Sunday, 3 July 2011

Stopping Generic Drug Competition

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In recent years, there has been an upsurge in branded drug companies employing new and ingenious methods to try to prevent or delay the outbreak of generic drug competition. However, actions by branded drug companies to prevent competition from generic drugs may contravene antitrust or competition laws, including the Australian Competition and Consumer Act 2010 (CCA).

The important question for Australian consumers is whether such conduct, particularly drug patent settlements, can be effectively monitored and prevented by the Australian Competition and Consumer Commission (ACCC).

FTC Staff Report

In a recent Federal Trade Commission (FTC) Staff Report, released in March 2011, the FTC found that the number of settlements between branded drug companies and generic manufacturers to delay the introduction of lower-cost medicines had “skyrocketed”.

Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (known as the MMA), pharmaceutical companies are required to file drug patent agreements with the FTC and Department of Justice within 10 business days when the agreement involves a drug for which the generic has submitted the Abbreviated New Drug Application containing a “Paragraph IV” certification. A Paragraph IV certification would state that a patent asserted to cover the brand drug is either invalid or not infringed by the generic applicant.

The failure to file timely drug patent agreements may result in a civil penalty of up to $11,000 for each day that a required filing has not been made.

The recent FTC Staff Report was analysing the various filings made by pharmaceutical companies pursuant to the MMA to the FTC for the fiscal year 1 October 2009 to 30 September 2010.

Notably, the FTC Staff Report found that: 
  • 31 final settlements contained both compensation to the generic manufacturer and a restriction on the generic manufacturer’s ability to market its product; 
  • 66 final settlements restricted the generic manufacturer’s ability to market its product; and 
  • 16 final settlements had no restrictions on entry. 
The FTC Staff Report also found that the number of final settlements reported to the FTC had increased from 68 in the 2008-2009 fiscal year to 113 in the 2009-2010 fiscal year – an increase of more than 60%.

The effect of many of these settlements is to delay the introduction of a generic substitute drug into the market for a significant period of time. Indeed, the FTC has found that such “pay-for–delay” agreements have the effect of delaying the entry of generic drugs to markets by an average of 17 months.

That these agreements are increasing the price of drugs to US consumers is apparent when one considers the sale volumes of the drugs involved. The FTC found that the agreements reached in the 2009-2010 fiscal year involved 22 brand name drugs with a combined retail sales value of $9.2 billion per annum in the US alone.

A further concern which was highlighted in the FTC Staff Report relates to settlements relating to “first filers”. In the US, the first company to seek Federal Drug Administration (FDA) approval to manufacture a generic version of a branded drug is called a “first filer”. The first filer will obtain a 180-day period of exclusivity in which to manufacture and market the generic drug. This means that no other generic manufacturer is able to obtain FDA approval to manufacture that particular generic drug within the 180 day exclusively period.

The FTC Staff Report found that 49 of the settlements notified pursuant to the MMA related to “first filers” and that a number of the settlements included “pay-for-delay” agreements.

The FTC’s criticisms of these developments are becoming more strident. As stated by FTC Chairman Jon Liebowitz, when commented on the findings of the FTC Staff report:

Collusive deals to keep generics off the market are already costing consumers and taxpayers $3.5 billion a year in higher drug prices. The increasing number of these deals is a win-win proposition for the pharmaceutical industry, but a lose-lose for everyone else.
The FTC is calling for legislation to prohibit settlements which increase the cost of prescription drugs.

Gaviscon Original Liquid case

In late 2010, the OFT announced that it had reached a settlement with Reckitt Benckiser in relation to antitrust allegations that the company had used its dominance to prevent generic competition.

The OFT had alleged that Reckitt Benckiser had abused its dominant position in the market for alginate and antacid heartburn medicines by withdrawing and delisting Gaviscon Original Liquid from the NHS prescription system (equivalent to the Australian PBS).

The OFT alleged that the reason why Reckitt Benckiser delisted this product was in an effort to effectively force doctors to start prescribing another of its branded products called Gaviscon Advance Liquid, so as to keep generic products out of the market.

In other words, when a doctor entered the relevant search terms into their prescribing software, it was likely that the system would prompt the doctor to prescribe Gaviscon Advance Liquid, rather than Gaviscon Original Liquid. The difference between the products was that the patent for Gaviscon Advance Liquid had many years to run on its patent, whilst the patent for Gaviscon Original Liquid was soon to expire. This meant that because Gaviscon Advance Liquid was patent protected, the prescribing software would only show Gaviscon Advance Liquid and not a generic alternative.

As a result of this conduct, Reckitt Benckiser agreed to pay a fine of £10.2 million for breached of relevant competition laws in both the UK and Europe.


It is apparent that branded drug companies are devising new, more sophisticated and quite ingenious methods to prevent the outbreak of generic competition in drug markets. However, the question is whether antitrust and competition agencies, such as the ACCC, have the ability to detect such activities and take steps to reverse the anticompetitive effects of such conduct.

Clearly, in order to detect whether such conduct is occurring, the ACCC will need better market intelligence about patent settlements and PBS de-listings. One possibility which the ACCC may wish to consider is to push for the introduction of new legislation modelled on the US MMA, to create an obligation on drug companies to notify the ACCC of all drug patent settlements. Another possible early detection system for the ACCC to consider would be for it to enter into an administrative arrangement with the PBS so that it receives timely advice of all manufacturer initiated drug de-listings from the PBS.