Industry fires back at FTC commissioner
June 24, 2009 – 3:34 pm by Joshua SlatkoIn a rare show of solidarity, both innovative and generic pharmaceutical companies are stacking the barricades in response to sharp criticism of generic licensing agreements by the chairman of the Federal Trade Commission. Accusing new FTC chairman Jon Leibowitz of both fuzzy assumptions and unwarranted conclusions, the leaders of the industry’s largest advocacy organization and its largest generic manufacturer were quick to fire back at Mr. Leibowitz’s attack on arrangements in which a brand-name company settles its patent lawsuit by paying a generic company to delay entering the market.
A longtime critic of licensing agreements between innovative pharmaceutical companies and their generic rivals, Mr. Leibowitz is taking advantage of his new bully pulpit to advocate a ban of the practice. In a speech this past Tuesday, he took pharmaceutical companies to task for what he calls “pay for delay” settlements. According to Mr. Leibowitz, an internal FTC analysis projects that stopping such settlements would save consumers $3.5 billion a year and also reap significant savings for the federal government, which pays about one-third of all prescription drug costs.
““From my perspective . . . the decision about whether to restrict pay-for-delay settlements should be simple,” Mr. Leibowitz says. “On the one hand, you have savings to American consumers of $35 billion or more over ten years – about $12 billion of which would be savings to the federal government – and the prospect of helping to pay for healthcare reform as well as the ability to set a clear national standard to stop anticompetitive conduct. On the other hand, you have a permissive legal regime that allows competitors to make collusive deals on the backs of consumers.”
In his speech, Mr. Leibowitz urged Congress to pass pending legislation to ban or restrict such patent settlements, and announced that eliminating them would be one of FTC’s highest priorities.
Advocates for innovative pharmaceutical companies were taken aback by Mr. Leibowitz’s comments. According to Ken Johnson, senior VP of PhRMA, FTC’s advocacy efforts against generic licensing agreements may have the unintended effect of actually limiting patient access to affordable generic medicines.
“Without the potential for early entry into the market provided by the possibility of fair patent settlements, generics companies will have less incentive to file patent challenges,” Mr. Johnson says. “This means they may well decide to avoid litigation risk and expense by waiting until the legal expiration of the patent; conversely, most patent settlements allow generic entry prior to patent expiration. In other words, banning reverse payment patent settlements – which can often hasten generic availability – will ultimately delay generic entry in many cases and, with it, patient access to generics.”
Some generics companies were also surprised. In a statement issued the day after Mr. Leibowitz’s speech, the leaders of Teva Pharmaceutical Industries argued that the settlements FTC is opposing have produced billions of dollars in taxpayer and consumer savings.
“The data presented by FTC makes the flawed assumptions that most if not all litigation would result in immediate entry of a generic to the market or that brand companies would agree to an earlier generic entry date if their settlement options were limited,” Teva’s executives say. “FTC’s purported savings are based on the flawed assumption that branded companies will voluntarily forego additional years of profits if that is the only way they can settle a case. The reality is that there will be fewer settlements resulting in the loss of guaranteed savings from settlements that would otherwise occur in the absence of the legislation.”
Teva’s position may be a singular one among generics companies. The GPhA, the organization that represents the generics industry, has expressed agreement with Mr. Leibowitz’s statements, at least on the issue of authorized generics. According to GPhA president and CEO Kathleen Jaeger, the authorized generics that derive from “pay for delay” agreements undermine Congressional intent by undercutting the 180-day exclusivity period for generic manufacturers.
“Congress provided the 180-day incentive as a means to foster investment by generic companies to challenge questionable and weak brand patents with the ultimate goal of providing more timely access to and greater choices of affordable medicines,” Ms. Jaeger says. “Simply put, but for the generic challenger, there would be no price competition. Permitting brand companies to undercut the incentive is just not sound public policy.”
On the other hand, the GPhA is not in favor of an outright ban on settlements used to resolve patent disputes. “Such a ‘bright line’ approach would have the unintended consequence of preventing pro-consumer settlements that actually would allow generic competition sooner than might otherwise be possible,” says GPhA spokesman Charlie Mayr. “Further, such an across the board ban would have the perverse effect of reducing the number of patent challenges brought by generics, working contrary to the goal of creating incentives that bring lower cost generic drugs to market sooner.”
Mr. Leibowitz is not a new arrival to the debate over generic licensing agreements. Since becoming an FTC commissioner in 2004, he has expressed his opposition to such settlements in testimony before Congress and an article in the Washington Post. And he clearly has Congressional support; the Preserve Access to Affordable Generics Act, a bill to prohibit brand-name drug manufacturers from using pay-off agreements to keep cheaper generic equivalents off the market, was introduced by Senator Herbert Kohl, D-Wis., and Senator Charles Grassley, R-Iowa, in February, with Senator Russ Feingold, D-Wis., Senator Richard Durbin, D-Ill., and Senator Sherrod Brown, D-Ohio as cosponsors.
“These agreements between generic and brand name pharmaceutical manufacturers appear to simply line the pockets of the companies and leave the bill to the consumer,” Mr. Grassley says. “In a time when our federal healthcare programs such as Medicare and Medicaid are facing extraordinary fiscal strains, this wheeling and dealing only delays the entry of lower priced medicines in the marketplace.”
While it is hard to divine how frequently companies reach such “pay for delay” agreements or what the terms are, they are clearly a commonplace occurrence. In the first half of 2009, at least seven such settlements were announced publicly, including agreements between marketer Schering-Plough and generic manufacturer Mylan Inc. for the allergy drug Clarinex, and between Sepracor Inc. and Teva Pharmaceuticals USA for the bronchospasm drug Xopenex. Also, a number of generic products based on such agreements have reached the market recently, most notably Teva’s April launch of a generic version of Shire’s ADHD drug Adderall XR based on an agreement reached in August 2006.
