Monday, July 28, 2008


Out-of-court generic settlements

Noemie Bisserbe

Out-of-court settlements for patent disputes between innovator pharmaceutical companies and generic drug makers — a rising trend that many Indian companies such as Delhi-based Ranbaxy Laboratories are now joining — are being held responsible for limiting patients’ access to cheaper generic medicine. In the process, they are corrupting the purpose of the Hatch-Waxman Act, set up in 1984 to improve access to affordable copycat drugs in the US. For instance, Ranbaxy’s recent out-of-court settlement with US-based Pfizer for Lipitor, the world’s best selling drug with global sales of $13.5 billion annually, will delay a cheaper generic version of the cholesterol-lowering drug by 20 months. This is bad news for patients in the US, as generic drugs usually cost only about 5-15 per cent of the original product.

As generic firms’ legal costs soar, and innovator pharma companies come under increasing pressure to create new blockbuster drugs, many are settling their disputes out of court. While both generics and innovator companies benefit from reduced legal expenses and increased sales, respectively, patients find themselves left out, as it delays launch of generic products.

Protecting Consumer Access to Generic Drugs Act of 2007, a bill aimed at limiting the scope of these out-of-court settlements, was passed last year in the US, amid great opposition by the generic drug industry.

On 26 June 2006, when the Federal Trade Commission (FTC) approached the US Supreme Court to appeal against an appeals court’s ruling to allow two settlements involving K-Dur(R), US-based Schering-Plough’s blood pressure drug, they were turned down. The Supreme Court said the law should favour settlements and consider the strength of the patents.

According to the FTC, 33 such settlements were signed in 2007, 14 of which included both compensation to the generic company and a clause preventing the generic drug maker from launching its product. “This report confirms that settlements with potentially anticompetitive arrangements continue to be prevalent,” said FTC Chairman William E. Kovacic in a communique. Commissioner Jon Leibowitz added: “That’s good news for the pharmaceutical industry....But it’s bad news for consumers, who will be left footing the bill, inflicting special pain on the working poor and the elderly, who need effective drugs at affordable prices.”

Meanwhile, Mitch Hatz, public affairs specialist at FTC, told BW, “The (Ranbaxy-Pfizer) agreement is currently under review.” But Ranbaxy’s spokesperson told BW that the agreement did not involve a payment from Pfizer and that the company was confident the agreement would not raise any objections.

Things may change, though, if Democrat candidate Barack Obama is elected President. As Democrats have traditionally encouraged the use of generic drugs, the FTC’s grip on out-of-court settlements may get tighter. And this may force generic companies such as Ranbaxy, which according to analysts could rake up over $2 billion in revenues from such agreements in the next three years, to rethink their strategy.

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