Generic drugs launched before patent expiration because of a patent settlement reached the market an average of 81 months sooner than patent expiry, saving the U.S. health system billions of dollars, according to an analysis by the IMS Institute for Healthcare Informatics for the Generic Pharmaceutical Association (GPhA).

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GPhA: Savings huge from generic patent settlements

July 10th, 2013

WASHINGTON – Generic drugs launched before patent expiration because of a patent settlement reached the market an average of 81 months sooner than patent expiry, saving the U.S. health system billions of dollars, according to an analysis by the IMS Institute for Healthcare Informatics for the Generic Pharmaceutical Association (GPhA).

GPhA said late Tuesday that the study, "Impact of Patent Settlements on Drug Costs: Estimation of Savings", found that generic pharmaceuticals expedited to market via patent settlements reduced drug costs by $25.5 billion from 2005 to 2012.

A key beneficiary of the lower costs is the federal government, which realized almost a third ($8.3 billion) of the estimated savings.

The IMS study analyzed 33 molecules subject to patent settlements between 2005 and 2012 and gauged the savings from lower-cost generics entering the market before each molecule's patent expiration date as recorded in the Food and Drug Administration's Orange Book. Arithmetic modeling also was used to estimate the proportion of patent settlements with consideration to derive estimated savings.

Besides the $25.5 billion saved by patent settlements from 2005 to 2012, the study projects another $61.7 billion in lower costs if the current level of savings continues through to patent expiry for each molecule analyzed — or more than $87 billion in overall savings from settlements.

"For years, opponents of pharmaceutical patent settlements with consideration have stated that settlements create a cost for consumers, the government and others. This new analysis provides the most current, complete and transparent estimate of the impact of patent settlements on health costs, and it shows that the opposite is true," Ralph Neas, president and chief executive officer of GPhA, said in a statement.

"In particular, the new analysis estimates that patent settlements — including those with consideration — have led to billions in savings," Neas noted. "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."

According to the study, generics now are used to fill about 85% of all prescriptions dispensed in the United States, saving consumers and the health care system nearly $4 billion every week. Citing earlier IMS research conducted for GPhA, the study said that the use of generics in place of their brand-name counterparts saved U.S. consumers and the nation's health system an estimated $1.07 trillion for the 10 years from 2002 to 2011.

"It is widely agreed that these results are in part attributable to the resolution of some of the patent suits via out-of-court settlement agreements between the brand and generic company in which the generic drug is allowed to enter a market months or even years before the brand patent term expires," the "Impact of Patent Settlements" study states. "Pharmaceutical patent settlement agreements occur when a generic manufacturer challenges the validity of a brand’s patent, and the two companies settle the litigation resulting in the entry of a generic prior to the patent holder’s claimed patent expiry date. Both patent holders and challengers reach this agreement based on their respective assessment of the patent’s validity and probability of a successful challenge."

Much less savings would have resulted if generic drug patent litigation had proceeded rather than been settled, the study noted. A Royal Bank of Canada analysis of all pharmaceutical patent challenges from 2000 to 2009 found that the generic drug companies were successful in 48% of the cases. If that success rate is applied to cases that might have been won by the generic manufacturers had a settlement not been reached, the total savings would be $45.3 billion, just over half of the estimated $87.2 billion in savings from patent settlements, according to the study.

In addition, savings from patent settlements with consideration — those at issue in court and legislation — would be between $11.8 billion and $13.6 billion if these settlements are typical of all settlements, the study said.

"Recent IMS Institute and Department of Labor studies have shown the first decline in drug expenditures in 55 years," Neas stated. "We believe generic medicines, including those that come to market through settlements and settlements with consideration, have contributed to this historic success."

The new IMS research on generic drug patent settlements comes just weeks after a landmark decision by the U.S. Supreme Court. In mid-June, the High Court ruled in FTC v. Actavis Inc. et al that the Federal Trade Commission can sue drug makers over potential anticompetitive effects of "pay for delay" patent settlements.

The decision enables the FTC to challenge deals in which branded drug manufacturers pay would-be generic competitors millions of dollars to keep their products off the market for a specified time period.

Critics of such deals claim they dilute competition in the pharmaceutical market and cost consumers and other drug purchasers billions of dollars by delaying the introduction of lower-cost generic drugs into the market. Supporters of these agreements say they are legitimate settlements and enable parties to avoid time-consuming, complex and costly patent litigation.

With its ruling, the Supreme Court remanded the case to the lower court and didn't rule on the legality of pay-for-delay settlements, leaving that to lower courts to decide on a case-by-case basis.

Pharmaceutical industry trade groups had a mixed response, applauding the justices for not ruling patent settlements as unlawful but noting that the decision was ambiguous regarding future patent challenges and settlements. In particular, they said, the decision was unclear about how patent settlements could be structured to avoid the possibility of having to litigate a patent dispute to the end.