Bill Seeks to End Pay-for-Delay Agreements

| 06 February 2013 |  By 

A new piece of legislation introduced in the Senate would prohibit so-called "pay-for-delay" deals under the assumption that the deals delay the introduction of cheaper generic pharmaceutical medicines and are thus anti-competitive.


The deals occur when a branded company and one or more generic companies settle patent litigation in such a way that the generic company agrees to delay introduction of its generic product for a period of time in return for a payment or series of payments from the branded pharmaceutical company.

The deals have long been seen as anti-competitive by federal regulators with the US Federal Trade Commission (FTC), which has frequently sued manufacturers in an attempt to establish legal precedence that the deals violate federal anti-competition laws. FTC's legal efforts have been met with mixed amounts of success, but the matter could soon be settled by the Supreme Court of the United States, which announced in December 2012 that it will soon hear a case between Abbott Laboratories subsidiary Solvay Pharmaceuticals and generic manufacturers Watson Pharmaceuticals, Paddock Laboratories and Par Pharmaceutical Companies.

The pharmaceutical industry, it should be noted, argues that pay-for-delay agreements are actually beneficial to the customer. Because the settlements avoid the delays and costs associated with patent litigation, they argue, consumers benefit from gaining access to most medications before they otherwise would, and at a cheaper cost since generic companies don't need to bundle the cost of litigation into the product.

Whatever the merits of either argument, the deals are on the rise, FTC said in a recent report.

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."

Leibowitz has announced he will leave the FTC in mid-February 2013, leaving open the question of who will succeed him and whether they will share his views on pay-for-delay dealmaking.

New Legislation

Now, a piece of legislation sponsored by Sens. Amy Klobuchar (D-MN) and Charles Grassley (R-IA) is hoping to outlaw the practice in its entirety.

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-would seek to "enhance competition" by ending any agreement that delays, limits or prevents generic drug competition.

"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 law would specifically pertain to abbreviated new drug application (ANDA) filings relative to their reference listed drug (RLD).

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.

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.

Congress has found that eliminating pay-for-delay agreements could save taxpayer nearly $5 billion between 2012 and 2021.


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