“By eliminating the potential for competition by a generic product, the parties can share the monopoly profits preserved by the delayed entry, appropriating for themselves the consumer savings that would have resulted if the firms had instead competed,” FTC Chairwoman Edith Ramirez testified (PDF) Tuesday before the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights.
Defenders of the settlements say that other studies show generic drugmakers actually face steep odds in beating a patent through full litigation, and that the settlements benefit consumers through negotiated release dates for generic drugs that are, on average, several years earlier than then expiration of patent.
On June 17, the Supreme Court in FTC vs. Actavis (PDF) invalidated a legal test known as the “scope of the patent” that had made it extremely difficult for the FTC to challenge such settlements. With that legal barrier removed, Ramirez told the senators that her agency is planning to add older settlements to its number of ongoing roster of active pay-for-delay investigations.
The generic drug industry rejects the FTC's criticisms and contends that any effort by the Senate committee to enact new laws clamping down on payments between proprietary and generic drugmakers will increase litigation costs and harm efforts to bring generics to market sooner.
“The growing body of recent data demonstrates without a doubt that enacting restrictions on settlement options can deter patent challenges by generics manufacturers, leading to increased healthcare costs and fewer generic choices for patients,” Ralph G. Neas, president and CEO of the Generic Pharmaceutical Association, said in written comments.The Supreme Court ruled that patent settlements can be challenged on a case-by-case basis under a test called “the rule of reason,” which the industry prefers to congressional legislation that could affect all such deals uniformly.
But Georgetown law professor and international public health law expert Lawrence Gostin wrote this week that many of the deals likely to face FTC challenges don't appear able to survive them.
While these so-called “reverse payment agreements” pose potential anti-competitive harm, they can also be legitimate when tied to another business motive besides company profits, Gostin wrote on a blog published by the Journal of the American Medical Association. Future cases will probably turn on the size of the payment involved, and whether large settlements indicate that the payments are clear financial inducements to avoid launching generics.
“These deals can no longer be purely an arrangement to share in the profits, depriving consumers and taxpayers of the benefits derived from lower drug costs,” Gostin wrote. “The parties to the settlement will also have to show that the payment was for something other than delaying market entry. Most current reverse payment agreements would not be lawful under these standards.”
In an interview Tuesday, Neas said that in any such challenge, the burden of proof will rest with the government to prove its case, because the Supreme Court rejected the approach urged by the FTC that would have put the burden on drug companies to show their deals were legitimate.
“I think the generic manufacturing companies feel comfortable with these settlements, and whether it is the scope of the patient rule or rule of reason, they will be able to win in these cases,” he said.
It remains to be seen whether the payments at issue in Actavis were so high that they could be construed as anti-competitive.
The case is headed back to U.S. District Court in Georgia for more litigation to determine whether Watson Pharmaceutical—which is now known as Actavis—and other generics makers engaged in anti-competitive conduct by accepting hundreds of millions in payments from Solvay Pharmaceuticals to drop litigation challenging patents on a testosterone replacement drug called AndroGel. Solvay is now owned by an Abbott Laboratories spinoff called AbbVie.
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