Pay to Delay: The Honest Truth

By: David Ong, Pharm.D. Candidate c/o 2014

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Our current healthcare system receives much criticism from the press as well as the public. Big pharmaceutical companies (“Big Pharma”) have consistently been characterized as part of the problem. Most of the blame for high drug costs is levied on Big Pharma. One of the criticisms is that the profits made by large pharmaceutical companies outweigh the benefits provided by the drugs they manufacture. Such allegations need to be viewed in the light of the fact that it is these profits that drive new drug discovery and help the pharmaceutical companies stay competitive in the market.

Patenting drugs for a significant period of time is one way the government compensates Big Pharma for their expenditure on research and development. During the patent life of a drug, only the innovator can legally sell the drug in question. This patent life can be extended if the innovator proposes a new indication for the same drug. The FDA then approves the new indication and patent. A generic manufacturer can file a suit alleging that the new drug indication proposed by the innovator is ‘weak.’ To mitigate legal expenses, brand-name drug manufacturers can offer financial compensation, or settlements, to generic manufacturers to drop the case. Now, however, there is a legal uproar where consumer advocates, healthcare organizations, the Federal Trade Commission, and retail outlets are challenging the out-of-court settlements between brand-name drug manufacturers and generic drug manufacturers.^1,2,3

According to the Federal Trade Commission, generic companies win about 73 percent of such patent challenges. However, settlements financially benefit certain generic companies more than being given a piece of the market after winning a trial.¹ For example, when Solvay, the brand-name manufacturer—now a part of AbbVie Inc.—who holds the patent for Androgel® (testosterone gel for topical use), settled with Watson Pharmaceuticals, who had won FDA approval for their generic version. Watson Pharmaceuticals agreed to delay marketing their generic counterpart for another nine years in exchange for $42 million per year.^1,2 

A generic drug is sold for as much as 85% less cost than the brand, according to Solicitor General Donald Verrilli, causing enormous financial damage to the brand-name companies.^1,2 Since both generic drug manufacturers and brand-name drug manufacturers benefit from settling, settlements seem to be a legitimate and expedient way to resolve expensive patent litigations in a timely fashion.³

Protestors have coined the term “pay to delay” to describe these settlements, whereas advocates prefer the term “reverse settlements.”¹ Advocates include both the generic and brand name drug manufacturers. While these two parties are usually on the opposite sides of the suits in question, they are both pro-settlement because it is mutually beneficial. ^1,2

One must first understand that these settlements are for cases involving patent extensions. Protestors claim that these settlements increase the financial burden on patients and the healthcare system. However, settlements proposed by the brand-name drug manufacturer usually include a shortened patent extension and a financial incentive. Thus, these settlements actually help consumers rather than hurt them.²

The patents that are usually targeted by generic companies are those for popularly prescribed medications.² If settlements are banned, brand-name drug makers will bear tremendous legal costs. If patent extension cases favor the generic company in court, the brand-name company will lose its patent extension. The brand-name company will be stripped of years of potential financial earnings. This will limit their ability to research new drugs.

Furthermore, if patents are discontinued, shortened, or otherwise modified, the incentive to innovate will diminish because of the inadequate reimbursement for the resources spent in research and development. Those who call such settlements unlawful and anticompetitive are at a risk of being myopic, and they are actually opposing innovation and advancement in the pharmaceutical and medical industries.

SOURCES:

1. Totenberg N. Supreme Court Hears ‘Pay to Delay’ Pharmaceutical Case. National Public Radio Web Site. http://www.npr.org/2013/03/25/175043758/supreme-court-hears-pay-to-delay-pharmaceutical-case#mainContent. 25 March 2013. Accessed April 3,2013.
2. Holland JJ. Court: Can Drug Companies Pay to Delay Generics?. Yahoo News Web Site. http://news.yahoo.com/court-drug-companies-pay-delay-generics-140009962–finance.html. 24 March 2013. Accessed April 3, 2013.
3. Singer N. Deals to Restrain Generic Drugs Face a Ban. New York Times. 12 January 2010: B1.http://www.nytimes.com/2010/01/13/business/13generic.html?ref=genericdrugspharmaceuticals