Congressional interest in addressing brand/generic patent challenge settlements has been simmering for several years, but there now are indications that the issue may come to the fore this legislative session.

One reason is that Rep. Henry Waxman, D-Calif., who has co-sponsored legislation to curtail such deals, now chairs the Energy and Commerce Committee. Second, should the Congressional Budget Office score any eventual anti-settlement legislation as saving money by virtue of creating earlier generic competition, such legislation easily could be attached to a larger health reform bill to help offset the costs of expanded access.

If restrictions are placed on such settlements, firms will have to scramble to find ways to handle the endgame of litigation in a way that offers both sides market certainty and also satisfies the new restrictions.

In other respects, though, the issue remains in a logjam. The Federal Trade Commission and some committee chairmen think settlements that involve "reverse payments" from the brand to the generic are anticompetitive, while the trade associations for both industries, and, most importantly, federal appeals courts, disagree(¹ Also see "FTC Chairman To Be Jon Leibowitz: Will Reverse Payments Get More Scrutiny?" - Pink Sheet, 9 March, 2009., p. 10).

As it did at the beginning of last session, Rep. Bobby Rush's House Energy and Commerce Subcommittee on Commerce, Trade, and Consumer Protection is convening a hearing on the issues. Representatives from the Pharmaceutical Research and Manufacturers of America, Teva, Apotex, AARP and FTC are among likely witnesses at the March 31 session.

Rush, D-Ill., introduced a bill last session with Waxman that would prohibit settlements involving payments to generic firms accompanied by a delayed launch of an ANDA, but would allow FTC to make exceptions "if the commission finds such agreements to be in furtherance of market competition and for the benefit of consumers" (² Also see "House Bill Banning “Reverse Settlements” Would Give FTC Exemption Power" - Pink Sheet, 7 May, 2007., p. 9).

The language illustrates the challenge the drafters face: how to create a bill that discourages settlements involving payments but still allows for some kind of deals to end litigation. The generic industry argues that without the flexibility to settle with brand firms in a mutually beneficial way, generic firms might not undertake the expense of a patent challenge because of the uncertainty (³ Also see "Brand/Generic Settlement Reform Will Be Balancing Act For Congress" - Pink Sheet, 22 January, 2007., p. 3).

Apotex's solution would eliminate all potential bottlenecks

One generic firm, Apotex, takes a different view, saying that settlements will continue as long as they have the power to delay generic launches. The company believes the only way to eliminate such settlements would be to eliminate first-to-file exclusivity for generics.

The firm has at the ready a position paper on the issue. ⁴ Apotex's position paper argues that "reverse payments are not the cause of the settlement problem." The causes are "the ability of first-to-file generic company to retain exclusivity even if it abandons its patent fight" and the "lack of any incentive" for a subsequent filer to fight to win.

Instead of tackling settlements by dictating how they can be made, Apotex suggests, Congress should eliminate the root of problem and pass a bill that ties generic exclusivity to patent challenge success.

"Settlements by first-filers should result in the forfeiture of 180-day exclusivity," Apotex states. "In addition, the first generic company to win patent litigation should be eligible at a minimum to share the 180-day exclusivity award."

Congress has recognized the delaying power of first-to-file exclusivity, and created a number of forfeiture events in the 2003 Medicare Modernization Act that were designed to eliminate bottlenecks.

But those changes have "made the settlement problem worse," Apotex argues, mostly by cementing an appeals decision, not district court ruling, as a judgment that would trigger forfeiture.

Apotex argues that its position essentially restores Hatch/Waxman to its original intent, before the 1997 "Mova" court decision forced FDA to award exclusivity on the basis of "first to file" rather than successful defense.

Apotex's comfort with litigation-based incentives clearly is a minority view; 180-day awards were almost unheard of pre-Mova but have flourished since then (⁵ Also see ""First To File" Policy Increases Generics Qualifying For 180-Day Exclusivity" - Pink Sheet, 26 March, 2001., p. 9).

Apotex argues that its concept offers a more effective and elegant solution to generic launch delays than a system that requires individual judgment calls about each settlement. If it can convince Congress to follow its path, the rest of the generic industry may be forced to lean on their litigation successes more than they have in the past.

-M. Nielsen Hobbs (n.hobbs@elsevier.com)

Brand/Generic Settlements Return To Capitol Hill

More from Archive

More from Pink Sheet