Big news in pay-for-delay: Pharmaceutical companies across the world caught paying generic companies to not offer affordable medicine to sick people
June 27, 2013
Last week, two important cases involving the “pay-for-delay” of generic drugs were decided in the US and EU.
The European Commission fined various pharmaceutical companies, most notably Lundbeck, to the tune of 143 million euro for delaying generic forms of Celexa, a name brand, blockbuster antidepressant drug. Here in the US, it was a delayed generic form of testosterone gel that was at the center of a Supreme Court case judging whether certain types of pharma settlements ought to be evaluated for anti-competitive elements, in essence, whether they are subject to antitrust laws.
It’s a clunky, jargon-filled pill to swallow. Here’s how it works:
Pay-for-delay occurs when brand-name drug manufacturers offer financial incentives—one might call them bribes—to generic manufacturers in order to prevent generic drugs from entering the market. However, this practice plays out neither in secret nor behind-closed-doors. It has been happening right out in the open, and it’s only now that some cases are being decided against what at first glance seems to violate the entire spirit of free market competition.
Why wouldn’t generic drug manufacturers want to enter the marketplace? Many consumers would jump at a lower-cost drug option. Besides, generic drugs already bottle up billions of dollars anually. What’s going on is a knotty exploitation of certain patent provisions paired with fairly overt anti-competition aims. The result is the practice of “reverse payment settlements,” a term almost Orwellian in its absurdity.
I can apply to manufacture a generic version of, say, Adderall XR, as Novartis did in 2008, claiming that Shire, the innovators and patent holders of everyone’s favorite study drug, no longer hold a valid patent. Drug companies often augment a small element of their delivery system, then request a patent extension. In this case, Shire had “amended its claims and retracted the alleged disclaimer of pH-independent coatings” in 2001, requesting an extension of their patent. So basically they changed the coating. Hardly revolutionary.
To that claim, Novartis fired back, to paraphrase, with That’s bullshit. Your patent should have expired and you’ve extended it on a technicality. We plan to manufacture a generic version of Adderall XR. But then Shire sued Novaris for patent infringement, spurring the FDA to put a 30-month hold on the generic drug’s application the two companies can litigate—in this case, the standard length of time to postpone generics.
At the center of the controversy in the Supreme Court case here was AndrogGel, a brand of testosterone gel with a patent held by Solvay. Synthetic testosterone was first isolated in the 1930s—that’s far too old for patent protection—so Solvay had focused on their delivery system, a gel. Though there can certainly be propriety features to a gel, it’s among one of the more difficult innovations to defend. This was a perfect example of a weak patent that could be invalidated by litigation with generic companies.
Solvay contended, however, that they would lose 90 percent of their AndroGel sales, a loss of $135 million, if the drug went generic. Instead of generic companies pushing forward in court, a settlement was reached where Solvay paid the generic companies to drop the suit.
Over and over, generic makers would challenge the validity of patents set to expire in the future. Then, the patent holders would sue them for infringement and they would go to court. They would settle out of court—typical of high-cost cases. But what raised some eyebrows was that these “reverse payment settlements” kept happening; the flow of money was reverse of what was expected. The patent holders would pay huge sums of money to the generic companies they were suing in the first place. That makes as much sense as my suing my employers for sexual harassment, but then paying them a million dollars.
In these cases generic drugs are delayed, prices for the drug remain artificially high, patent holders enjoy months or years more of exclusivity, and the generic manufacturers get money for doing nothing. Everyone is happy. Except the sick & dying people who need affordable medication.
A 2010 report by the Federal Trade Commission revealed that over $20 billion in name-brand drug sales were then shielded by pay-for-delay settlements. This delay of generics cost consumers $3.5 billion that year. From fiscal year 2004 to 2008, the FTC flagged 66 cases where financial settlement from the brand to generic was combined with a delay of generics to the marketplace. The average delay in a pay-for-delay scenario was 17 months longer than patent litigation absent a financial settlement from brand to generic. Though that might not seem extremely long, for a spread of drugs that net hundreds of millions of dollars in revenue per year, it’s both a huge profit for the company and a huge cost to consumers who already struggle under the burden of increasing healthcare costs.
While the Supreme Court decision was a step in the right direction for more available generics, it didn’t outright prohibit these types of deals. Some patent litigation between generics and brands is helpful and important. It’s now up to various courts to wade throough piles of settlements to determine which are legitimate, and which are blatant attempts to stifle competition.
Pay-for-delay is a sick, dangerous and evil process. Artificially raising the price of medication is super-villain evil.