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How to make more money by not launching
It might seem perverse and illogical, but many US generic firms have discovered a really good way of making money from generics. They refrain from launching the product.
It seems to be brilliant idea since it avoids possible patent infringements, the costs of manufacturing stock, costs of distribution and also means that there is no need to compete with other manufacturers on price. And that seems to be the core of the problem from the perspective of the US FTC (Federal Trade Commission); specifically the lack of competition.
What I am referring to here is the increasing number of “out-of-court” patent settlements between generic companies in the USA and the branded manufacturers whose products they are trying to copy. Very briefly what happens is that the generic companies develop a generic and file an ANDA at the FDA. Then at some point between the filing and the generic launch date, the originator and generic company get together over a cup of coffee (or possibly something stronger) and reach an agreement whereby the originator agrees to pay a sum of money and the copier agrees to stay off the market.
The arrangement is perfectly legal under USD law, but the FTC argues that it contravenes the spirit of the Hatch-Waxman Act and is anti-competitive. The chart below taken from an FTC report on the topic in May 2008 gives some idea of how such settlements have grown in recent years. The fact that these agreements do not actually breach any US law is frustrating for the FTC and other consumer bodies that see them as a way of delaying generic entry and keeping medicine prices unnecessarily high.
Amongst the aims of the Hatch-Waxman Act of 1984 was that of encouraging generic companies to challenge patents and gain early market entry. As explained in an earlier article, the compensation for this was to be a 180-day exclusivity period for the first generic company that was brave enough to file a Paragraph IV application to register.
What has happened increasingly is that originators have sought out some type of compromise with generic companies that are designed to frustrate other generic companies. Another typical tactic has been to grant an “authorised (or authorized) generic” to a rival of the first to file company thereby muddying the waters and rather spoiling his party.
The GPhA, which is the trade body of the US generic industry, commissioned a report on the topic of authorized generics that was published in July 2006. The following statement comes from the GPhA website:
In unveiling the study, Kathleen Jaeger, President and CEO of GPhA, stated, "The nation’s generic drug companies will not allow PhRMA to pull the wool over consumer’s eyes. Flawed studies are just another example of what PhRMA will do to keep safe and effective generic drugs out of the hands of consumer. Authorized generics are yet another attempt by brand drug companies to stifle competition and put profits over consumers."
The problem with this statement is that all the generic companies who are rushing to take part in these authorized generics agreements are themselves members of the GPhA! Those of you who have some familiarity with the writings of William Shakespeare will recall the scene in Hamlet where a character tries to insist that she really is enjoying a play.
In response, another character comments “The lady doth protest too much, methinks.”, a comment that appears quite relevant here, too. (For those who want to check, the phrase occurs in Hamlet Act 3, Scene 2.)
However, the days of such anti-competitive arrangements, whether staying off the market or “authorized generics”, seem to be limited with the FTC pushing for amendments to the legislation to allow them to prosecute. Speaking on the topic at the GPhA’s 2008 Annual Policy Conference in Washington Philip Eisenstat, Division of Health Care Products and Services at the U.S. Federal Trade Commission is reported to have told delegates “We’re looking for another opportunity to protect consumers and if we start to win these cases, don’t think that we won’t go after you. We’re looking for a good case to argue”.
In other words, the gloves are off and the FTC means war. If they start winning or force a change in the law, it could mean that US generics companies will be forced to start selling generics for a living again.
If you have any questions or comments,
Please feel free to contact me
peter@interpharm-consultancy.co.uk
www.interpharm-consultancy.co.uk
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