FTC Summary Of Agreements Filed By Generic And Branded Drug Manufacturers And Commissioner Leibowitz's Speech On Pharmaceutical Patent Settlements

The Antitrust Review has a long blog entry entitled Pharmaceutical Patent Settlements & The FTC which discusses: (1) the FTC's press release on Monday summarizing the agreements filed with the FTC by generic and branded drug manufacturers under the Medicare and Prescription Drug Improvement and Modernization Act of 2003; and (2) FTC Commissioner Jon Leibowitz's speech on the same day at the 2nd Annual In-House Counsel's Forum on Pharmaceutical Antitrust. In this speech, Commissioner Leibowitz stated:

[S]tarting in the late 1990s, the Commission began to see pharmaceutical patent settlements in which brand firms paid generics to stay off the market. This conduct stopped, though, after we challenged several such agreements.

Having said that, recent appellate decisions that sanction this type of conduct are threatening the core of Hatch-Waxman. If the Supreme Court -- or Congress -- doesn't reverse this trend, the result could be a substantial increase in drug costs -- and substantial harm to the consumers who pay for these drugs.

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The unquestioned vitality of that statute [Hatch-Waxman], though, is being threatened by the Schering and Tamoxifen decisions.

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Sadly, these appellate decisions are affecting behavior in the market -- we believe adversely. We are seeing far more settlements today that potentially raise competition concerns than before these decisions.

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In addition to seeing more settlements with payments today, we are also seeing another interesting trend. Brand firms are not stopping after settling with the first ANDA-filer; in some instances, they are settling with most or all subsequent filers to guarantee no generic entry by anyone until a date certain -- one that's usually near patent expiration.

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Why are we seeing these settlement trends? First of all, pharmaceutical firms recognize that the Commission's view in Schering is under attack, and thus they believe they have less to fear from potential antitrust enforcement. If I were in-house counsel at a pharmaceutical company, that might be the way I'd view the world too.

Second, the growing threat of authorized generics may diminish a generic's
incentive to fight. If a first-filer believes that the brand will sponsor an authorized generic -- something that many expect today on any significant drug -- the profits to be made in the 180-day exclusivity period are reduced substantially, perhaps even cut in half. So the generic firm's calculus in the fight-versus-settle equation may now be more heavily weighted towards settling.

Rather than gamble on winning in court, a generic may decide that a fixed entry date and guaranteed revenue stream is a better value than rolling the dice. Indeed, by settling under terms that include the brand's promise not to launch an authorized generic -- the generic can even assure itself of some exclusivity down the road.