Senate Judiciary Committee Passes Bill Banning Pay-for-Delay Settlements on Generic Drugs

The U.S. Senate Judiciary Committee has voted to pass a compromise version of Senator Herb Kohl’s bill banning pay-for-delay settlements that keep generic drugs off the market.  The Preserve Access to Affordable Generic Drugs Act (S. 369) will reduce the anti-consumer practice of brand-name drug manufacturers using pay-off agreements to keep cheaper generic equivalents off the market by presuming the practice to be illegal.  Under these pay-off agreements, brand name drug companies settle patent disputes by paying the generic drug manufacturer millions of dollars in exchange for a promise that it will keep its version of the drug off the market.

“Passage of this bill will end an egregious practice that denies consumers the benefits of generic drug competition.  At this time when we are all trying to find ways to save costs in our health care system, this bill will go a long way by saving us billions of dollars a year,” said Kohl.

The Federal Trade Commission (“FTC”) has estimated that stopping these types of settlement agreements would save consumers at least $35 billion over the next ten years, and provide significant cost savings in the amount of $12 billion over ten years for the federal government, which pays approximately one-third of all prescription drug costs.  The compromise measure passed by the Judiciary Committee reflects a change to the original bill that would allow settlement agreements between drug companies if they can prove with clear and convincing evidence that the deal will not harm competition.  (See (http://aging.senate.gov/record.cfm?id=318980). The bill also contains significant penalties to serve as a strong deterrent against these anti-consumer agreements.

Despite the FTC’s opposition to these patent settlements, two 2005 appellate court decisions have permitted these payoffs.  In the two years after these two decisions, the FTC has found nearly half of all patent settlements involved payments from the brand name from the generic manufacturer in return for an agreement by the generic to keep its drug off the market.  In the year prior to these decisions, however, no patent settlement reported to the FTC contained such an agreement.  According to a study by Pharmaceutical Care Management Association (“PCMA”), health plans and consumers could save $26.4 billion over the next five years by using the generic versions of 14 popular drugs that are scheduled to lose their patent protections before 2010.

In February, the FTC filed an antitrust case challenging the latest “pay for delay” settlement.  The FTC’s complaint alleges that Solvay, the brand name manufacturer of a hormone-boosting drug, entered into an agreement with two generic companies to delay the entry of their generic version of the drug for nine years.  The FTC alleged that Solvay agreed in 2006 to share its profits with the generic competitors as long as they did not launch their generic versions until 2015.  If these allegations are proven true, this case represents the exact type of agreement that would be presumed illegal by The Preserve Access to Affordable Generics Act.

Kohl introduced S. 369 in February with Senators Chuck Grassley (R-IA), Russ Feingold (D-WI), Dick Durbin (D-IL) and Amy Klobuchar (D-MN) as original cosponsors. Senators Al Franken (D-MN), Susan Collins (R-ME), and Bill Nelson (D-FL) have since signed onto the legislation. Kohl serves as chair of the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights.

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