FTC’s Health Care Reform Plan: Save $12 Billion With Reverse Settlement Ban

Legislative effort on settlements kicks into high gear with Senate markup and a new bill that would rescind generic exclusivity in some cases.

The Federal Trade Commission has drawn another arrow in its attempt to shoot down reverse settlements between brand and generic drug companies - offering an estimate of $12 billion in government savings over the next 10 years from ending the practice.

As Democrats looks for ways for fund their health care reform efforts, FTC's estimate would provide a strong incentive to include a settlement ban in any bill. The numbers would have to be crunched separately by the Congressional Budget Office to have true legislative value, but if the estimate holds up, that policy change would provide more savings than establishing a pathway for follow-on biologics, which already has a place holder in the Senate bill (¹ (Also see "FOBs Must Follow The Senate’s Health Reform Pathway; Placeholder Is Key" - Pink Sheet, 15 Jun, 2009.), p. 3).

FTC's figure is based on an empirical study by the commission's Bureau of Economics team, using the assumption that because settlements delay generic launch on average by 17 months, they cost consumers 85 percent of brand sales for that length of time. Ending brand companies' ability to resolve patent disputes by paying generic firms to delay launch will lower Americans' drug bill by at least $35 billion over the next decade, the commission concludes. Since the federal government pays one-third of the country's drug tab, that would be its share of the savings.

That is a "quite conservative" number, FTC Chairman Jon Leibowitz told the Center for American Progress June 23, and perfectly reasonable alternative assumptions lead to cost savings of $75 billion over 10 years. A ban on reverse payments offers "the prospect of helping to pay for health care reform as well as the ability to set a clear national standard to stop anticompetitive conduct," he said.

Selling Congress on the idea of banning such settlements is crucial to FTC's efforts to stop them, since the commission has had little luck in the courts in recent years. Since 2005, several appellate court decisions have considered the settlements legal, and on June 22 the U.S. Supreme Court declined to review a suit challenging Bayer's agreement with Barr and Hoechst Marion Rousell (now Sanofi-Aventis) concerning Cipro (² (Also see "No "Cert"-ainty On Reverse Settlements: Supreme Court Declines To Take Up Case" - Pink Sheet, 22 Jun, 2009.)).

Where the bills stand

The FTC is turning to Congress to establish a "bright-line standard" to prohibit what Leibowitz called "pay-for-delay" patent settlements. Both the brand and generics industry associations opposed the legislation, but a bill to end the settlements passed the House Energy and Commerce Subcommittee on Commerce, Trade and Consumer Protection in June (³ (Also see "Reverse Settlement Bill Clears House Subcommittee With GAO Report Attached" - Pink Sheet, 8 Jun, 2009.)).

In the Senate, markup of a similar bill, S. 369, is the last item on the agenda for the Judiciary Committee at a June 25 executive session. Such placement might suggest that markup would be relatively perfunctory, but Sen. Herb Kohl, D-Wisc., a sponsor of the legislation, has just introduced a new bill that would to allow companies that win patent litigation to share the 180-day exclusivity with the first filer.

S. 1315, introduced by Sens. Bill Nelson, D-Fla., and Kohl, on June 22 could be added to the bill, but it is more likely to appear as an amendment on the Senate floor, according to staff.

At the Center for American Progress event, Apotex CEO Bernard Sherman maintained that the House legislation will not fix the underlying problem, which is that a first ANDA filer who settles a patent dispute retains its 180-day exclusivity and keeps other generics off the market.

The solution is to provide "that those who settle lose their exclusivity, or as an alternative, that those who continue to litigate and win, share exclusivity and launch." Apotex has long advocated an exclusivity-based approach like the Nelson/Kohl bill. "Attacking reverse payments without this provision will have no effect," Sherman contended.

Mylan's Chief Operating Officer Heather Bresch said at the Center for American Progress event that allowing authorized generics to be marketed during the 180-day exclusivity drives settlements. "The only way that a generic company can get its 180-day exclusivity is to settle. … We can fight and win the litigation and still have an authorized generic competing with us in the market place."

FTC has also been studying the impact of authorized generics, and attaching a ban of those to an anti-settlement bill could garner some generics industry support (⁴ (Also see "Brand/Generic Settlement Bill May Need Help From Authorized Generics Limits" - Pink Sheet, 6 Apr, 2009.), p. 21).

-Cathy Dombrowski ([email protected])