In recent developments that affect both brand name and generic drug manufacturers, both houses of Congress continue to debate legislation that, if passed as expected later this year, will make so-called generic “pay for delay” settlements presumptively unlawful. The Senate version of this legislation reached the Senate Floor on October 15. In his remarks on October 22 to the California State Antitrust Bar, Director of the Bureau of Competition at the Federal Trade Commission (“FTC”) Richard Feinstein reiterated that the FTC has “no higher priority” than to eliminate such settlements and indicated that the FTC will continue to challenge them even if Congress does not enact the pending legislation.
On October 15, the Senate Judiciary Committee reported out Senate Bill 369 (S. 369), entitled “A bill to prohibit brand name drug companies from compensating generic drug companies to delay the entry of a generic drug into the market.” This bill, if passed in its current form, will prohibit brand name drug companies from entering into agreements with their generic competitors under which the generic manufacturer who is a holder of an abbreviated new drug application (“ANDA”) agrees to delay market introduction of its generic version of a drug -- that is, unless the generic manufacturer receives less than $7.5 million for litigation expenses or the parties can show by “clear and convincing” evidence that the agreement is not anticompetitive. Such agreements -- often used to settle ANDA patent litigation -- are generally referred to as “reverse payment” or “pay for delay” agreements. As originally introduced in February 2009, S. 369 would have banned all such agreements, but was amended this month during the Senate Judiciary Committee mark-up sessions to allow for the two exceptions noted above.
S. 369 is designed to reinforce the 1984 Drug Price Competition and Patent Term Restoration Act (the “Hatch-Waxman Act”), which was enacted to facilitate early entry of generic drugs while still incentivizing innovation by the brand name drug companies. One of the goals of the Hatch-Waxman Act is to allow early market entry of generic drugs to ensure their accessibility to consumers at affordable prices. However, in “reverse payment” agreements, the defendant generic drug company involved in an ANDA patent litigation receives a substantial payment -- often tens of millions of dollars -- in exchange for giving up on its non-infringement, validity, and/or unenforceability challenge of the asserted patent and delaying its generic entry into the particular drug market, thereby allowing the brand name drug company to enjoy its market exclusivity for a longer period than it would have if the litigation concluded with a finding of non-infringement, invalidity, and/or unenforceability. The authors of the bill contend that such agreements stifle the very purpose of the Hatch-Waxman Act and “have unduly delayed the marketing of low-cost generic drugs contrary to free competition, the interests of consumers, and the principles underlying antitrust laws.” See S. 369.
The House of Representatives is considering similar legislation that was added into the broader medical care reform bill during its consideration by the House Energy and Commerce Committee in July. Although the FTC has challenged “pay for delay” settlements since 1999, a number of recent decisions by the federal appellate courts, including the Second, Eleventh and Federal Circuits, have upheld such settlements against antitrust challenges, and so far the United States Supreme Court has declined to review these decisions. But if S. 369 is passed, the Federal Trade Commission Act will be amended to give authority to the FTC to initiate proceedings against parties that settle patent infringement cases involving a drug product. Passage of S. 369 will result in a rebuttable presumption that any such settlement is anticompetitive and unlawful if the generic drug company ANDA filer receives “anything of value” when it “agrees to limit or forego research, development, manufacturing, marketing, or sales of the ANDA product for any period of time.”
However, the bill provides an exception to liability if the parties to such a settlement can show by “clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement.” S. 369 lists various competitive factors that could be used to determine whether settling parties have met that “clear and convincing” burden. These include: (1) the remaining life of the patentat issue, compared to the agreed entry date of the generic competitive product; (2) the value to consumers of the competition from the generic drug product allowed under the settlement; (3) the form and amount of consideration received by the settling generic entrant in exchange for the agreement to defer market entry; (4) the revenue the generic drug company defendant would have received if it had won the patent litigation and entered the market earlier; (5) the reduction of the brand name drug company’s revenues if the patent litigation was lost; (6) the time between the date of the agreement conveying value to the ANDA filer and the date of the settlement of the patent infringement claim; and (7) any other factor deemed relevant in determining “competitive effects.”
As currently drafted, S. 369 also allows a safe harbor of sorts for all “pay for delay” settlements in which the consideration received by the generic drug company is simply the payment of reasonable litigation expenses, not to exceed $7.5 million, and a promise not to sue for infringement on the particular product after the agreed market entry date. S. 369 requires that all such settlement agreements be provided to the FTC for its review, as is already required. The FTC will then have three years from the date it is provided notice to commence enforcement proceedings.
On October 22, Richard Feinstein, Director of the FTC’s Bureau of Competition, speaking at a California State Bar Antitrust Law Section conference in San Francisco, California, stated that the FTC Commissioners have since the late 1990s unanimously supported addressing the “anti-consumer effect of payments made to delay entry of generic drugs.” Mr. Feinstein explained that the FTC is supporting the pending legislation, stated that the Commission “has no higher priority than to eliminate so-called ‘pay for delay’ settlements,” and indicated that the FTC will continue to bring litigation challenging such settlements under the current antitrust laws even if the pending legislation is not adopted.
Given that Congress is trying to pass the healthcare bill before the end of the year, passage of S. 369 -- or analogous legislation -- could likely occur within the next few weeks.