Pay-for-Delay Drug Deals: Do They Hurt or Help Patients?

Roxanne Nelson, RN

April 15, 2015

The cost of cancer care in the United States, and the escalating price of new therapeutics in particular, has led to increasingly vocal protests from specialists, advocacy groups, and professional organizations.

Numerous factors have been cited as contributors to escalating costs, including strategies that are said to delay or discourage competition by generic companies. Because manufacturers of generic drugs are not required to repeat clinical trials or pay for advertising and promotion, these products are typically priced far lower than brand-name drugs.

One of the strategies to delay generics is a practice known as "patent evergreening," in which a variation of a drug is developed — such as a new form of release, a different dose, or a new combination — to extend the life of the original patent.

But a more ominous strategy is "pay for delay." These are deals in which pharmaceutical manufacturers with patents that are nearing expiration pay companies to delay the introduction of a generic version, said Hagop Kantarjian, MD, PhD, chair of the Department of Leukemia at the University of Texas M.D. Anderson Cancer Center in Houston.

Dr Kantarjian, who has, for several years, campaigned against the high prices being charged for newer cancer drugs, believes that preventing pay for delay is one way to rein in costs. "Federal legislation is needed that will prevent delaying access to generic drugs by preventing drug companies from making deals to protect patents," he said.

Pay for delay has become a particularly contentious issue, and has entangled the US Federal Trade Commission (FTC) in several lawsuits that have made their way all the way to the Supreme Court. The controversy has even spread to the European Union.

In a pay-for-delay strategy, a patent holder — in this case a pharmaceutical company — agrees to pay a potential competitor who has threatened to enter the market and challenge the patent to delay entry. They are often called reverse-payment patent settlements because the payment flows in a direction opposite what is normally expected in patent litigation cases.

Opponents of these settlements argue that delaying generics harms patients and might even be unlawful and violate antitrust laws. Supporters contend that if a valid patent is being infringed on, a settlement that restricts the entry date of the generic drug does not violate lawful competition.

Stifling Competition?

For more than a decade, pay-for-delay settlements have come under the scrutiny of government authorities. In 2013, the European Commission fined Johnson & Johnson about €10.8 million ($11.43 million) and Novartis about €5.49 million ($5.8 million) after it found that, in breach of European Union antitrust laws, their subsidiaries in the Netherlands had agreed to a deal that was designed to delay the market entry of a generic version of the painkiller fentanyl (Duragesic).

In the United States, the FTC has made pay for delay one of its top priorities and has opposed a number of settlements that are believed to have stifled the competition from releasing lower-cost generic medicines. These deals cost consumers and taxpayers $3.5 billion more in drug costs every year. Former FTC chair Jon Leibowitz pointed out in a press release that according to the Congressional Budget Office, restricting these arrangements would reduce federal government debt by $5 billion over 10 years.

"The FTC enforces federal law, and we are concerned that these deals might harm the consumer and interfere with competition," said Michael Kades, deputy chief trial counsel at the FTC. "Not all of these settlements are problematic," he told Medscape Medical News, but some do "appear to be violating antitrust laws."

In fact, of the 145 patent-dispute settlements filed in 2013, 29 were potential pay-for-delay agreements between branded and generic drug companies.

Those 29 settlements involved 21 different branded pharmaceutical products, with combined sales of $4.3 billion in the United States, and 13 generics made by "first filers." Being a first filer — the first company to seek approval from the US Food and Drug Administration (FDA) to market a generic version of a branded drug — makes a company eligible for 6 months of exclusivity, without competition from other generic manufacturers. FDA regulations stipulate that other generic manufacturers cannot enter the market if the entry of a first flier is delayed, which can make these patent-settlement deals particularly harmful to consumers, according to the FTC.

"Appropriate enforcement by the Commission of antitrust laws means that there will be fewer of these anticompetitive deals," Kades told Medscape Medical News. "This translates to lower prices for the consumer."

