Reverse Payment Settlements in the Pharmaceutical Industry. Arti K. Rai Duke Patent Law Institute May 17, 2013

Transcription

1 Reverse Payment Settlements in the Pharmaceutical Industry Arti K. Rai Duke Patent Law Institute May 17, 2013

2 Outline Background law, history Policy/legal arguments against payments (primarily US/FTC) Policy/legal arguments for scope of patent approach (primarily Actavis)

3 Background Law: Hatch Waxman Hatch Waxman statute Generic competitors don t have to duplicate clinical trials Patent term extension (1/2 clinical trial time plus FDA approval time); get up to 14 years In 1981, effective patent term 7 years Everyone agrees that aim was to balance generic introduction, innovation Disagree on what balance means

4 Hatch Waxman (2) Brand lists all patents it deems relevant to drug product on Orange Book Generic files ANDA Must certify Orange Book patents expired, invalid, or not infringed Non infringement, invalidity Para IV cert Originator firm can file infringement suit in 45 days 30 month automatic stay of FDA approval (like automatic PI) After 2003 amendments, only 1 stay per drug product

5 Hatch Waxman (3) First Para IV filer gets 180 day exclusivity period intended as incentive to bring Para IV challenge otherwise incur litigation costs for all generics But don t have to win suit to get exclusivity If first filer settles, exclusivity doesn t transfer Can be forfeited 75 days after a *second* challenger files a successful suit 2003 amendments Settlement does have to be filed with FTC (2003 amendments)

6 Background, History FTC has been pursuing issue for decade Says 1 year delay in generic entry costs consumers $661 million per drug product 11 th Circuit, Federal Circuit, 2 nd Circuit payments OK if within scope of patent Reverse payment settlements have increased Still only 30% of settlements in 2012 had payments

7 Criticisms of Reverse Payment (1) Once generic comes in, average price (eventually) falls to 15% of what branded manufacturer charges Profits that brand name loses much more than generic stands to gain (even with 180 day exclusivity) Reverse payments shielding (a) bad (invalid) patent or (b) patent that s not infringed

8 Criticism of Reverse Payments (2) Most Para IV challenges are on secondary patents (Hemphill and Sampat 2011) i.e. patents on chemical variants, formulations, methods of use, salts larger # of such patents/product perhaps more susceptible to invalidity certainly easier to avoid

9 US/FTC legal arguments (1) Simple horizontal agreement to suppress competition (Section 1, Sherman Act) Disturbs alignment of generic s incentive, public interest in access Ordinarily generic would want to negotiate for earliest entry date (to maximize profits) With payment, profits by sharing monopoly profits of brand name Public is loser

10 US/FTC legal arguments (2) Court has noted that specific regulatory regimes can be more important background antitrust law But Patent Act, Hatch Waxman don t condone reverse payments Should base settlement on splitting of term

11 US/FTC legal arguments (3) Presumptively anticompetitive under quick look rule of reason Presumption rebutted if consideration for unrelated property/services or equal to avoided litigation costs Reverse payments virtually unknown outside H W context Settlement with first filer buys peace b/c no one else gets 180 day exclusivity

12 Alternative positions Payment presumptively invalid if exceeds profit generic would have earned through invalidation Court should assess likelihood of patent validity or infringement

13 Policy arguments for reverse payments Brand name, generic have different risk, information profiles Generic doesn t challenge at risk for damages Brand name may (legitimately) view patent as stronger than generic Flexibility on payment provides term on which generics, brand name bargain Threat of treble antitrust damages would chill settlement (and challenges?) Do get multiple Para IV challenges Even FTC reports says 26 products with more than 1 reverse payment, 14 with 3

14 Actavis legal argument Patent is presumptively valid Gives entitlement to any settlement that doesn t exceed scope of patent

15 Overall, despite reverse payment Average effective patent term per drug product 12 years (Hemphill and Sampat 2012) Nominal patent term 16 years More secondary patents, more challenges (validity and infringement)