This article appeared in the January 2011 edition of INNsight newsletter

Are patent deals slowing cheaper drugs?

The headline is borrowed from a Reuters article of 17th January reporting that the European Commission is pressing pharmaceutical companies for more information about any patent deals they have reached with generic companies.

A press release from the EU announced that it had “addressed information requests to selected pharmaceutical companies, asking them to submit copies of their patent settlement agreements concluded in the European Economic Area (EEA) in 2010 between originator and generic companies.” The companies were not identified, but Bayer and Roche have confirmed that they are two of those that were contacted.

In their words, the Commission are continuing with this type of investigation because they believe “that certain patent settlements may cause consumer harm because they delay the market entry of cheaper generic medicines.”

This action is a further outcome of the ”Pharmaceutical Sector Inquiry”, conducted by the European Commission in 2008 in the belief that competition was possibly being restricted or distorted. Their suspicions were based on what they saw as a decline in innovation measured by the smaller number of novel medicines reaching the market combined with examples of what they believed to be delayed market entry of generic medicines when compared to what might be expected.

Since then, the Commission has raided a number of company offices both in the Big Pharma and generic industries looking for documents to confirm its suspicions. However, the European Commission now feels pleased with itself in that it believes the investigation itself followed by its subsequent actions has had something of a deterrent effect and has led to a reduction in “pay-for-delay” deals.

The evidence that it cites is as follows:

• There was a significant decrease in the number of potentially problematic patent settlements in the EEA.
• The number fell to 10% of total patent settlements in the sector in the period July 2008 to December 2009 compared with 22% in the period covered in the inquiry into the pharmaceutical sector (January 2000-June 2008).
• The amount of money involved in the settlements, between the so-called "originator" pharmaceutical companies and producers of generic drugs also decreased from more than € 200 million recorded in the sector inquiry period to less than € 1 million, according to the 2010 report

Does this mean that the number of deals has fallen off, or have companies just become smarter at hiding the evidence? Writing about this issue in an earlier article, I asked the question about whether the Commission had indeed uncovered a sinister conspiracy or whether other factors might be partly to blame for delayed generic entry.

Looking at it now, a further question occurs to me that should perhaps be asked about possible causes for such deals other than a simple / sinister desire to cheat the public of low cost medicines.

Is it perhaps the case that those who pay the bills, whether governments or insurers, have forced prices down so much that it is now more profitable for generic companies to hold back from launching? In other words, is the situation now such that the alternatives are either:-

• to launch a generic and then see its price pushed down by a combination of reimbursement committees, reference prices and competition to the point where it becomes a loss maker
• or else to take a payoff, then delay launching and actually make a profit without selling anything?

Cut-throat competition is clearly one factor in pushing down generic prices. However, the competition and subsequent price falls are more bearable if they start off from a higher rather than a lower level. To put it another way, perhaps the authorities themselves have become a contributory factor in the environment that created an interest in delay deals.

I am not trying to sympathise with the actions of those involved in “pay-for-delay”, but rather to ask the question of where the responsibility lies and whether it is indeed simply a clear black and white case of a sinister conspiracy within the industry or is it something more complicated?

Any thoughts?

If you have any questions or comments,

Please feel free to contact me

P.S. My article last month on overpriced Canadian generics provoked a response from the local generic trade association. This is an extract from what Jeff Connell, the Director of Public Affairs at the Canadian Generic Pharmaceutical Association (CGPA) told me:

“Here are the key points in terms of the Fraser Institute and its ``research` regarding pharmaceutical issues.

 - The Fraser Institute is funded by our competitors in the brand-name industry. While they do not disclose the amount of this funding, they claim it does not impact their research. However, the Fraser Institute has published dozens of papers on pharmaceutical issues over the years and has not once taken a position contrary to that of brand-name drug companies……………… The Fraser Institute has never responded to our criticisms of their work nor have they revealed how much money they take from our competitors. I do not expect they will do either.”

You can read their reply to a previous 2008 report from the Fraser Institute at http://www.canadiangenerics.ca/en/news/docs/D%27Cruz_et_re_Fraser_Institute_FINAL.pdf and then make up your own mind as to which claim you find more credible.