The Case of Imatinib

The tyrosine kinase inhibitor imatinib (Gleevec, Novartis), considered to be one of the most successful targeted agents ever developed, has come under scrutiny because of its dramatic increase in cost and patent disputes.

In 2001, the agent, developed to treat chronic myelogenous leukemia, cost about $30,000 per year. Since then, the drug has more than quadrupled in price in the United States. "It went from $92,000 in 2012 to $132,000 in 2014," Dr Kantarjian reported.

He pointed out that the drug sells for a fraction of the price north and south of the border; it costs $46,000 in Canada and $29,000 in Mexico.

Imatinib has become the bestselling drug for Novartis, generating $4.7 billion in 2012, and pay-for-delay deals have allowed Novartis to delay the entry of generic imatinib in the American market from July 2015 until February 2016, Dr Kantarjian explained. It is estimated that this delay will cost consumers and the healthcare system in the United States at least half a billion dollars.

Last year, Novartis settled a case concerning a version of imatinib developed by a subsidiary of the generic manufacturer Sun Pharmaceuticals Industries. According to the settlement, Sun Pharma's generic version of imatinib can enter the market in the United States in February 2016 and, because it has first-filer status, is entitled to 6 months of marketing exclusivity.

That means that no other generic versions of imatinib can be launched in the United States until at least August 2016.

"The patent was supposed to expire in January 2015, but due to some sort of manipulations, it was delayed until July 2015," said Dr Kantarjian. "And now an agreement between Sun and Novartis — which they will not reveal — will delay it. We have all of these behind-the-scenes agreements."

The patent for the basic compound is scheduled to expire in July, and Sun Pharma has tentative approval from the FDA for its generic version. According to Novartis, patents covering the use of certain polymorphic forms of the drug (including those for children) will not expire until 2019. The actual terms reached by the two companies remain confidential.

Is this good or bad for the consumer?

Critics such as Dr Kantarjian say that this deal delays the entry of the generic product by about 7 months, which will add to costs and deprive patients of treatment.

In contrast, the manufacturer says that the "settlement validates the Novartis patents while allowing Sun Pharma's subsidiary to enter the market with its generic product" before the expiration of the other patents scheduled for 2019. But in their lawsuit, Sun Pharma argued that its generic drug wasn't in violation of those specific patents.

In what might be considered a case of evergreening, Novartis recently lost a lengthy patent case on the other side of the world. After a 6-year legal battle, India finally denied a patent claim for a slightly altered version of imatinib (the original version was not patented under Indian law). The Supreme Court in India ruled that the altered drug was too similar to the earlier version to qualify for patent protection.

Novartis argued that this was not a case of evergreening to protect their patent because the new version is 30% easier for the body to absorb and, thus, is significantly superior to the older product. The Court, however, did not agree that the newer version enhanced or had superior efficacy, as is required under Indian law.

Can it Benefit the Consumer?

Since 2001, the FTC has filed a number of lawsuits in an attempt to stop some of these settlements, although without much success. The various courts of appeal have not been consistent when deciding whether or not these settlements are anticompetitive.

In late 2012, the US Supreme Court finally agreed, for the first time, to hear the pay-for-delay case of the FTC vs Actavis (a generics manufacturer). In their ruling, which is considered a victory for the FTC, the Court said that these settlements are not categorically immune from antitrust laws, even when they are within the scope of the patent.

Although the Court did not declare them illegal, it agreed with the FTC that this type of settlement could be harmful to consumers and violate antitrust laws. The Court also rejected arguments that these settlements are always legal, and provided guidance on how they might violate antitrust laws.

"What the Supreme Court said is that they can be judged case by case, and that the Commission can challenge these arrangements," said Kades.

But the Court also ruled that these settlements are not presumptively anticompetitive. Supporters of these agreements believe that they can be beneficial to patients. According to the Generic Pharmaceutical Association (GPhA), these settlements can eliminate costly and time-consuming trials over the drug patent, and can actually bring generics to market sooner.

