‘Reverse payments, generic and brand-name drugs, and consumer impact’: Q&A with Kirby Drake of Klemchuk Kubasta

We spoke to intellectual property and patent attorney Kirby Drake, a partner at Klemchuck Kubasta LLP, about her recent commentary, “Reverse payments, generic and brand-name drugs, and consumer impact,” published in recent issues of the Westlaw Journal Pharmaceutical and the Westlaw Journal Antitrust.  The commentary discusses “reverse payment” or “pay-for-delay” settlements between brand-name and generic drug manufacturers and whether these violate antitrust laws because they may delay consumers’ access to generic drugs.  The U.S. Supreme Court addressed the issue in FTC v. Actavis Inc., No. 12-416, and ruled June 17 in a 5-3 decision that these types of settlements may violate antitrust laws.  We found out more about the high court’s decision and what it means for generic and brand-name drug manufacturers and consumers moving forward.

Westlaw Journals: Before we address the case itself, can you explain in more detail about brand-name drug patents, new drug application (NDA) and abbreviated new drug application (ANDA) processes and litigation.  Perhaps gives us an idea of the time frames we’re talking about? 

Kirby Drake: The Federal Food, Drug, and Cosmetic Act requires a manufacturer of a new drug to seek approval from the FDA by filing a new drug application (known as an NDA) before placing the drug on the market.  The application includes information about the relevant patents believed to cover the new drug.  If the new drug is approved, it is generally referred to as a “brand name” drug and will then be listed in the Approved Drug Products with Therapeutic Equivalence and Evaluations Book (aka the Orange Book).  The brand-name drug maker is granted exclusive marketing rights if the statutory requirements are met.

If another drug maker wishes to make a generic version of a brand-name drug listed in the Orange Book, the Hatch Waxman Act provides that it may file an abbreviated new drug application (known as an ANDA) to get its drug on the market before the patents listed in the Orange Book associated with the brand-name drug expire.

In filing its ANDA, a generic drug maker must explain how its proposed drug can be marketed without infringing these patents.  Generic drug makers generally allege that one or more of the brand-name drug’s patents “is invalid or will not be infringed by the manufacture, use, or sale of the drug.”  If a generic drug maker makes these types of certifications, this is considered to be a statutory act of patent infringement and the brand-name drug maker has 45 days to file a patent infringement lawsuit against the generic drug maker.

If the generic drug maker is successful in the lawsuit, it may enter the market earlier than the term of the patent(s) at issue, but if it is unsuccessful, the generic drug must remain off the market until the patent expires.

WJ: Wow.  At least there are experts to guide companies through this process.  Returning to the Actavis case, what are reverse-payment or pay-for-delay settlements?  What were the Federal Trade Commission’s antitrust concerns with these agreements?

KD: A reverse-payment settlement is when the brand-name drug maker agrees to make a payment to the generic drug maker to resolve ANDA litigation, essentially the payment is moving in the opposite direction than what typically occurs to resolve patent infringement litigation.  In exchange for the payment, the generic drug maker may agree to not enter the market for a period of time.

Calling them pay-for-delay settlements can be somewhat unfair as the time period sometimes may be shorter than the time that the generic drug maker would have had to stay out of the market if it had lost the litigation (i.e., the generic drug maker may be permitted to enter the market before the patent at issue expires).

In the suit, the FTC said that reverse payment settlements should be declared unlawful as a general rule because they are anti-competitive and harmful to consumers by directly restricting output and raising prices.  Further, the FTC argued that the patent laws should not give a patent holder the right to induce potential competitors to stay out of the market.

WJWhat type of money are we talking about?

KD: The settlement agreement at issue in FTC v. Actavis involved the generic drug makers agreeing not to enter the market with generic AndroGel until August 31, 2015.  In return, Solvay, the brand-name drug maker, agreed to pay $10 million/year for six years and an additional $2 million/year for backup manufacturing assistance to Par/Paddock, one generic manufacturer.  Solvay also agreed to share some of its profits with Actavis Inc. (then known as Watson Pharmaceuticals), another generic manufacturer, through September 2015 (approximately $19-30 million per year).  Accordingly, the money at stake in these agreements can be quite large.

WJ: The Supreme Court ultimately ruled that these agreements may violate antitrust laws.  Why?  What will the lower courts be looking at when they consider if an agreement is illegal?

KD: The Supreme Court said that a reverse-payment agreement could violate antitrust laws even if brand-name drug makers may make these settlement agreements under patent law.  The Supreme Court, however, did not go so far as the FTC requested ruling that any challenge to reverse-payment settlements was to be determined according to the “rule of reason,” instead of being presumptively unlawful under the “quick look” approach.  This decision did not give much guidance to lower courts because no bright-line test has been adopted and the courts will continue to have to evaluate the specifics facts of each case to reach a decision.

WJIf this leads to more litigation on the restraint-of-trade issue in addition to the patent litigation, won’t this ultimately hurt consumers more than the alleged restraint on trade?  Was this a concern at all in the Supreme Court’s opinion?

KD: There is a possibility that more litigation may arise; however, this will depend on the FTC’s ability to identify and prove when these settlements actually rise to the level of anti-competitive behavior as opposed to legitimate joint ventures.  This trade litigation does hold some promise of reducing settlements that may only exist to prop up weak or invalid generic drugs in the face of generic competition, and this may result in consumers seeing more lower-cost generic drugs marketed in a timely manner.  However, it may reduce the number of settlements, and if brand-name drug makers are successful in ANDA litigation, the generic drugs may remain out of the market in some cases longer than they would if a reverse-payment settlement had been reached.

WJWill consumers feel the effects of this ruling when standing in line at the pharmacy?  If so, what’s the best medicine to handle that?

KD: Immediate effects may not be felt at the pharmacy, either good or bad from the consumer’s standpoint.  If more brand-name drug makers are successful in ANDA litigation that might have otherwise been settled through a reverse-payment agreement, the time that it takes for certain generics to reach the market may extend and affect consumer access to generic drugs.  On the other hand, if more reverse-payment settlement agreements are successfully challenged, then the generics could enter the market faster.  We will just have to wait and see if brand name and/or generic drug makers change their approach in view of the Supreme Court’s decision.

WJThis is a complex area of law.  Thank you for taking the time to give us more insight. 

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