IMS Study Shows Pro-Competitive Effects of Reverse Payment Settlement Agreements in ANDA Litigation

by McDonnell Boehnen Hulbert & Berghoff LLP

Generic  Pharmaceutical Association (GPhA)Earlier this month, the Generic Pharmaceutical Association (GPhA) held a press conference to announce the release of a study of the effects of reverse settlement payment agreements in ANDA litigation.  Such agreements have long been vilified by the Federal Trade Commission and have been the subject of extensive litigation that culminated in a decision by the U.S. Supreme Court last month that mandated these agreements are to be evaluated for antitrust liability under the "rule of reason" (see "Federal Trade Commission v. Actavis, Inc. (2013)").  In its decision the Supreme Court rejected the FTC's position that these agreements should be presumptively illegal or, in the alternative, subject to so-called "quick look" rule of reason assessment.

The study, commissioned by the GPhA and performed by the IMS (Intercontinental Marketing Services) Institute for Healthcare Informatics (an independent research organization with branches in the U.S., China, and India), should provide solid support for parties to such agreements should the FTC come calling with allegations of anticompetitive behavior.  (The likelihood of such inquiries is enhanced by the provisions of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Public Law 108-17) that require parties to ANDA settlements to submit these settlements to the FTC for review.)  The bottom line:  settlements of ANDA litigation in 33 different drug molecules resulted in a savings to consumers of $25.5 billion from 2005-2012, and are projected to provide an additional $61.7 billion through patent expiry for patents listed in the Orange Book for these drugs.  About one third ($8.3 billion) of the 2005-2012 total were savings to the Federal government.

The methodology used by IMS calculated the average brand and generic drug costs over time from IMS National Sales Perspective, described as the "industry standard" for pharmaceutical costs that captures 100% of the market; the volume of brand and generic drug activity was calculated from the National Prescription Audit, a measure of "dispensed" prescriptions from retail, long-term care pharmcies and prescription mail services; and dates of brand patent expiry were obtained from the FDA Orange Book.  The GPhA identified 65 molecules subject to ANDA settlement agreements, and 32 of these molecules were excluded from the study because the generic had not yet launched, there was insufficient data for other reasons, or the "calculated" generic price was not less than the branded drug price.

In addition to the cost savings, the study found that generic drugs were brought to market an average of 81 months (6.75 years) before patent expiry (i.e., the date a branded drug maker could have enjoyed the patent "monopoly rents" so often disparaged by the FTC in suits and public statements about these agreements (see "FTC Releases Another Report on Reverse Payment Settlement Agreements in ANDA Litigation").

The GPhA issued the following statement regarding the results from this study:

"For years, opponents of pharmaceutical patent settlements with consideration have stated that settlements create a cost for consumers, the government and others.  This new analysis provides the most current, complete and transparent estimate of the impact of patent settlements on health costs, and it shows that the opposite is true," said Ralph G. Neas, President and CEO of the Generic Pharmaceutical Association.  "In particular, the new analysis estimates that patent settlements -- including those with consideration -- have led to billions in savings.  For example, the settlement involving Lipitor alone will save $22 billion over the next four years.  This is critical for lawmakers to understand, because any further restrictions on settlements will put these savings at risk."

The GPhA also noted that Department of Labor statistics show that drug expenditures have declined for the first time in 55 years during the time that branded and generic drug makers have entered into reverse payment settlement agreements.

The IMS Healthcare Institute states that its objectives include "[t]o provide key policy setters and decision makers in the global health sector with unique and transformational insights into healthcare dynamics derived from granular analysis of information."  While the implications of its results may be disputed because the GPhA commissioned the study, the data speak for themselves.  It seems likely that these statistics will provide objective evidence of pro-competitive consequences of these settlements that both parties (branded and generic) will be able to use (persuasively) when and if the FTC challenges these settlements, either before the Commission or before the courts, or if private parties bring such challenges.  In view of the several bills introduced in this and other Congresses that would render such settlements illegal, it can be hoped that the study is presented to policymakers (in both the legislative and executive branches) so that laws and policies are developed that account for the facts, rather than the presumptions and prejudices, that surround such settlement agreements.

For additional information regarding this topic, please see:

• "Impact of Patent Settlements on Drug Costs: Summary of Findings," July 9, 2013


Written by:

McDonnell Boehnen Hulbert & Berghoff LLP

McDonnell Boehnen Hulbert & Berghoff LLP on:

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