AFF allows companies to pay for delay which prevents innovation or access to new medicines – decks innovation

Kieran, 1-1-2017, “Abuse of the Hatch-Waxman Act: Mylan 's Ability to Monopolize Reflects Weaknesses”, Brooklyn Journal of Corporate , Financial, and Commercial Law, https://brooklynworks.brooklaw.edu/bjcfcl/vol11/iss2/12/#:~:text=Though%20the%20Hatch%2DWaxman%20Act,consumers%20of%20a%20generic%20option.

Mylan and other pharmaceutical companies have the ability to derail Hatch-Waxman because there is no federal regulation capping drug pricing in the United States, and the Act, the one statute designed to increase the flow of generic market entry, fails to fill that void. The Act has led to many unforeseen situations as the industry has developed. The looming expiration of a patent, together with the approaching 180-day generic exclusivity period, has incentivized brand-name companies to creatively and legally come up with a host of ways to cement their market shares, while making and saving as much money as possible. A. REVERSE PAYMENTS As a result of the 180-day exclusivity period, “more generic filers are seeking to enter the market sooner.”50 Although the intent behind the exclusivity period is to encourage this generic competition, the 180-day exclusivity period has “ultimately created an incentive for the brand and generic companies to limit competition with each other.”51 Since generic manufacturers typically gain an average of 44% of sales of branded drugs within the first year they are allowed to go to market, brand-name companies want to keep these threatening generics out of the hands of the public for at least those 180 days.52 As a result, instead of generics competing for the first flier position, they are now competing to be the first company paid off by the brand-name companies not to enter the market.53 One major, controversial strategy pharmaceutical companies use to halt generic entry is known as “reverse payment,” or “pay-for-delay.”54 Reverse payments are essentially arrangements in which the brand manufacturer sues the generic manufacturer for patent infringement, arising from invalidity of the required Paragraph IV certification of the ANDA,55 whether or not there actually is patent infringement.56 These cases quickly settle with the brandname manufacturer paying the generic manufacturer in exchange for the generic’s delay in launching its product.57 These settlements make sense for both companies since, from the outset, the generic stands to make less profit than the brand name stands to lose from its entry.58 As former FTC Chairman Jon Leibowitz explained in 2009: So if it is legal for a brand to pay the generic to ‘sit it out,’ why wouldn’t it? And if the generic drug company is allowed to make more money by not competing than by going to market, isn’t that a good business deal for the company and its shareholders? Of course it is.59 The payment from the brand name to the generic company typically accounts for the amount of money that consumers would have saved if the generic drug actually went to the market.60 Instead, both companies share the “pool of money” that the Act actually intended to save consumers.61 In fact, reverse payment settlements actually “cost American consumers anywhere between $0.6 billion and $7.5 billion each year, or $3.5 billion each year on average.”62 It is likely that Mylan dipped its feet in the reverse payment pool in 2012 when they filed a patent infringement suit against Israeli pharmaceutical company Teva Pharmaceutical Industries Ltd., which sought permission from the FDA to manufacture, market, and sell a generic version of the EpiPen.63 Mylan quietly announced an agreement wherein Teva would not launch a generic epinephrine auto-injector until 2015, subject to FDA approval of its ANDA.64 After waiting three years per the terms of the settlement, Teva’s launch was again delayed due to a lengthy citizen petition Mylan threw its way in 2015. Eventually, the FDA rejected Teva’s ANDA in the spring of 2016.65 Mylan quickly took advantage of this continued exclusivity period and raised the price of its EpiPen two-pack to $609.66 Although it has not been officially reported that Teva and Mylan engaged in a reverse payment settlement, the holes in the Hatch-Waxman allow Mylan to lawfully pay off a generic manufacturer such as Teva and implement major price increases. It is difficult to imagine Teva agreeing to refrain from market entry and giving up its spot as the only company with a generic epinephrine injector on the market without hefty consideration from the billion-dollar brand-name company. Other drug companies have also circumvented the statute by entering into these reverse payment settlements.67 The Act, however, does not account for these reverse payments that thwart the consumer benefits of generic competition. Such failure has resulted in judicial uncertainty and Circuit splits concerning reverse payments. In FTC v. Actavis, the Supreme Court ruled that brand-name and generic pharmaceutical companies are subject to antitrust scrutiny for engaging in reverse payment settlements, since these payments deter generic entry and contribute to rising health care costs that consumers and governments are struggling to keep up with.68 The Supreme Court rejected a common defense used by pharmaceutical companies that claim to be acting within the “scope of the patent,” in paying off generics to delay market entry.69 The Court applied the “rule of reason” antitrust analysis and outlined some considerations to justify its decision to subject reverse payment settlements to antitrust scrutiny.70 Though a somewhat successful ruling for the FTC, Actavis failed to fill the gaping holes in Hatch-Waxman that allow for this type of activity. The latest pay-for-delay suit accused Endo Pharmaceuticals Inc. of paying Watson Pharmaceuticals Inc. to delay its launch of a generic version of the lidocaine pain patch.71 In January 2017, Endo and the FTC settled the claim that Endo violated Section 5 of the FTCA by entering into a reversepayment settlement agreement with Watson, resolving all litigation between Endo and the FTC.72 Though Endo “denies that it engaged in any illegal conduct under the deal,” the settlement “prohibits the company from entering into the same type of reverse payment patent infringement settlement for [ten] years, including agreements that involve promises by branded drug makers not to market competing authorized generics.”73 Although the FTC’s commitment to stopping reverse payments continues, the fact remains that reverse payments are an attractive and, if done strategically in light of these rulings, legal practice that works to favor corporations to the detriment of consumers. In an attempt to combat the derailment of Hatch-Waxman via reverse settlements, Congress passed the Medicare Prescription Drug Improvement and Modernization Act of 2003, which required such settlements to be filed with the FTC within ten days of being agreed upon.74 Congress sought to stop companies from quickly settling through a reverse payment without the FTC hovering over quiet payouts.75 One brand-name company, following an industry pattern of circumventing the law, attempted to get around this requirement by lying to the FTC about the true nature of the settlement.76 In regard to the settlement between Mylan and Teva,77 consumers are left to foot the bill without any explanation of why this generic is not on the market. This is because there is no disclosure requirement for these patent infringement settlements. Hatch-Waxman has the foundational purpose and potential to combat this abuse of the market. These reverse payments can be outlawed and phased out as a legal tool for cementing a brand-name company’s position in the market