US to curb delay in entry of generic drugs

Indian pharmaceutical companies, which are increasingly choosing to settle patent litigation with global drug majors in the US, would have to be more cautious now.

The Federal Trade Commission (FTC), the unfair trade practices watchdog of the US, has decided to have a strict vigil and possible legal intervention on the pay-for-delay agreements between generic and innovator drug companies.

Industry experts see this as the first step towards curbing the mutually-beneficial agreements between innovator and generic companies, which delay the entry of cheap generics into the US market.

"The patent litigation settlements have helped the Indian generic drug industry in the past. Any ban on such settlements will definitely have a negative impact, though we cannot say how big it would be," Sujay Shetty, head of life sciences, PriceWaterhouseCoopers, said.

According to Shetty, Indian companies are engaged in different types of patent litigation and the impact of settlements in each case is different. "We will have to wait and watch, as it's not yet legislation in the US, but only a proposal," he added.

Leading domestic drug companies, such as Dr Reddy's, Ranbaxy, Sun and Glenmark, have resorted to patent settlements in the recent past to de-risk their business and ensure certainty and continuity of revenue flow. These drug companies declined to comment on the development as they considered it as of "sensitive nature" and felt their settlements would not be categorised as "pay-for-delay" deals.

The US accounts for $9 billion, about 20 per cent, of India's drug exports.

Industry representatives, however, hoped the FTC attempt would not end legal settlements but affect only those deliberately meant to delay the entry of low-cost generic alternatives into the US market.

"FTC has not called for an overarching rule to stop all out-of-court settlements involving generic and innovator companies. The agency may look at future settlements at a closer level and initiate inquiries on a case-by-case basis. Otherwise, the directive will drive away generic companies from taking the patent challenge route in future," an official of a leading generic player said.

The patent challenge route is a high-risk, high-profit model, adopted by leading Indian generic players. Since the litigation involves huge cost, companies have recently been trying to settle the case, or withdrawing the case after ensuring a fixed period of limited market exclusivity for their generic product after patent expiry. The companies fear this practice may also come under FTC scrutiny.

FTC Chairman Jon Leibowitz and a couple of US legislators had on January 13 called for legislation "that would put an end to anti-competitive patent settlements, which drug manufacturers have been using to keep less-expensive medicines off the market and charge consumers billions of dollars a year in higher drug prices". FTC estimates such agreements will cost American consumers $3.5 billion per year or $35 billion over the next 10 years.

According to an FTC study, pay-for-delay agreements or the practice of brand name pharmaceutical companies delaying generic competition, which lowers the prices by agreeing to pay its competitor to hold its low-cost product off the market for a certain period of time, have arisen as part of patent litigation settlement agreements between brand-name and generic pharmaceutical companies.

The number of agreements with payment and delay had increased from zero in 2004 to a record 19 agreements in the 2009 financial year, it said.

The nexus between generic and innovator pharmaceutical companies, resulting in delay in the launch of low-cost off-patent medicines, is also a serious issue in the European Union.