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Klobuchar Reintroduces Bill in Senate To Limit Pay-For-Delay Drug Settlements

Thursday, February 7, 2013
A bill that would make drug company pay-for-delay settlements presumptively illegal was introduced in the Senate Feb. 4 by Sen. Amy J. Klobuchar (D-Minn.).

The Preserve Access to Affordable Generics Act addresses the practice in which a patent-owning brand name drug manufacturer pays a generic maker to cease its patent validity challenge in court and stay out of the market until the patent expires or just before it expires.

“These pay-for-delay deals keep more affordable generic drugs off the market, hurting consumers and stifling competition,” Klobuchar said in a Feb. 5 press release. “I have long supported efforts to crack down on this behavior and the recent rise in pay-for-delay agreements underscores the need for legislation to help make sure people have access to the drugs they need at a price they can afford.”

FTC: Pay-For-Delay Agreements on the Rise
The recent rise Klobuchar mentioned was in reference to a January 17 Federal Trade Commission report (16 PTD, 1/24/13). The FTC has fought the agreements at the commission and in federal courts. The Supreme Court will hear the FTC's arguments in a case on the topic March 25.

The provisions of S. 214 copy a bill in the last Congress that was approved in the Senate Judiciary Committee but never made it to the full Senate for vote. Klobuchar replaces the now-retired Sen. Herbert H. Kohl (D-Wis.) as the bill's primary sponsor.

S. 214 was referred to the Senate Judiciary Committee. Three members of the committee--Sens. Richard J. Durbin (D-Ill.), Alan S. Franken (D-Minn.), and Charles E. Grassley (R-Iowa)--are co-sponsors, as is Sen. Timothy P. Johnson (D-S.D.). In the 10-8 committee vote in the 112th Congress, Grassley broke ranks with his Republican colleagues in favoring the legislation.

“Clearly, pay-for-delay deal-making is an obstacle to getting cheaper prescription drugs on the market,” Grassley said in the same Feb. 5 press statement. “These anti-competitive patent settlements between brand and generic drug companies hurt consumers' access to affordable medications, and they hurt taxpayers who pay for prescription drugs under both Medicare and Medicaid. It's a practice that puts the interests of drug companies above the interests of consumers, and it's time for it to end.”

The major associations of both brand name and generic drug manufacturers oppose the bill.

Rebuttable Presumption of Illegal Settlement
Under the Hatch-Waxman Drug Price Competition and Patent Term Restoration Act of 1984, a drug maker wishing to introduce a generic version of a drug files an abbreviated new drug application, or ANDA, with the Food and Drug Administration. Hatch-Waxman allows the brand name maker of the drug, when covered by a patent, to initiate a patent infringement lawsuit upon the filing of the ANDA.

A reverse settlement thus resolves the infringement lawsuit, with the FTC having the authority to review its antitrust implications.

S. 214 creates a new section of the Federal Trade Commission Act of 1914, 15 U.S.C. §44, et seq., to allow the FTC to bring a lawsuit in such circumstances with the presumption of illegality.

“The Federal Trade Commission may initiate a proceeding to enforce the provisions of this section against the parties to any agreement resolving or settling, on a final or interim basis, a patent infringement claim, in connection with the sale of a drug product,” according to the bill.

To rebut the illegality presumption, the parties must “demonstrate by clear and convincing evidence that the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement.”

A court would consider seven factors in determining if the presumption was successfully rebutted:

  1. the length of time remaining until the end of the life of the relevant patent, compared with the agreed upon entry date for the ANDA product;
  2. the value to consumers of the competition from the ANDA product allowed under the agreement;
  3. the form and amount of consideration received by the ANDA filer in the agreement resolving or settling the patent infringement claim;
  4. the revenue the ANDA filer would have received by winning the patent litigation;
  5. the reduction in the [brand name manufacturer]'s revenues if it had lost the patent litigation;
  6. the time period 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 that the fact finder, in its discretion, deems relevant to its determination of competitive effects under this subsection.


Circuit Court Conflict May Be Resolved First
In court, the FTC has argued that reverse payment deals are similar to other horizontal agreements that are treated as per se illegal under antitrust law. However, until 2012, appellate courts generally approved the agreements.

The Third Circuit on July 16 in In re K-Dur Antitrust Litigation, 686 F.3d 197, 103 U.S.P.Q.2d 1497 (3d Cir. 2012) (236 PTD, 12/10/12), disagreed with its sister courts, finding the agreements--this one was between branded drug company Merck & Co. and generic drug company Upsher-Smith Laboratories Inc.--presumptively illegal.

The FTC had lost in the Eleventh Circuit, which created a circuit split. Federal Trade Commission v. Watson Pharmaceuticals Inc., 677 F.3d 1298, 102 U.S.P.Q.2d 1561 (11th Cir. 2012) (80 PTD, 4/26/12). The Supreme Court granted the FTC's cert petition in the case Dec. 7. Federal Trade Commission v. Watson Pharmaceuticals Inc., No. 12-416 (U.S., review granted Dec. 7, 2012) (236 PTD, 12/10/12).

European Scrutiny Too
Reverse settlements are coming under scrutiny in Europe as well. In a Jan. 31 statement, the European Commission announced that it was investigating a settlement deal in the Netherlands as to the pain-killer fentanyl. U.S.-based Johnson & Johnson held the patent on the drug and Swiss-based Novartis was the generic drug maker involved.

According to the statement, Janssen-Cilag, the J&J subsidiary supplying fentanyl in the Netherlands signed a “co-promotion agreement” with its generic competitor Sandoz, a Novartis subsidiary, in July 2005. “Consequently, Sandoz abstained from entering the market with generic fentanyl patches for the duration of the agreement from July 2005 until December 2006,” the statement said. “This may have delayed the entry of a cheaper generic medicine for seventeen months and kept prices for fentanyl in the Netherlands artificially high.”

By Tony Dutra

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