Processing Magazine

Ending drug patent settlements could save $35 billion

June 24, 2009
The chairman of the Federal Trade Commission says eliminating lucrative patent settlements between brand name and generic drug companies would save consumers $3.5 billion annually, according to the Associated Press. The FTC has waged a yearlong campaign against so-called "pay-to-delay" settlements, in which a branded drug company rewards a generic competitor for keeping cheaper versions of its drugs off the market. Drugmakers argue that the settlements are an efficient way to end costly patent litigation and speed the delivery of cheaper treatments to the market. But FTC Commissioner Jon Leibowitz said that the deals deprive consumers of low-cost medicines. Leibowitz called on Congress to pass a bill that would ban the settlements. He said the legislation -- currently making its way through congressional committees -- could save consumers $35 billion over 10 years, about $12 billion of which would go to the government. The federal government pays about one-third of the nation''s $235 billion in prescription drug costs through programs like Medicare and Medicaid. Because generic drugs can cost up to 80 percent less than the originals, they are seen as an easy way to lower medical expenses. Leibowitz said the pay-to-delay issue could be addressed as part of President Barack Obama''s effort to overhaul the U.S. health care system. Traditionally, generic drugmakers challenge the patents on branded drugs in order to bring their own cheaper versions to market. But under pay-to-delay agreements, the generic drugmaker settles in exchange for either cash or exclusive rights to market the first generic version later. While the FTC criticizes such arrangements as anti-competitive, agency lawyers have a mixed track record of challenging them in court. In 2005, two appeals courts upheld agreements reached by Schering-Plough Corp. and AstraZeneca PLC with generic companies. The courts found that such settlements are permissible as long as a generic''s entry isn''t delayed past when the drug''s patent would expire. Since then, lucrative settlements between generic and branded drugmakers have flourished. The Pharmaceutical Research and Manufacturers Association said a ban on settlements could dissuade generic drug companies from challenging patents in the first place, resulting in a slower rate of generic treatments entering the market.