Generic Drug Entry Settlements Fall under FTC Radar as Congress Considers Ban

The FTC Study

The U.S. Federal Trade Commission's recent annual report on drug settlements compiles a summary of agreements filed during the fiscal year ending on 30 September 2007 under the Medicare Prescription Drug Improvement and Modernisation Act (MMA) of 2003. The main highlights of the report are:

• A total of 45 agreements were filed with 42 involving branded-generic agreements, one between generic firms and two classified under "other agreements."
• Of the 42 branded-generic agreements, 33 ended in final settlements with 9 involved in interim agreements.
• Interestingly, of the 33 branded-generic agreements filed, 25 involved restriction on generic entry with 11 settlements ending with no payment to the generic. Compensation was found to be in the form of a "side deal." A side deal typically means the generic drug obtaining a licence to market the product regardless of the ongoing patent litigation between the branded and generic firms. It has been observed that additional compensation in the form of percentage of sales of the brand's products involved in the litigation was extended as part of the side deal.
• Of the 33 final settlements reached in 2007, 14 dealt with both compensation (to the generic firm) and a restriction on marketing the generic version, the highest such proportion noted so far.
• A total of 16 settlements involved an ANDA (Abbreviated New Drug Application) first filer, and 11 settlements involved a subsequent generic filer.
• Only eight of the settlements did not explicitly involve restriction on the generic drug's marketability. In the majority of the cases mentioned here, the generic was already being marketed, and the settlement did not require a withdrawal of the product.

Source: FTC

Outlook and Implications

The report outlines the FTC's position on drug settlements, strengthening its argument against the practice in the pharmaceutical industry. The commission believes that increasing number of settlements where generic drug entry is delayed or marketability is restricted may not be in the best interest of the consumer, as it impedes access to low-cost treatments. The FTC has been fairly vocal on its stance in an industry where authorised generics seem to emerge only after patent challenges and subsequent settlement. When compared to the report for 2006, the latest one may detail the same number of agreements at 45, but settlements involving first filers and the fine print of the agreements—including restrictive generic version entry—has become a theme.

Despite the FTC's arguments against drug settlements, the commission has so far not been very effective in blocking them as has been evidenced on two occasions where the generic and brand firms involved in the settlement legitimised it through the U.S. courts. Still, the pay-for-delay concept of settlements in the drug industry, particularly pertaining to generic drugs, has captured the attention of U.S. regulators, resulting in a proposal to ban the practice altogether. This proposal is currently being reviewed by the U.S. Congress, and the FTC's report will strengthen support to restrict or ban this practice altogether.

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