Drug Industry Criticizes Patent Settlement Provisions in House Spending Bill

The US House of Representatives passed on July 1, 2010, HR 4899, the Supplemental Appropriations Act of 2010, which included provisions restricting patent settlements between innovator-drug and generic-drug companies, a move that drew criticism from both sectors of the pharmaceutical industry.

The main focus of the House bill was authorization for supplemental funding for the war efforts in Afghanistan and Iraq. An earlier version of the bill was approved by the US Senate in May, but the recent supplemental spending bill in the House included additional measures on domestic spending and other domestic policy items, which included an amendment relating to patent settlements. The House bill will now go to the Senate for further consideration.

The House supplemental bill includes measures to curb pharmaceutical patent-settlement agreements, or so-called “pay-for-delay” deals, that exist among research-based pharmaceutical companies and generic-drug producers. Under pay-for-delay settlements, makers of generic drugs agree to delay the introduction of their products in return for a cash payment. The bill aims to strengthen the ability of the US Federal Trade Commission (FTC) to restrict pay-for-delay payments by brand-name drug manufacturers to their generic competitors.

FTC Chairman on Leibowitz issued a statement on July 2, 2010, which supported the measure. “Congress has taken a critical step towards ending a practice that is dramatically increasing the cost of prescription drugs.” He cited FTC data that estimated that such patent settlements cost consumers about $3.5 billion a year by delaying access to lower-cost generic drugs.

Prior to the House vote on July, representatives from the Pharmaceutical Research and Manufacturers of America (PhRMA), which represent research-based drug companies, and the Generic Pharmaceutical Association, which represent generic-drug manufacturers, criticized the measure to restrict these patent settlements.

“Patent settlements are a vital aspect of the ability to protect intellectual property,” said PhRMA Senior Vice-President Ken Johnson in a PhRMA June 28, 2010, release. “PhRMA believes including the provision on restricting patent settlements can discourage pro-consumer settlements that often bring generics to market years before patent expiration.”

PhRMA also raised concerns that the measure was too broad. “PhRMA continues to believe that legislation that would impose a blanket ban on certain types of patent settlements or otherwise prevent them could decrease the value of patents and reduce incentives for future innovation of new medicines,” said Johnson in the PhRMA release. “This is also unnecessary because the Federal Trade Commission (FTC) and others already have the authority to review and evaluate any patent-settlement agreement between a brand name company and a generic company. The courts and enforcement agencies like the FTC are in the best position to review these settlements on a case-by-case basis to ensure that they are not harmful to competition. By imposing a general ban or imposing harsh disincentives, pending legislation would effectively remove the decision-making process from this appropriate venue.”

GPhA President and CEO Kathleen Jaeger also disagreed with the House provisions. "We are very disappointed to see that the US House of Representatives is considering amending the must-pass war funding supplemental bill with a ban on patent settlements,” she said in a statement issued on June 30, 2010. “Supporters of the ban have previously tried, and failed, to pass the legislation on its own and as part of healthcare reform. These continued efforts are a clear reflection of politics over substance as such a ban would only serve to hurt consumers in the name of sound bites. The ban on settlements has nothing to do with funding our troops and will only result in higher costs for consumers.”

Jaeger also rebuked the notion that patent settlements delay the entry of generic drugs. “The belief that banning patent settlements will hasten generic market entry is based on the assumption that generics are more likely than not to prevail in their patent litigation with brand companies,” she said. “Without the ability for brand and generic companies to settle patent disputes, consumers will be forced to wait until patent expiration much more frequently than is the case today.”

See related PharmTech article:
Reintroduced Bill Would Prohibit Pay-for-Delay Settlements