'Pay for delay' patent settlements have saved payers $25.5 billion during 2005-2012, says IMS Health Institute

Although the issue of “pay for delay” settlements between pharma brand owners and generic manufacturers was settled—with some finality—by the US Supreme Court last month, there remain both the question of whether the US Dept. of Justice will continue to litigate some of these settlements, or whether Congress will rewrite elements of the Hatch-Waxman Act of 1984, which set up the current branded-to-generics marketplace. Now, a study funded by the Generic Pharmaceutical Assn., and analyzed independently by the IMS Health Institute for Healthcare Informatics, concludes that on balance, the settlements netted payers and consumers $25.5 billion during the period 2005-2012, and will save an additional $61.7 billion in future years, for the patented drugs included in the study.

“In particular, the new analysis estimates that patent settlements — including those with consideration – have led to billions in savings,” said Ralph.Neas, president of GPhA. “For example, the settlement involving Lipitor alone will save $22 billion over the next four years. This is critical for lawmakers to understand, because any further restrictions on settlements will put these savings at risk.” During a press conference, he added that “As the saying goes, ‘If it ain’t broke, don’t fix it’—in this case, if it’s working well, there is no reason to change it.”

Pay for delay—what GPhA calls “patent settlements with consideration”—involve a deal between a brand owner and a generic manufacturer who has sued to invalidate a drug patent. Rather than proceeding all the way through litigation, the brand owner and the generic maker settle, often with a payment from the brand owner to the generic maker, and with a date, usually before the patent expires, at which the generic will enter the market. IMS studied 33 drugs (out of 65 patent settlements; not all fit the parameters of a pay-for-delay situation) that were settled between 2005 and 2012, and then calculated the difference between no settlement (the brand continuing until the end of its life) and what was actually experienced as a result of the settlements, using IMS’ ex-manufacturer pricing data.

Factoring in potential future savings of the 33 drugs, the grand total IMS comes up with is $87.2 billion. About a third of those savings would accrue to the federal government itself, through Medicare and other programs. And by adopting a 48% success rate in patent challenges (from a Royal Bank of Canada analysis of the 2000-2009 period), the overall savings would have been reduced by nearly half, to $45 billion. Using other datasets, the Federal Trade Commissions calculated a net cost to consumers of $35 billion over the 2010-2020 period, while yet another analysis, by the Congressional Budget Office, calculated a $2.7-billion savings to consumers (also 2010-2020) as a result of patent settlements. It’s possible to poke holes in the IMS analysis; it is based on all settlements (which may or may not have had a reverse-payment component), and it doesn’t factor in manufacturer rebates, which would probably net a lower overall cost to payers. When—and if—FTC continues to battle the terms of patent settlements, the result of the Supreme Court decision is that the onus will be on FTC to prove anticompetitive behavior, rather than on industry to justify its actions (the so-called “rule of reason” approach). “We’ll have our work cut out for us,” concludes GPhA’s Neas.

The IMS study is available here.