[Ip-health] FTC pay-for-delay study

[Aidan Hollis]

The FTC has released a study on "pay for delay" settlements between innovat=
ive drug companies and generic companies in the US.

from the FTC press release:
"
Federal Trade Commission Chairman Jon Leibowitz and key members of Congress=
, including Representative Chris Van Hollen, Chairman Bobby Rush, and Repre=
sentative Mary Jo Kilroy, today renewed their call for legislation that wou=
ld put an end to anticompetitive patent settlements, which drug manufacture=
rs have been using to keep less-expensive medicines off the market and char=
ge consumers billions of dollars a year in higher drug prices.

At today=92s event, Leibowitz also announced that the FTC staff has issued =
a new study, entitled =93Pay-for-Delay: How Drug Company Pay-Offs Cost Cons=
umers Billions,=94 that summarizes the savings lost to U.S. consumers durin=
g the past six years through such pay-for-delay deals in the drug industry,=
 and found that the number of agreements with payment and delay has increas=
ed from zero in 2004 to a record 19 agreements in Fiscal Year 2009.

According to the study, which can be found on the FTC=92s Web site at http:=
//www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf
the cost to consumers from pay-for-delay deals is an estimated $3.5 billion=
 per year =96 or $35 billion over 10 years. The study also found that settl=
ement deals featuring payments by branded drug firms to a generic competito=
r kept generics off the market for an average of 17 months longer than agre=
ements that do not include a payment. Most of the agreements reached since =
2005 are still in effect, according to the study, and they currently protec=
t at least $20 billion in sales of brand-name drugs from generic competitio=
n.
"

While these settlements have attractive legislative attention in the US, ot=
her countries can also expect similar settlements to be reached -- this is =
an issue with global implications.

For those who are interested: how does this relate the Health Impact Fund?

The HIF would have a standardized term of payments made to the innovator, r=
egardless of the patents held, with a requirement for open licensing of all=
 patents at the end of the 10 years (for new products). This would remove t=
he possibility of extending exclusivity through additional patents, and wou=
ld also eliminate the uncertainty related to the validity of those patents.=
 Neither pay for delay nor other exclusivity-extending strategies would be =
effective. This would thus lead to lower litigation costs. (However, the HI=
F would likely induce other undesirable strategic behavior.)


Aidan Hollis
Professor of Economics

University of Calgary, 2500 University Dr NW Calgary AB T2N 1N4 Canada
tel: +1 403 220 5861  fax: +1 403 220 5861
email: ahollis@ucalgary.ca
web: http://econ.ucalgary.ca/hollis.htm

Incentives for Global Health
http://www.healthimpactfund.org