FTC Commissioner Blasts "Reverse Payment" Agreements

by David S. Harper



In testimony yesterday before the Senate Committee on the Judiciary, Federal Trade Commission Commissioner Jon Leibowitz voiced support for legislation to prohibit litigation settlement agreements between generic and pharmaceutical brand manufacturers that include both payments to the generic manufacturer and a delay in generic drug market entry ("reverse payment" agreements). Leibowitz argued that such reverse payment agreements harm consumers by substantially delaying access to cheaper generic drugs and that the courts have taken an extremely lenient view on such settlements, necessitating legislative intervention. The Commissioner further testified that, absent a legislative fix, such settlement agreements will inevitably increase, as any profit expected by a generic manufacturer upon generic market entry is substantially less than the profit the brand manufacturer stands to lose due to price differences between the brand and generic versions of the drug.

In support of the Commissioner's testimony, the FTC yesterday released its annual report on agreements filed in fiscal year 2006 under the reporting requirements of the 2003 Medicare Modernization Act (MMA). According to the report, forty five agreements were filed in FY2006, more than double the number of agreements filed in each of the two previous years. The report makes a special point of noting that all of the FY2006 agreements were received after the Schering Plough vs. FTC decision by the 11th Circuit Court of Appeals, reversing the FTC's decision that the relevant settlement agreements violated the FTC Act. Twenty eight of the agreements were final settlements of patent litigation between a brand and a generic manufacturer, fourteen of which were found to impose both a restriction on generic market entry and include a reverse payment. Eleven of the agreements involved an ANDA first filer, with nine of those imposing both a restriction on generic entry and a reverse payment to the generic drug maker. In comparison, only 27% (3 of 11) of final settlement agreements in FY2005 included both a restriction on generic entry and a reverse payment, supporting the Commissioner's testimony regarding an upward trend in reverse payment agreements.

NOTE: A live webcast of the hearing was available online yesterday. You may obtain a video recording of the hearing by contacting any U.S. Senator's office.


(This article was published by BioHealth Investor with permission of Aaron F. Barkoff author of OrangeBookBlog.com)


RELATED READING:
- Links to written testimony and comments submitted at the hearing
- David Balto's observations on the hearing
- Jan. 17 FTC press release
- Should Paying-Off Generics to Delay Launch of Competing Drugs be Prohibited?
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