FTC Releases Another Report on Reverse Payment Settlement Agreements in ANDA Litigation

by McDonnell Boehnen Hulbert & Berghoff LLP

Federal Trade Commission (FTC) SealAs it has frequently in the past decade, the Federal Trade Commission on Thursday released a Report on the frequency of reverse payment settlement agreements in ANDA litigation between generic and branded drug makers, pursuant to its authority to scrutinize all ANDA agreements under the provisions of the Medicare Modernization Act of 2003.

The FTC Report contains information from the 2012 fiscal year (from October 1, 2011 through September 30, 2012).  There were 40 reverse payment agreements among 140 "final resolutions" of ANDA litigation.  According to the Report, these agreements involved 31 different branded drugs having total combined sales of $8.3 billion.  Nineteen of the 40 agreements contained provisions wherein the branded drug maker agreed not to bring an "authorized generic" version of the branded drug to market (thus removing a strong competitor for the generic drug), at least for some period of time.  The Report also notes that seven branded drugs entered into "multiple" reverse payment settlements, i.e., with different generic challengers.  The Report compares this trend with historical data from 2004, noting that in one case a branded drug maker had entered into reverse payment settlement agreements with ten generic challengers, with 14 branded drugs being involved in payments to three or more generic drug makers.

Of the other 100 settlement agreements, 81 contained provisions without express payments but with restrictions on time for generic entry, which the final 19 agreements contained no restrictions of the generic challenger.

Forty-three of these 140 settlements were between the branded drug maker and the first ANDA filer.  Of these, 23 settlement agreements had provisions both for payments and delay or other restrictions on generic drug entry with another 16 agreements providing for generic delay but no express compensation.

The Report draws conclusions from this data, the most significant of which is that there were a "record" number of reverse payment settlement agreements in fiscal 2012.  The 40 agreements containing reverse payment provisions increased from the 28 such agreements in fiscal 2011, and the 19 agreements providing for no authorized generic entry (but without express payments) were also a record (up from 11 in fiscal 2012, perhaps reflecting the effects of the FTC's campaign against agreements containing payment provisions to generic drugmakers).

In the end, however, the FTC was forced to admit that "[d]espite the record number of potential pay-for delay settlements in FY 2012, the vast majority of patent settlements (greater than 70%) continued to be resolved without compensation to the generic manufacturer," at least suggesting that the Commission itself has created this particular tempest in its teapot.  The Report concludes with a table comparing rates of ANDA settlements and the frequency of reverse payment settlement agreements since FY 2004.

Looking at these data dispassionately, the number of settlements of ANDA litigation has decreased, while the number of settlements having some economic incentive for generic drug makers has increased.  However, the data also show that this economic incentive in the form of direct payments has actually decreased, and the Commission's statistics show an increase because it has included agreements with "no authorized generic" provisions as "potential pay-for-delay" agreements.

In a press release accompany the Report, the Commission highlighted these increases, characterizing them as having "significantly increased" and comprising a "record number" of such agreements.  (As is its wont, the Commission characterizes these agreements as "pay for delay," even for agreements with no express payments from the branded to the generic drugmaker.)  But the Commission considers even these agreement to be "potentially anticompetitive," saying that "[s]uch 'no-AG' [authorized generic] promises are valuable to generic firms, as they significantly reduce the level of competition the new generic entrant will face, allowing the generic firm to secure greater market share and extract higher prices from consumers."  The latter statement is, of course, at least unlikely to be untrue:  the value of a "no-AG" promise is that the generic drug company will make more money, of course, but not by charging higher prices but by recouping more of the total generic market as a consequence of not having to split the market with the authorized generic product.

FTC Chairman Jon Leibowitz added his own ideological opinion on these results, saying:

Sadly, this year's report makes it clear that the problem of pay-for-delay is getting worse, not better.  . . .  More and more brand and generic drug companies are engaging in these sweetheart deals, and consumers continue to pay the price.  Until this issue is resolved, we will all suffer the consequences of delayed generic entry -- higher prices for consumers, businesses, and the U.S. taxpayer.

This sentiment is continued in the remainder of the press release, which correctly notes that the average "delay" for generic drug entry is 17 months, but ignores the reality that this is a delay from a putative successful ANDA challenge.  It does not take into effect the acceleration of generic drug entry that results from settlement of ANDA litigation rather than that proportion of these cases where the generic drug challenger loses and is barred from the marketplace until the challenged Orange Book listed patents expire.  While this emphasis on delay is understandable in view of the Commission's ideological biases (and its unsupported and unrealistic belief that only holders of "bad" patents settle ANDA litigation), it does not give the public a clear picture of the actual circumstances behind the data the Commission presents.

This may be the last Report from the Commission on reverse payment settlement agreement frequency, should the FTC prevail in its challenge to these agreements before the Supreme Court (FTC v. Watson Pharmaceuticals).  That would be the culmination of a steady stream of Commission, district court, and appellate court challenges to these agreements, as well as several stalled legislative efforts.  The Commission's position has been rejected often by several appellate courts (including the 2nd, 9th, 11th and Federal Circuit courts of appeal) based on an analysis of the business and legal realities not overburdened with the Commission's ideological bias (i.e., that any delay in generic drug entry is anticompetitive per se).  The Supreme Court should have the last word on this issue.

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McDonnell Boehnen Hulbert & Berghoff LLP

McDonnell Boehnen Hulbert & Berghoff LLP on:

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