FTC Report Indicates Pay-for-Delay Deals on the Rise

Posted 18 January 2013 | By Alexander Gaffney, RAC 

The US Federal Trade Commission (FTC) has issued a new report regarding a review of 140 pharmaceutical patent disputes resolved in fiscal year (FY) 2012, noting that at least 40 of those agreements involve so-called "pay-for-delay" settlements in which a patent dispute is resolved mutually in return for the delayed entry of a generic competitor.

Generic and branded pharmaceutical companies have long argued that the agreements are beneficial to all parties-taxpayers included-because they generally avoid the high costs of litigation and allow products a better chance of making it to market in the same or less time than they would under normal circumstances.

The FTC has for just as long argued the opposite, saying the agreements are anti-competitive and distort the free market by delaying the introduction of the product.

If you believe the industry, you're actually paying less because the costs of litigation aren't bundled into the cost of the medication.

If you believe the FTC, you're paying more in both your taxes, which go toward government pharmaceutical programs, and personally-insurance premiums, co-pays and out-of-pocket-to account for the costs of the settlements.

FTC Finds Agreements Costly…

A long-running series of legal battles between the two sides have done little to settle the matter, and the Supreme Court of the US is scheduled to take up the arguments in 2013, potentially settling the question once and for all.

In the meantime, FTC's report seems geared toward making the case that the agreements are a burden on society. Of the 40 cases identified, 31 involved branded pharmaceuticals worth approximately $8.3 billion. Recent research indicates generic products, once introduced, can command approximately 75% of the market. If that trend were to hold true to those 31 products, consumers would hypothetically stand to save billions each year.

The agency said its own numbers confirmed this logic. "By delaying the entry of cheaper generics, pay-for-delay deals cost Americans $3.5 billion annually and will add to the federal deficit.  The Congressional Budget Office has estimated that legislation restricting these agreements would reduce the debt by almost $5 billion over the next decade. 

…and Increasing

FTC also seems to be building the case that pay-for-delay settlements could stand to be used less often, even if they aren't banned. Of the 140 case reviews, 19 had no restrictions on generic entry, while a further 81 restricted entry but did not involve any sort of compensation.

Of the 40 settlements that had both a restriction on market entry and a payment, FTC noted that at least seven products had multiple settlements. Since 2004, it added, at least 26 products have had at least two settlements, 14 of which had three or more. The record, FTC added, was for one unnamed product with 10 generic companies that received payment in return for delayed market entry.

These agreements, unsurprisingly, usually seek to hold off the company that was first to file its application with FDA. Those companies are given 180 days of market exclusivity under the theory that they must successfully challenge the innovator's patent in order to do so. Forty-three of the 140 settlements involved first-filer exclusivity status, FTC wrote.

These agreements have exploded in recent years according to FTC data. In 2004, no pay-for-delay settlements existed. Just one year later, three agreements. Since then, the agreements have increased almost every single year. In 2011, 28 of 156 settlement agreements involved some sort of pay-for-delay mechanism.

"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."

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