Highlighting its continued focus on drug competition, the Federal Trade Commission (FTC) recently released two significant reports relating to competition in the life sciences industry. First, on June 10, it issued a report on the state of competition in the area of follow-on biologics (FOBs).  

The report forecasts likely competition by FOBs and concludes that FOB competition is much more likely to resemble brand-to-brand competition than brand-generic competition under the provisions of the Hatch-Waxman Act. Specifically, in comparison to generic (i.e. small molecule) competitors, the FTC concluded that FOBs were likely to face higher U.S. Food and Drug Administration (FDA) approval costs, which would mean that fewer firms would seek to develop FOBs and only then in markets with at least $250 million in sales. Furthermore, after entry, FOBs are likely to only capture 10-30% of the market due to the lack of automatic substitution between the FOB and the pioneer biologic, concerns about safety and efficacy, and the unique delivery characteristics of biologics.

As a result, the FTC concluded that a combination of an abbreviated FDA approval process for FOBs, existing patent protection, and market-based pricing would be the most efficient way to bring FOBs to market. In doing so, the FTC specifically rejected proposals to: (1) provide pioneer biologics with a twelve-to-fourteen year exclusivity period; (2) enact special procedures to resolve patent disputes between pioneer and FOB manufacturers prior to FDA approval; and (3) provide additional incentives for FOB manufacturers such as a 180-day marketing exclusivity period as provided for the first generic entrant under Hatch-Waxman.  

Two weeks later, the FTC issued an interim report on authorized generic drugs (AGs). The study was undertaken at the request of Senators Grassley (R-IA), Leahy (D-VT), and Rockefeller (D-WV), who asked the Commission to examine the effects of AGs on competition.  

AGs are drugs that are approved by the FDA as brand-name drugs, but which the brand manufacturer chooses to market (or have marketed) as both brand name drugs as well as generic forms (with different trade dress). Importantly, authorized generics are permitted to enter the market during the 180-day market exclusivity period that the Hatch-Waxman Act guarantees to the "first filer" of an Abbreviated New Drug Application (ANDA) for a generic drug.  

The interim report, which focuses on the short-term effects of AGs on competition during the 180 days of marketing exclusivity for an ANDA generic (non-AGs approved by the FDA through filing of an Abbreviated New Drug Application), made the following findings:

  • On average, consumers pay 4.2% less for generic drugs during the 180-day period if an authorized generic enters the market in competition with the “ANDA” generic.  
  • In instances in which an AG enters the market during the 180-day period, the ANDA generic’s revenues decline by approximately 50%. The revenue decline is significant because the AG often obtains a significant market share.  

The report cites these underlying economics as the reason for the increase in the number of patent-settlement agreements in which the brand-name pharmaceutical company agrees not to put an authorized generic on the market during the 180-day exclusivity period guaranteed to the first filer in the Hatch-Waxman Act in exchange for the first filer agreeing to delay entry into the market. The report concludes that such agreements are harmful to consumers both because they may have the effect of delaying generic entry and because they make the ANDA generic more expensive during the 180-day exclusivity period, due to the lack of competition from the authorized generic.  

Because the entry of an AG results in lower prices in the short-term, the report does not provide support for a conclusion that AGs are harmful to consumers (a point which Commissioner J. Thomas Rosch emphasizes in his concurring statement). Nevertheless, the discussion of the negative effect of patent settlement agreements that restrict AG entry (which Commissioner Rosch criticizes as being “too far afield”) is another indication of the FTC’s interest in patent settlement agreements between generic and brand name manufacturers. The report suggests that the FTC will scrutinize closely settlements that involve an agreement by the brand company not to launch an authorized generic and may consider them a form of "reverse payment."  

Finally, holding aside the issue of patent settlements, it should be noted that the interim report, by design, only focused on the short term effect of AGs on competition, which appears to be positive. Some critics have theorized, however, that the longer term effect of AGs may be to reduce the incentive of companies develop generic drugs, and thereby reduce competition. This is among a number of issues that the FTC may address in its final report.