A critic’s dream

January 13, 2010 – 5:10 pm by Joshua Slatko

So-called “pay for delay” deals, the arrangements in which pharmaceutical companies pay off potential generic competitors in exchange for a delayed generic launch, have been a popular target of industry critics for years. But now such deals may be in mortal danger. Speaking at a joint press conference today, FTC chairman Jon Leibowitz (who has a history with this sort of thing) and a number of members of Congress renewed their plea for a ban of what they call “anticompetitive patent settlements.” This has been a big fat issue for the folks at FTC for a while; they even dedicate a chunk of their Website to it, including studies showing the potential savings lost by American consumers thanks to such deals.

“Pay-for-delay deals are a bad prescription for America: when drug companies agree not to compete, consumers lose,” a properly indignant Mr. Leibowitz told the journos. “Ending this practice as part of health care reform is one simple, effective, and straightforward way for Congress to help control drug costs.”

Mr. Leibowitz’s dream is nearing fulfillment. A provision in the House’s version of the health reform bill would ban such arrangements outright. The Senate health reform bill does not include such a provision. A separate Senate bill would allow some settlement arrangements to still take place if deemed pro-competitive. In the view of analysts at Concept Capital, the House language is more likely to be included in the final health reform bill.

“The Senate provision is less restrictive in that it does not ban settlement arrangements outright and allows some to still take place if deemed pro-competitive,” says Eric Assaraf of Concept Capital. “Arrangements deemed anticompetitive would be subject to a civil penalty of up to three times the value of the deal. The Senate version would not apply to agreements made prior to Nov. 15, 2009, and the civil penalties would not apply to agreements made before enactment of the legislation. In contrast, the House’s pay for delay provision is more restrictive in that it would ban most settlement arrangements between generic and branded drug companies.”

Although the pharmaceutical industry is opposed to the provision, Mr. Assaraf says it is unclear if it would violate the $80 billion deal with the White House/Senate Finance Committee. “PhRMA will undoubtedly be asked to contribute more toward the cost of health reform, and we view this as a lower priority item for them compared to Medicaid-level rebates for dual eligibles,” he says.

The math wizards at the Congressional Budget Office believe that the language in the House bill will only save the government about $1.8 billion over 10 years – a mere bag of shells, in this context – while FTC’s study estimates government savings at $12 billion (and consumer savings at $35 billion) over the same period.

If your business is selling pharmaceuticals, though, it’s bad news no matter who is right.

“Bottom line, we believe negative risk remains for big pharma and generic drug companies if the House provision passes,” Mr. Assaraf says.