Is Pay-for-Delay Here to Stay?

By: Kyle Hodgin, CIS Compliance Associate
kylehodgin@cis-partners.com

In a blow to consumer rights activists and insurance companies, the Supreme Court recently declined to hear a case concerning the pay-for-delay practices made possible under the Hatch-Waxman Act of 1984. The absence of a ruling by the high court translates into secured profitability for branded pharmaceutical manufacturers, and possibly slower availability of generic alternatives to branded drugs for consumers. The decision by the courts to pass on hearing the case perpetuates the existing system under the Act and continues to raise questions in the minds of lobbyists and consumers alike such as; does the public have a right to cheaper generic drugs, and do manufacturers have a right to prolong protection of proprietary materials and information in light of increasing costs for branded meds?

The so-called, “pay-for-delay” practice has become a divisive issue between manufacturers and consumer activists. The practice involves a payment from branded drug makers to generic manufacturers to simply hold off on production as an alternative to enduring patent infringement litigation. The deal provides the generic companies with a substantial amount of cash with relatively little expenditure and the branded makers with a prolonged period of exclusive market share for that particular product. Critics cite the practice as anticompetitive as it prevents other generic manufacturers from entering the market. The Hatch-Waxman Act allows the first generic manufacturer to win FDA approval, for a generic version of a branded drug, 180 days of exclusivity. This provision was intended to incentivize competing generic makers to invest in the necessary tests to achieve bio-equivalency with assurance of recuperating those costs once the drug was approved. However, branded manufacturers have instead offered cash incentives to these generic companies to refrain from bringing the product to market for a specified period of time, in which case other generic companies are unable to obtain FDA approval for that particular product.

The payments, called reverse settlements, have insurance companies and consumer groups on edge, because they view the agreements as collusion, ultimately ending in a significantly higher price to the consumer; however, some generic drug makers and branded companies claim the agreements have multiple benefits to companies and consumers alike. When generic firms apply for an Abbreviated New Drug Application (ANDA), they are required to establish that the patent for the branded product is expired or invalid, and to notify the patent holder of the submission of the ANDA. Under the Act, branded companies are able to file a patent infringement suit within 45 days of the submission of the ANDA, and consequently, the courts must immediately enact a stay of up to 30 months to review the patent and determine if any infringement has occurred, during which time the generic firm may not market the contested product. This may effectively provide the branded manufacturer with up to two and a half additional years of exclusive market share that far outweighs the cost of infringement litigation. During the initial stay, the company has the opportunity to file a secondary patent on the original drug that, if granted, provides another opportunity for the manufacturer to file an infringement suit against the generic maker, thereby opening the door for further stays perpetuating exclusive marketing rights for the branded maker. The reverse settlement agreement is viewed as a means to avoid litigation, which can be costly for generic manufacturers as they often do not possess the same financial means as their branded counterparts. By not continuing the litigation, branded and generic firms can possibly bypass the lengthy stays that are enacted while the courts decide on the infringement suit.

Branded drug companies also cite the agreement as another method to protect property that took years, and tremendous amounts of capital, to develop. With the cost of bringing a single successful drug to market hovering around 800 million dollars and 8-12 years of development, manufacturers look to plow a significant portion of earnings from their branded products into research and development budgets. Some are concerned that further attempts to redefine patent laws will see a shortage in these crucial investments that could ultimately lead to a lesser quality of life for the general public in years to come. The Supreme Court’s decision to pass on hearing the latest case involving pay-to-delay practices means consumer groups and insurance companies may have to look to reform of the Hatch-Waxman Act or a change in patent laws to effectively bring an end to this practice.

Sources:
http://www.fiercepharma.com/story/supremes-wont-revew-pay-delay-case/2009-06-23
http://knowledge.wharton.upenn.edu/article.cfm?articleid=575
http://www.law.duke.edu/journals/dltr/articles/2003dltr0018.html
http://www.unav.es/english/news/105.html