Chester “Chip” Davis, Jr, the President and CEO of the Association for Accessible Medicines (AAM) in the US urges Congress to avoid restricting out-of-court drug patent settlements and to move away from anti-competitive practices that work to restrict patients access to generics and biosimilars.
Recent legislation introduced in the US Senate would prohibit generic and biosimilar pharmaceutical manufacturers from settling disputes over the validity of a medicine’s patents outside of court.
Patent settlements are in the news again. Some settlements have been called known as reverse payment settlements, or more commonly, and often misleadingly, “pay for delay.” Yet many of these arrangements actually smooth the path for generic drugs to make it to the marketplace and ultimately to patients. Recent legislation introduced in the US Senate would prohibit generic and biosimilar pharmaceutical manufacturers from settling disputes over the validity of a medicine’s patents outside of court. If enacted, this bill would impede patients’ access to more affordable generic or biosimilar medicine, increase costs for patients and the larger health care system, and allow anti-competitive forces to continue to pervert the U.S. patent system.
The Preserve Access to Affordable Generics Act (“PAAGA”), while noble in name, unfortunately, misdiagnoses the disease. It focuses on a perceived “anti-competitive” nature of mutually agreed-upon settlements, rather than the increasingly real problem of patent abuse. Until Congress prohibits such manoeuvres as a big pharma company seeking to transfer patents on one of its blockbuster products to a Native American tribe, in an effort to thwart generic competition, brand manufacturers will maintain the upper hand in any patent dispute. After all, they have far greater financial resources to hire clever lawyers to develop patent schemes like these in the first place. Taking away the option for generic and biosimilar developers to settle disputes outside court will only further tilt the scales in their favour.
The newly formed Coalition Against Patent Abuse (CAPA) — comprising health care providers, consumer groups, patient advocacy organizations, employers and others — fights abuses of the patent system that can extend government-granted monopolies illegitimately for years, even decades. CAPA includes AHIP, the Association for Accessible Medicines, Campaign for Sustainable Drug Pricing and Kaiser-Permanente, among others.
In many ways, this proposed legislation is chasing after a problem that the Supreme Court resolved five years ago. In FTC v. Actavis, Inc., the judges determined that antitrust laws forbid payments that are “large and unjustified.” Since that decision, the frequency of patent settlements has slowed. A November 2017 report by the Federal Trade Commission (FTC) found, “The number of settlements potentially involving pay for delay continues to decrease significantly in the wake of the Actavis decision. The data clearly shows that the construct of Actavis is working. Congress shouldn’t tinker with it further.
Experts say that the greatest impediment between patients and the drugs they need is the patent and market exclusivity system.
I will concede that “pay for delay” is the widespread term for these litigation settlements, but the label hardly applies when there is neither pay nor delay. The vast majority of patent disputes covered in the FTC report were resolved without compensation to the generic manufacturer and/or without restrictions on generic competition. On the “delay” issue, the contravening evidence is quite clear. Settlements actually result in generics coming to market sooner than patent expiry and avoid the unpredictable nature of litigation. A recent study by the IMS Institute for Healthcare Informatics found, of 33 drugs analyzed, they were introduced on average, 81 months prior to patent expiry.
In a letter to President Trump, the cosponsors Senators Grassley and Klobuchar claim, “Our legislation would increase prescription drug competition in U.S. markets, driving down prices and improving the quality of life for patients across the country.” Unfortunately, however, the senators are pushing a remedy that does not account for the dynamics of the real-life pharmaceutical ecosystem, rather their bill is written for a world in which drug companies graciously allow their patents to expire on schedule. Nothing could be further from the truth.
With increasing frequency, brand-name companies are filing for the patent after patent on existing drugs, compelling generic manufacturers to challenge them in court, one after another after another. Experts say that the greatest impediment between patients and the drugs they need is the patent and market exclusivity system, which rewards pharmaceutical companies long after they’ve recouped their research and development expenses and secured a profitable return on their investment.
Humira is one of the most profitable drugs ever brought to market, with over $18 billion in global sales in 2017. The FDA approved AbbVie’s rheumatoid arthritis drug in 2002, and its initial patent expired in 2016. But the company applied for and obtained over 75 secondary patents that extended its monopoly to 2034.
Assuring that consumers are guaranteed the earliest possible access to safe and affordable generic and biosimilar medicines is an admirable goal but restricting drug patent settlements is the wrong way to go about it.
Whether you term such manoeuvres patent abuse or—to use the favoured term of FDA Commissioner Dr Scott Gottlieb — “shenanigans,” they keep this enormously expensive treatment inaccessible to many patients for decades, while burdening the health care system as a whole. This type of anti-competitive behaviour costs patients, payers and taxpayers billions of dollars per year. In order to end AbbVie’s perpetual monopoly, generic manufacturers would have had to engage in time-intensive, expensive patent litigation. In other words, it would take years, and cost the generic manufacturer millions upon millions of dollars in litigation fees. If the generic companies lost these cases, AbbVie would continue to profit from its anti-competitive, government-granted monopoly.
In such a real-world scenario, settlement is often the only viable way out. Last year, Amgen reached an arrangement with AbbVie to cut the Humira monopoly to 2024. Otherwise, there would likely be no biosimilar competition to Humira until 2034. And Humira is not an isolated case.
We can’t wish patent litigation away or sweep it under the rug. It has become an integral part of the labyrinthine pathway that has evolved for generic and biosimilar medicines to reach the marketplace. This expensive and unpredictable process typically takes years and adds an unhealthy dose of uncertainty to an already risky market.
Generic and biosimilar manufacturers often lack the legal firepower to litigate each and every patent. Operating with increasingly thin profit margins, these companies need alternatives to litigation, practical solutions that enable informed decisions about which drugs to bring to market.
While not ideal, that’s where patent settlements can prove extremely valuable. Senators Grassley and Klobuchar are correct, and deserve credit for, recognizing that competition brings down prices. That is why their leadership on a separate piece of legislation, designed to enhance, not thwart, generic competition, known as the CREATES Act, is so vitally important. That said, agreements that eliminate the guesswork from business decisions are, in spite of what they seem to believe, precisely how competition — and lower prices for patients — come about. These arrangements inject a degree of predictability into an unwieldy process, clearing the pathway for drugs to reach patients.
The bill sponsored by Senators Grassley and Klobuchar restricts the right of parties to settle litigation, which would have the unintended consequence of reducing the number of patent challenges brought by generic drug and biosimilar companies. This would upend Hatch-Waxman’s incentives for generics to challenge weak patents and provide consumers access to lower-cost generic drugs as soon as possible.
Assuring that consumers are guaranteed the earliest possible access to safe and affordable generic and biosimilar medicines is an admirable goal but restricting drug patent settlements is the wrong way to go about it. Changes to current law would prevent drug companies from settling legitimate patent disputes. PAAGA would harm the very patients it purports to help, by fostering an environment in which patents are endlessly renewed and generics are prevented from doing what they do best: bring prices down.