FTC Releases Analysis of Pay-for-Delay Settlements; Renews Call for Legislation

By Kurt R. Karst –      

As we reported yesterday, the Federal Trade Commission (“FTC”) held a press conference on January 13, 2010 announcing the release of a report, titled “Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions,” on the effects of pay-for-delay deals in the drug industry over the past 6 years.  FTC Chairman Jon Leibowitz and Commissioner J. Thomas Rosch issued separate statements (here and here) about the report.  The FTC also announced the creation of a new pay-for-delay website providing information about the FTC’s work in the area of branded and generic drug competition.

The report, which has been timed to urge Congress to include pay-for-delay provisions in the Health Care Bill, estimates that pay-for-delay agreements “cost American consumers $3.5 billion per year – $35 billion over the next 10 years.”  The report concludes that “a legislative solution offers the quickest and clearest way to deter these agreements and obtain the benefits of generic competition for consumers.”  

The FTC report notes that although the U.S. Court of Appeals for the Sixth Circuit  held in 2003 that such agreements were per se illegal (In re Cardizem CD Antitrust Litigation, 332 F.3d 896 (6th Cir. 2003)), subsequent appellate court decisions upholding such agreements (Schering-Plough Corp. v. Fed. Trade Comm’n, 402 F.3d 1056 (11th Cir. 2005); In re Tamoxifen Citrate Antitrust Litigation, (2d Cir. 2006); In re Ciprofloxacin Hydrochloride Antitrust Litigation, 544 F.3d 1323 (Fed. Cir. 2008)) have led to their increasing use, as shown in the following table from the report:

(Information in the table above is based on submissions made to the FTC required by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”).  The MMA requires pharmaceutical applicants – both brand and generic – to file with the FTC and the Assistant Attorney General certain agreements executed on or after January 7, 2004.  Since the enactment of the MMA, the FTC has published summaries of these agreements.  Copies of previous summaries are available here.)

The FTC reportedly has “multiple investigations underway,” and has filed complaints opposing pay-for-delay arrangements concerning generic ANDROGEL (testosterone gel) (Fed. Trade Comm’n v. Watson, No. 09-cv-00598 (N.D. GA Feb. 9, 2009) (transfer order)) and PROVIGIL (modafinil) (Fed. Trade Comm’n v. Cephalon, No. 08-cv-2141-RBS (E.D. Pa. May 8, 2008) (transfer order)), respectively. 

Other findings discussed in the report include the following:

• “Agreements with compensation from the brand to the generic on average prohibit generic entry for nearly 17 months longer than agreements without payments, where the average is calculated using a weighted average based on sales of the drugs.”

• “From FY2004-FY2009, 66 final agreements involved some form of compensation from the brand to the generic combined with a delay in generic entry.”

• “Out of the 66 agreements that combined compensation from the brand to the generic with deferred generic entry, 51 agreements (77%) were between the brand pharmaceutical company and the generic company that was the first to seek entry prior to patent expiration for the relevant brand-name drug.”

• “From FY2004-FY2009, pharmaceutical companies filed a total of 218 final settlement agreements involving brand and generic companies. Seventy percent of those patent settlements – 152 – did not involve compensation from the brand to the generic combined with a delay in generic entry.”

• “About 25% of patent settlement agreements from FY2004-FY2008 that were with first-filer generics involved an explicit agreement by the brand not to launch an AG to compete against the first filer, combined with an agreement by the first-filer generic to defer entry past the date of the agreement.”