PPZ ExL presentation, 6-23-2011

Introduction to “PAY-FOR-DELAY” Settlements: CHALLENGES AND CONCERNSPatrick P. Zaretski, Esq. ExLPharma Conference – Pharmaceutical and Life Science IP Protection June 23, 2011

Pay-for-delay settlements are currently estimated to be worth upwards of $20 billion in sales to pharmaceutical patent holders, and the Federal Trade Commission (“FTC”) estimates that reverse payment settlement cost consumers $3.5 billion per year, or $35 billion over the next ten years. ,[object Object]

According to the FTC, due to “the [allegedly] inherently anticompetitive nature of these deals and the enormous consumer harm caused by pay-for-delay...[o]ne of the Commission's top competition priorities is stopping ‘pay-for-delay’ agreements between brand-name pharmaceutical companies and generic competitors that delay the entry of lower priced generic drugs into the market.”,[object Object]

Thus, even though the federal court system and Congress have remained on their side to date, pharmaceutical patent holders should continue to expect strong opposition from the FTC for at least the near future against any proposed pay-for-delay settlements reached with or offered to generic drug manufacturers.,[object Object]

The Hatch-Waxman Act and pay-for-delay settlements ,[object Object]

By permitting generic manufacturers to submit bio-equivalence studies to the U.S. Food and Drug Administration (“FDA”) rather than perform human clinical trials, Hatch-Waxman encourages FDA approval of generic medications in an expedited, cost-efficient manner.

However, Hatch-Waxman also intended pay-for-delay settlements as a method of resolving patent infringement suits. ,[object Object]

Since, prior to Hatch-Waxman, any work towards filing an ANDA constituted infringement, such work mostly could not begin in a meaningful way until after expiration of the applicable patents, effectively granting patent holders a de factopatent term extension that includes the period of time after expiration that the ANDA applicant needs to run bioequivalence studies and file its ANDA.,[object Object]

Paragraph IV certifications ,[object Object]

However, Paragraph IV certification also permits challenges to patents of questionable validity, which is deemed to be in the public interest.

Therefore, to encourage such challenges, the first generic pharmaceutical manufacturer to submit a Paragraph IV certification with regard to a particular ANDA obtains a 180-day exclusivity period, thereby precluding entry of any other ANDA filer into the market.,[object Object]

In order to protect their patents, brand-name manufacturers and initial ANDA filers often agree to a settlement that delays the entry of the generic drug into the market -- namely, pay-for-delay settlements.

However, as any other ANDA files are prohibited from selling their own generic versions of the drug in question under the 180-day exclusivity period generated under Paragraph IV, pay-for-delay settlements can also effectively delay the market entry of any generic version of the drug, thereby driving the FTC’s aforementioned concerns about illegal restraint of trade.,[object Object]

The Sixth Circuit: Agreement with the FTC ,[object Object]

Indeed, the Sixth Circuit specifically held that the terms of the agreement at issue permitted both parties to use the 180-day exclusivity period to delay the entry of other generic competitors.

Significantly, however, no other federal court at any level has agreed with the Sixth Circuit that pay-for-delay settlements are per se illegal restraints on trade. ,[object Object]

The Eleventh Circuit held that while such a right does not have unlimited power, patent rights necessarily include the right to exclude generics from the market.

Hence, a court must precede any specific antitrust inquiry with a threshold analysis of the exclusionary scope of the patent: if the terms of an agreement are found to have effects beyond the patent’s exclusionary effects, they may then be subject to traditional antitrust analysis to assess whether those terms violate the Sherman Antitrust Act.,[object Object]

The Schering-Plough court emphasized that the agreements did in fact permit generic manufacturers to enter the market before the expiration of the patent.

Consequently, the court held that the per se analysis performed by the Sixth Circuit is inappropriate in the context of pay-for-delay settlements.,[object Object],[object Object]

PPZ ExL presentation, 6-23-2011

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