"Reverse-payment settlements can facilitate the entry of generics into the market," said Christine M. Simmon, JD, senior vice president of policy and strategic alliances at the GPhA. "They provide a guaranteed way of market entry before expiration of the patent if the parties reach a settlement."

Patent protection for a drug is quite long, so any opportunity to provide medications ahead of time in a generic form is a benefit for the patients and the healthcare system, Simmon told Medscape Medical News. "Under the law, generic companies are encouraged to challenge the patents in court. If they win, they come to market sooner."

This is like any other type of litigation, in that both parties have the option to settle out of court, which generally allows the generic to actually come to market sooner, she continued. "That is the benefit of the settlements — you don't have to continue all the way through a court case. The reason that it has become an issue is that these settlements include a consideration, which may or may not include money."

But if these settlements actually benefit the patient and allow the generic product to be available sooner, why is there so much dispute over them?

Part of that dispute is that many are misinformed about what is actually going on with these settlements, Simmon explained. "They came up with a catchy slogan [pay for delay], but that really is a misnomer. It is built on the misguided perception that if they don't settle, the case will continue on to court and the generic companies will win."

The truth is that there is a high probability that they will not be successful in court. An independent study conducted in 2010 by RBC Capital Markets analyzed 370 drug patent suits from 2000 to 2009 and found that generic companies were successful in only 48% of cases.

When settlements were factored into the mix, manufacturers were successful in bringing the generic product to market before patent expiration in 76% of cases.

For example, the generic version of the top-selling statin atorvastatin (Lipitor, Pfizer) entered the market 6 years before patent expiration because of a settlement. This early market entry will result in a projected savings of $22 billion by 2017, Simmon noted.

Current Trends for Cancer Drugs

Although it is difficult to make predictions, the Supreme Court ruling will likely increase future investigation and litigation of reverse-payment settlements. In a prepared statement before the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights, Edith Ramirez, chair of the FTC, applauded the Supreme Court decision and made it clear that the FTC will continue to pursue these investigations. This includes cases currently in litigation, pending cases, and a revisiting of settlements that were "previously filed, in light of the Actavis decision, to determine whether they merit further investigation."

Cancer therapies are a particularly popular target for patent challenges; from 2006 to 2011, they were the second-most commonly litigated generic class (70 unique cases), just behind cholesterol-lowering agents (123 unique cases).

The patents of other expensive cancer drugs are nearing expiration, and some have already been making the rounds in court. The patent on bortezomib (Velcade), for example, is set to expire in 2017 and, according to FiercePharma, Actavis has already filed an application with the FDA to produce a generic version.

In 2012, the generic manufacturer Mylan challenged the patent covering the active ingredient in erlotinib (Tarceva, Genentech & OSI) and the patent covering the method of using the drug to treat non-small cell lung cancer, but the challenges were rejected by the Court. The first patent for the drug will expire in November 2018.

However, Roche, the marketer of erlotinib outside the United States, was not as successful. They recently lost a 4-year battle over patent rights for erlotinib in India to the generic manufacturer Cipla.

A drug with a victory for both the brand-name manufacturer and the generic company is pemetrexed (Alimta, Eli Lilly). The composition-of-matter patent expires in 2016, but the company successfully fought off a challenge from Teva Pharmaceuticals when a judge ruled that the patent should be upheld until 2022. But Eli Lilly did not fare as well in Europe. In the United Kingdom, the Court ruled against it, giving Actavis the go-ahead to launch a generic version. And just last month, a German court ruled that a generic version can come to market in December, but Eli Lilly plans to appeal that ruling.


Comments on Medscape are moderated and should be professional in tone and on topic. You must declare any conflicts of interest related to your comments and responses. Please see our Commenting Guide for further information. We reserve the right to remove posts at our sole discretion.