FTC Report Shows a Drop in Potentially Anticompetitive Drug Settlements

A new Federal Trade Commission (FTC) staff report has found that, despite an increase in patent settlements concerning generic drugs, fewer settlements included the kinds of “pay-for-delay” provisions that are likely to be anticompetitive in nature.

The report, which covers the year 2016, is the FTC’s third such investigation of such agreements since the Supreme Court ruled in FTC v Actavis that a brand-name drug maker’s payment to a generic competitor to settle patent litigation can violate antitrust laws. The document summarizes data on the 232 final patent settlements filed with the FTC and the Department of Justice during the financial year 2016.

According to the report, the 232 final settlements related to 103 branded products. Of these settlements, 151 restrict the generic drug maker’s ability to market its product but do not include explicit or possible compensation, and 37 settlements have no restrictions on generic entry.

Thirty of the settlements contain explicit compensation from a branded drug’s manufacturer to a generic manufacturer and a restriction on the generic manufacture’s ability to market its product in competition with the brand-name drug. In 29 of those 30 settlements, payment came in the form of litigation fees, with payment ranging from $250,000 to $7 million.

Only 1 agreement involved a branded drug maker promising not to market an authorized generic that would compete with the generic drug maker’s product. According to the FTC, this is the lowest number of such potentially anticompetitive agreements since 2004.

There were 14 settlements identified that contained forms of “possible compensation” to the generic drug maker; in some settlements, the branded manufacturer promised not to use a third party to distribute an authorized generic for a certain period, and other agreements contain language that describes a declining royalty structure, in which a generic drug maker pays less in royalties to the branded drug maker if the latter launches an authorized generic.

These cases of “possible compensation” would need further analysis of specific marketplace circumstances to determine whether they have anticompetitive elements, says the report.

In a statement, FTC chairman Joe Simons said, “The data are clear: The Supreme Court’s Actavis decision has significantly reduced the kinds of reverse payment agreements that are most likely to impede generic entry and harm consumers. These annual reports are an important tool to monitor how patent settlement agreements continue to evolve, and to identify provisions that might be anticompetitive.”

The FTC’s last report on such settlements, issued in 2017, found that, during fiscal years 2014 and 2015, there were 14 deals—involving 11 different products with combined annual US sales of approximately $4.6 billion—that were potentially anticompetitive. That number was down from 21 such deals the year prior, and down substantially from the record high of 40 such deals in the financial year 2012.

Despite the demonstrated reduction in potentially anticompetitive settlements, pay-for-delay settlements continue to be a hot-button issue among lawmakers. Among ongoing efforts to limit the potential for anticompetitive settlements is the Preserve Access to Affordable Generics and Biosimilars Act, first introduced to Congress in January 2017 as the Preserve Access to Affordable Generics Act, and recently reintroduced by Senators Amy Klobuchar, D-Minnesota, and Chuck Grassley, R-Iowa.

The bill would prohibit brand-name drug makers from delaying the entry of generics or biosimilars by compensating competitors to keep their products off the market for a period of time. The nonpartisan Congressional Budget Office said that enacting this legislation would reduce the deficit by $613 million by 2029.