent suits that have been litigated to final judgment.   

A more recent report released by FTC found 40 deals in fiscal year 2012, up from 28 in 2011.  The deals covered 31 different products, with combined annual U.S. sales of more than $8.3 billion.  FTC began collecting data in 2003.  Of the 40 final settlements that potentially involve pay-for-delay, FTC staff found that 19 – nearly half – involved agreements by the branded firm not to market an AG product that would compete with the generic company’s product.  Such “no-AG” promises are valuable to generic firms, as they significantly reduce the level of competition the new generic entrant will face, allowing the generic firm to secure greater market share and extract higher prices from consumers. 

“Sadly, this year’s report makes it clear that the problem of pay-for-delay is getting worse, not better,” said FTC Chairman Jon Leibowitz.  “More and more brand and generic drug companies are engaging in these sweetheart deals, and consumers continue to pay the price.   Until this issue is resolved, we will all suffer the consequences of delayed generic entry – higher prices for consumers, businesses, and the U.S. taxpayer.” 

In light of the recently announced Supreme Court case and these numbers, two U.S. Senators introduced legislation that would restrict pay-for-delay deals.  Specifically, Senators Charles Grassley (R-IA) and Amy Klobuchar (D-MN) introduced Senate bill 214 (S.214), A Bill to prohibit brand name drug companies from compensating generic drug companies to delay the entry of a generic drug into the market—also known as the Preserve Access to Affordable Generics Act—which would seek to “enhance competition” by ending any agreement that delays, limits or prevents generic drug competition. 

The bill was referred to the Senate Judiciary Committee on February 4th, and also includes co-sponsors Al Franken (D-MN) and Dick Dubrin (D-IL).  

The purpose of the Act is twofold: (1) enhance competition in the pharmaceutical market by stopping anticompetitive agreements between brand name and generic drug manufacturers that limit, delay, or otherwise prevent competition from generic drugs; and (2) support the purpose and intent of antitrust law by prohibiting anticompetitive practices in the pharmaceutical industry that harm consumers. 

“These pay-for-delay deals keep more affordable generic drugs off the market, hurting consumers and stifling competition,” said Klobuchar in a statement. “The recent rise in pay-for-delay agreements underscores the need for legislation to help make sure people have access to the drugs they need at a price they can afford.” 

“Clearly, pay-for-delay deal-making is an obstacle to getting cheaper prescription drugs on the market,” Grassley added.  “These anti-competitive patent settlements between brand and generic drug companies hurt consumers’ access to affordable medications, and they hurt taxpayers who pay for prescription drugs under both Medicare and Medicaid.  It’s a practice that puts the interests of drug companies above the interests of consumers, and it’s time for it to end.”  The legislation is nearly unchanged from what Senator Grassley previously introduced in the 112th Congress, according to the FDA Law Blog.  

The law would specifically pertain to abbreviated new drug application (ANDA) filings relative to their reference listed drug (RLD).  However, the bill does not address concerns that it gives “excessive power over such settlements to the FTC – a power that the FTC has shown itself in the past to be unable to exercise in a responsible or economically rational manner – and that the bill would do serious violence to the Hatch-Waxman process for the market entry of generic drugs,” writes the FDA Law Blog.   

Moreover, as the blog notes, “it seems unlikely that prior criticism of the bill’s legal presumption rule will change.  For example, back in February 2010 in a report on S. 369 (see here, pages 18-24), Sens. Orrin Hatch (R-UT), Jon Kyl (R-AZ), John Cornyn (R-TX), and Tom Coburn (R-OK) commented: the bill would amount to a de facto per se ban on covered settlements and would entail all of the evils attendant to a per se ban . . . .  For a legal-presumption rule to work, however, the parties must be afforded a forum in which they can quickly and fairly test whether they have overcome the presumption and whether the agreement is valid.” 

The law also contains one notable exception that may placate the pharmaceutical industry.  “If the parties to such agreement demonstrate by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anti-competitive effects of the agreement,” then such deals will not be presumed to be anti-competitive, reported RAPS.  

This could keep the pay-for-delay practice alive, though its proponents would need to present compelling evidence of its benefits to the consumer, including the value to consumers, the form and amount of compensation, revenues under various scenarios, the time it takes for the generic to reach market under various scenarios, and any other information deemed to be relevant. 

Any company found to be violating the law would be forced to pay a fine of up to three times the value received by either the new drug application (NDA) or ANDA holder.

The Congressional Budget Office (CBO) expects that enacting S.214 would accelerate the availability of lower-priced generic drugs and generate over $4.7 billion in budget savings to the Federal Treasury between fiscal years 2012 and 2021. 

In addition to this legislation, the FDA Law Blog noted that the 112th Congress “saw the introduction of the Protecting Consumer Access to Generic Drugs Act of 2012 and the Fair And Immediate Release of Generic Drugs Act, or the “FAIR GENERxICS Act,” which we reported on here and here, and that propose different ways of addressing the issue of drug patent settlement agreements.”

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