Pay-for-Delay Is Increasing

While still trying to find time to catch up on a backlog of news, I did want to slip in mention of an informative column by Michael Hiltzik in today's Los Angeles Times:
http://www.latimes.com/business/la-fi-hiltzik-20110511,0,770124.column

Hiltzik addresses the practice of a big drug company whose blockbuster drug is about to go off patent settling with a generic drug company that's challenging the patent in court, essentially paying off the generic company to allow the brand-name company an additional time period of patent protection. (I addessed this in HOOKED as a form of "evergreening"; the term favored more lately is "pay-for-delay.") The big company gets the profits from brand-name sales without generic competition for extra months or even years; the generic company gets cash on the barrelhead without haviong actually to manufacture any drugs; and the consumers get shafted. Frank Baldino, CEO of Cephalon, publicly stated in 2006 that his company was going to land $4B in Provigil revenues over the next six years, by means of paying $200M to several generic companies to get them to back off. One study concluded that extending patent protection on the average drug by one year costs consumers $660M.

Hiltzik notes that the Federal Trade Commission thought it had essentially eliminated pay-for-delay after 1999 by more aggressive enforcement, and a 2003 federal appeals court decision ruled pay-for-delay deals illegal. But since then, other courts have approved selected pay-for-delay deals. Plus a provision to ban these deals got sliced out of the Obama health reform law at the last minute. The net result:

"The number of pay-for-delay deals has soared in recent years. In fiscal 2010, brand and generic drug makers resolved 113 patent disputes, up from 68 the year before. Of those, at least 31 involved payment to the generics firm, up from 19 the year before.

The FTC's figures may understate the number of deals involving payment, because the industry is getting more clever at avoiding straight cash payoffs and disguising them as transactions such as licensing, marketing or manufacturing agreements, many of which the agency believes are shams.

'Settlements are becoming more sophisticated,' Hemphill [C. Scott Hemphill of Columbia Law School] agrees. When suspect deals are made, he says, the burden of proof should be on the companies to justify them. 'It should be the drug makers' jobs to explain why these payments are innocent rather than the government's job to explain why they're inherently bad.'"

Hiltzik begins his column by noting that both the brand-name and the generic drug industries have lately rolled out their big guns in defense of pay-for-delay, arguing that it's really in the public interest. As Hiltzik sagely comments, "When [these two warring factions] land on the same side of an issue it's a good guess that the consumer is getting whacked."