Regulatory Focus™ > News Articles > GPhA Report Outlines Best-Case Scenario for Patent Settlements, Claiming Billions in Savings

GPhA Report Outlines Best-Case Scenario for Patent Settlements, Claiming Billions in Savings

Posted 10 July 2013 | By Alexander Gaffney, RAC

The US Supreme Court may have already weighed in on the issue of so-called "pay-for-delay" deals - patent settlements in which an innovative company pays its generic competition not to market a product - but that isn't stopping the Generic Pharmaceutical Association (GPhA) from weighing in on the deals again, arguing they have saved US consumers more than $25 billion since 2005.


On 17 June 2013, the Supreme Court ruled in the case of Federal Trade Commission v. Actavis, finding that pay-for-delay agreements could be anti-competitive under federal law, but that they were not automatically assumed to be so-a minor victory for Actavis (now owned by Watson Pharmaceuticals), which otherwise failed in its attempt to protect a deal from legal scrutiny.

Under pay-for-delay deals, generic and branded companies settle ongoing patent litigation in return for a settlement (generic companies typically get cash payments and a date by which they can enter the market, while branded companies get more time to market a product without competition).

While generic and pharmaceutical companies generally favor the deals, the Federal Trade Commission (FTC) has been staunchly opposed to them, arguing that they serve to delay market entry for generic products, thereby causing consumers to pay more money for branded, high-cost pharmaceutical products.

"Such agreements most closely resemble agreements through which an incumbent firm pays a potential competitor to stay out of the market-a practice ordinarily condemned as a per se violation of Section 1 of the Sherman Act," FTC wrote in its Supreme Court amicus brief. "Such agreements between rivals are generally anticompetitive because they directly restrict output and raise price."

Pharmaceutical Companies: Pay-for-Delay Good for Consumers

However, pharmaceutical companies have continuously advanced an argument that was received favorably before the court: Because the process settles litigation, the settlements can actually lead to products coming to market sooner than they would otherwise. Additionally, because the settlements are only with one company, other generic manufacturers could always bring the product to market on their own.

The Supreme Court's decision gave a nod to FTC's arguments by saying that there is "reason for concern that such settlements tend to have significant adverse effects on competition," but also noted that they could have "procompetitive" effects as well.

And those procompetitive effects are the focus of a new GPhA report in which the organization finds that between 2005 and 2012, patent settlements saved US consumers an estimated $25.5 billion and brought generic competition to market on average 81 months sooner than the date of patent expiration.

"For years, opponents of pharmaceutical patent settlements with consideration have stated that settlements create a cost for consumers, the government and others," wrote Ralph Neas, president of GPhA. "This new analysis provides the most current, complete and transparent estimate of the impact of patent settlements on health costs, and it shows that the opposite is true."

To come up with its figures, GPhA's study looked at 31 molecules, comparing their date of market entry to the date of patent expiration in FDA's Orange Book - a listing of all reference listed drugs (RLD) and relevant patent use information.

Best-Case Scenario

While the study rests on something of a tenuous assumption - that 100% of patents were strong enough to withstand legal scrutiny and would not have been struck down under a Paragraph IV certification challenge - it nevertheless represents something of a best-case scenario for patent settlements (or pay-for-delay, in FTC parlance). The report concedes that based on average win rates, the savings would likely be far lower, depending on which drugs won or lost their legal battles.

Opponents have consistently argued that many of those challenges would ultimately have been successful (as nearly half of generic patent challenges are), bringing many drugs to market far sooner than the Orange Book date would indicate. FTC, for instance, found the deals actually cost consumers $3.5 billion per year, while the Congressional Budget Office (CBO) determined they will cost the US government $0.9 billion in the 2010-2015 period and $2.7 billion between 2010 and 2020.

GPhA/IMS Health Report

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