Is FTC v. Actavis Causing Pharma Companies to Change Their Behavior?

Since 2004, brand-name and generic drug manufacturers have filed certain agreements with the FTC and DOJ as required by the Medicare Prescription Drug, Improvement and Modernization Act (also known as MMA filings). Congress required these filings after the FTC raised concerns that some agreements between brand-name and generic drug companies had the potential to unlawfully delay generic drug entry and thereby undermine the goals of the Hatch-Waxman Act. As part of the review of the MMA filings, the Bureau of Competition issues an annual report on the number of final patent settlements filed as well as the incidence of certain terms that may operate as anticompetitive reverse-payment (or pay-for-delay) agreements between the brand and a generic entrant.

As antitrust watchers know, the FTC’s efforts to combat harmful reverse-payment settlement agreements resulted in the Supreme Court’s 2013 landmark decision in FTC v. Actavis, which held that these settlements are subject to antitrust scrutiny. Today, the Bureau of Competition published its latest report, which includes information for FY 2014, the first full year of MMA filings following Actavis. While it’s too early to tell if there are lasting trends in this early data, here are three observations from this year’s report:

• Potentially Unlawful Reverse-Payment Settlements Appear to Be Declining Since Actavis—From FY 2005 to FY 2012, potential pay-for-delay agreements contained in MMA filings increased steadily, from three in FY 2005 to 40 in FY 2012. But since early 2013, this trend seems to have reversed. For example, in FY 2014, 21 such reverse-payment agreements were filed with the Commission—a nearly 50% decline from the FY 2012 peak of 40—while the number of final patent settlements went up. Also, almost half of the FY 2014 reverse-payment settlements involved cash payments to the generic company amounting to $5 million or less. Such small cash payments might represent saved litigation costs, one of the few justifications the Supreme Court specifically identified in Actavis.

• More Settlements Than Ever Were Completed Without Reverse Payments—One constant trend over a decade of reviewing MMA agreements is that most Hatch-Waxman patent litigation settles without reverse payments. The Supreme Court noted this fact in its decision, and, following Actavis, this is still true. Despite the reduction of reverse-payment agreements in FY 2014, pharma companies continue to find ways to settle patent litigation without payments to generic companies. In fact, more final patent settlements were filed with the Commission in FY 2014 than in any previous year (160 final settlements, compared to the previous high of 156 in FY 2011), but in the vast majority—more than 80%—pharma companies settled without any compensation to the generic company.

• The Use of No-AG Commitments Appears to Be Declining—In FY 2012, almost half of the reverse-payment agreements filed with the FTC included a commitment by a brand company that it would not sell an authorized generic (AG) for some period of time, allowing the settling generic company to increase its sales volume, likely at prices greater than if the brand company sold an AG. The FTC had previously concluded, based on extensive empirical research, that no-AG commitments could be used to induce generic companies to drop their patent challenges in exchange for a share of the monopoly profits generated from continued branded sales. Using a no-AG commitment as a reverse payment can harm consumers twice: first, by delaying entry of a generic product which keeps branded prices from falling during the period of delay, and then by reducing the number of generic competitors that ultimately enter, resulting in higher generic prices. Starting in FY 2013, the number of no-AG commitments in pharmaceutical patents settlements has declined substantially, from nineteen in FY 2012 to four in FY 2013 and five in FY 2014. And recently, the Third Circuit in Lamictal Direct Purchaser Litigation ruled that a no-AG commitment may be a reverse payment under Actavis, as we argued in our amicus brief to the court.

The Bureau continues to devote significant resources to reviewing the growing volume of MMA filings and to reporting its findings. Companies and their counsel should understand, however, that a lack of action by the Commission or its staff with respect to a filed agreement does not signify an implicit approval of the agreement or a lack of antitrust concern. See our MMA FAQs for more information about the MMA review process.