Congress Should Ban “Pay-for-Delay” Drug Patent Settlements: Consumer Groups

This posting was written by John W. Arden.

In a letter sent yesterday, the American Antitrust Institute and six consumer groups urged Congressional leaders to include a ban on so-called “pay-for-delay” drug patent settlements in the final health reform legislation under consideration by the Senate and the House of Representatives.

Exclusion Payments

Under such patent settlements, manufacturers of brand-name drugs pay potential generic competitors to stay out of the market. These “exclusion payments” can significantly impede the entry of generic drugs on the market, costing consumers an estimated $3.5 billion per year, according to a Federal Trade Commission estimate cited by the groups.

“Attacking the exclusion payment problem is a critical element of health care reform,” said Albert Foer, president of the American Antitrust Institute (AAI). “Because of the exclusion payments, consumers have paid billions more for drugs, and have been denied the competition and low prices they deserve.”

Addressed to Representative Nancy Pelosi (D, Calif.) and Senator Harry Reid (D, Nev.), the letter specifically supports the inclusion of language from the House bill—championed by Representative Bobby Rush (D, Ill.)—“which clarifies that these payments are per se illegal.”

Incentive to Challenge Patents

The letter further advocates the inclusion of provisions of Senate Bill No. 1315—introduced by Senator Bill Nelson (D, Fla.)—that provide an incentive for multiple generic manufacturers to challenge patents.

Currently, the Hatch-Waxman Act grants a 180-day exclusive period to the first manufacturer attempting to market a generic drug. The first-to-file manufacturer retains this exclusivity regardless of whether its challenge is successful or whether it is paid off by the branded drug manufacturer to stay out of the market, according to the letter.

“When this occurs, no other manufacturer has the opportunity to bring that generic drug to market, resulting in consumer harm,” the organizations asserted.

Senator Nelson’s bill would eliminate the incentives of the 180-day exclusivity right, the letter stated:

If a first-to-file generic manufacturer’s challenge is unsuccessful, then a right to an exclusivity period should not persist, destroying any incentive another manufacturer may have to bring a subsequent challenge to a weak or illegitimate patent. S. 1315 . . . would permit manufacturers that file subsequent successful challenges to patents to share in the 180-day exclusivity period. Expanding the exclusivity period is vitally important, since it removed the barrier to entry that has protected collusive settlements between brands and first-filing generics.

The letter was signed by AAI, Consumers Union, Families USA, The National Association on Prescription Drug Prices, Consumer Federation of America, US PIRG, and Community Catalyst.

Text of the January 11 letter appears here on the AAI website. A news release is available here.

FTC News Conference

In a related development, the Federal Trade Commission announced that it will hold a news conference tomorrow at 12:30 p.m. in Washington, D.C. to announce an FTC staff analysis showing that pay-for-delay deals between brand and generic drug companies are costing American consumers billions a year and to encourage inclusion of the House-passed pay-for-delay provision in the final version of the health care reform bill.

Further information appears here on the FTC website.