Markets Wired

In a speech today before the Center for American Progress in Washington, D.C., Federal Trade Commission Chairman Jon Leibowitz said that an internal FTC analysis projects that stopping collusive “pay-for-delay” settlements between brand and generic pharmaceutical firms would save consumers $3.5 billion a year and also reap significant savings for the federal government, which pays approximately one-third of all prescription drug costs. Chairman Leibowitz urged Congress to pass pending legislation to ban or restrict such anticompetitive patent settlements, in which manufacturers of brand-name drugs pay potential generic competitors to stay out of the market, as a way to control prescription drug costs, restore the benefits of generic competition, and help pay for health care reform.

“From my perspective, . . . the decision about whether to restrict pay-for-delay settlements should be simple,” Chairman Leibowitz said. “On the one hand, you have savings to American consumers of $35 billion or more over ten years – about $12 billion of which would be savings to the federal government – and 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. On the other hand, you have a permissive legal regime that allows competitors to make collusive deals on the backs of consumers.”

Chairman Leibowitz stated that “eliminating these [pay-for-delay] deals is one of the Federal Trade Commission’s highest priorities.” In these agreements, a brand-name company settles its patent law suit by paying the generic firm to delay entering the market. Such deals can cost consumers billions of dollars because generic drugs are typically priced significantly less than their branded counterparts.

More than two decades ago, Congress passed the Hatch-Waxman Act, which was designed to make it easier for generic drugs to enter the market, while giving brand-name manufacturers the patent protection they need to encourage lifesaving research, the Chairman explained. While the legislation initially worked as intended, resulting in significantly lower prices for consumers through generic drugs, drug companies eventually found they could delay generic entry by settling patent litigation using pay-for-delay tactics.

Leibowitz remarked that while the FTC successfully stopped such illegal payments earlier this decade, recent appellate court decisions, beginning in 2005, have blessed these anticompetitive settlements. These decisions have “opened a Pandora’s box of settlements” with generic firms competing to be the first to get paid off to stay out of the market instead of competing to be the first to come to market.

A new agency analysis of available economic data provides useful information about the potential savings from banning pay-for-delay settlements. The analysis projects that eliminating such settlements could save consumers $3.5 billion each year, totaling $35 billion over a decade. The FTC data analysis, he said, provides further evidence of “the cost of failing to eliminate pay-for-delay patent settlements.”

In addition, because the federal government currently pays about one-third of the nation’s $235 billion prescription drug bill, prohibiting such anticompetitive settlements could save the government roughly $1.2 billion a year, or $12 billion over 10 years.

Leibowitz pointed out that recently there have been some encouraging signs for consumers in the Administration, in the courts, and in Congress. First, the new Administration “has created momentum for a national solution to stop [pay-for-delay] settlements,” with both the President and Assistant Attorney General for Antitrust Christine Varney stating their opposition to such deals. Second, the Court of Appeals for the Second Circuit has questioned its own precedent, set in the Tamoxifen case, by asking the Department of Justice to weigh in on a pending case raising similar competitive issues. Third, “support is building in Congress for a solution,” the Chairman said, with a House subcommittee this month voting in favor of a bill that would prohibit these settlements, H.R. 1706, the Protecting Consumer Access to Generic Drugs Act of 2009.

Copies of the Chairman’s speech and the Appendix are available from the FTC’s web site at http://www.ftc.gov and the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580.

(CAP Speech.final.wpd)