Commissioner Jon Leibowitz of the Federal Trade Commission testified before the U.S. Senate’s Special Committee on Aging about branded and generic pharmaceutical competition and the barriers that can lead to the delay of generic entry into the U.S. marketplace.
Clearly, this comes down to money, not saving lives. Generic drugs play an important role in containing rising prescription drug costs not just comsumers but also the federal government since a large part of the budget goes towards paying for prescriptions drugs. For the past two decades, spending for prescription drugs has been the fastest growing component of the national healthcare spending. For consumers, the Congressional Budget Office estimated that consumers saved between $8 billion and $10 billion on retail drug purchases in 1994 alone.
The Commissioner addressed how patent litigation settlements can delay generic drug entry. It discussed the types of patent settlements that the Commission believes are anticompetitive – presenting possible legislative solutions to this problem – as well as how brand-name pharmaceutical manufacturers have used the 180-day marketing exclusivity period granted by Hatch-Waxman for generic first-filers to block generic entry. It also discussed how recent Court of Appeals rulings may have led to companies entering into more of such settlements.
The FTC believes that settlements of patent litigation are a significant threat to competition in the pharmaceutical industry when they include so-called “exclusion payments.” These settlements, which appear to be unique to the pharmaceutical industry, occur when a branded company shares a portion of its future profits with a potential generic entrant in exchange for the generic’s agreement not to market its product. Although both the brand company and the generic company are better off financially, these settlements restrict competition at the expense of consumers, whose access to lower-priced generic drugs may be deferred for years. The FTC now reviews all agreements between drug companies settling patent infringement disputes to ensure they are not illegally anticompetitive.
The FTC had filed a series of lawsuits challenging patent settlement agreements between major drugmakers and their generic rivals. The agency contends that in some cases those settlements stifle competition because drugmakers are paying generics to stay out of the market. The FTC issued a finding that the settlement illegally kept cheaper versions of Schering-Plough’s blood pressure drug K-Dur off the market but the appeals court said the companies were within their rights to use their patents to lock competitors out of the market.
In the Schering case, the Eleventh Circuit vacated a decision by the Commission finding two patent settlements to be anticompetitive. Schering-Plough Corporation (“Schering”), the manufacturer of a brand-name drug called “K-Dur 20,” settled patent litigation with two manufacturers of generic counterparts, Upsher-Smith Laboratories, Inc. (“Upsher”) and American Home Products Corporation (“AHP”). The two generic manufacturers agreed to not marketing their generic drugs until specified dates in exchange for guaranteed cash payments totaling $60 million to Upsher and $15 million to AHP. The Commission concluded that in each settlement, Schering had paid its generic competitors to accept the settlement and that the settlements provided Schering with more protection from competition than a settlement without a payment or simply proceeding with litigation.
The U.S. Court of Appeals for the 11th Circuit concluded that the FTC had overstepped its authority when it blocked an agreement between Schering-Plough Corp. and Upsher-Smith Laboratories Inc., and set aside the Commission’s decision stating that “neither the rule of reason nor the per se analysis is appropriate” in an antitrust case involving patents. The Supreme Court denied cert.
Under the rulings in the Second Circuit’s Tamoxifen decision and the Eleventh Circuit’s Schering decision, exclusion payment settlements are legal unless the patent was obtained by fraud or the suit is a sham. These decisions make it very difficult (if not impossible) for parties challenging patent settlements to do so based on the terms of the settlement itself (i.e., the inclusion of a reverse payment). Plaintiffs will need to show that the generic company’s product did not infringe on a valid patent – a high hurdle to get over.
The Commissioned reiterated the recommendation of the Generic Drug Study: Congress should clarify that dismissal of an action brought by a generic applicant seeking a declaratory judgment constitutes a forfeiture event for the 180-day exclusivity period.
The Commissioner also discussed the new strategy in the pharmaceutical industry, the brand-name company’s marketing of a so-called “authorized generic” during the 180-day exclusivity period. An authorized generic is chemically identical to a particular brand-name drug, which the brand-name manufacturer authorizes to be marketed as a generic version under the approval that the FDA granted for the brand-name drug. The brand-name manufacturer either sells the authorized generic itself through a subsidiary or licenses a generic firm to sell the authorized generic. The label typically differs for the brand-name drug and its authorized generic equivalent, but the drug product is exactly the same.
Heather Bresch, senior vice president of corporate strategy at Mylan Laboratories Inc., also testified concerning potential solutions for authorized generics, citizen petitions and other issues that delay generic pharmaceutical approvals and put at risk billions of dollars of consumer healthcare savings.
Ms. Bresch testified that brand companies are using a variety of tactics to extend their monopolies including: (1) authorized generics, which are simply branded products relabeled as generics and then systematically dumped into the generic marketplace during the 180-day exclusivity period; (2) use of frivolous citizen petitions raising unfounded safety-issues that are strategically filed with the FDA to delay generic entry; (3) legal maneuvering around Congress’s attempt to allow for a declaratory judgment trigger can create a bottle-neck of generic drug approvals; and (4) exploitation of pediatric exclusivity rules to gain extended monopoly for drugs that should not be used in the pediatric population.
Bresch did make it clear that “the generic industry is not opposed to authorize generics per se. Our issue lies only in the marketing of authorized generics during the 180-days of exclusivity as provided under Hatch-Waxman.” The Pharmaceutical Research and Manufacturers of America (PhRMA) , which represents brand drugmakers, defended authorized generics as a way to boost competition.
A copy of the Commissioner’s testimony is available here.
A complete version of Mylan’s written testimony for the Special Committee on Aging’s is here.
