The plan decks biosimilars and competitiveness.

Nevertheless, there is reason to believe that pay-for-delay settlements may still make an appearance in biologic drugs in a manner that raises competition concerns. First, although biosimilars will encounter hurdles to market entry, other factors point to the likelihood that biosimilars will soon jump into the ring alongside the original biologic drugs. The U.S. biologic and biosimilar landscape faces what some call a “patent cliff 2.0,” in which patent losses for blockbuster drugs put pressure on large pharmaceutical companies to somehow retain exclusivity or major portions of their market share.115 A recent estimate suggested that 45 percent of the sales at risk looking forward from 2017 is for biologics.116 Other estimates say that the U.S. holds the majority of biosimilar potential across the world almost 60 percent of global biologic sales came from the U.S.117 Given that biologics are extremely lucrative, makers of reference biologics have strong incentives to try to retain portions of their monopoly rents.

Further, commentators have predicted that over time, the costs of developing a biosimilar will go down as a result of technological advances.118 Others have noted that while well-established biologic manufacturers have economies of scale working in their favor, biosimilar manufacturers may be able to use their newer technologies or innovative methods to bring down manufacturing, thereby decreasing prices for their products.119 Thus, although biologics and biosimilars do not have as high of a price differential as branded and generic small-molecule drugs, the differential is predicted to widen as the cost of making copycat versions of reference drugs decreases and interchangeable biologics replace biosimilars as a predominant alternative.120 Importantly, interchangeable status connotes a full-year exclusivity period alongside the reference biologic, as mentioned above. If more biosimilar drugs become interchangeable with reference biologics, reference companies may be threatened by the prospect of direct substitution and may be incentivized to settle patent infringement litigation, pay off biosimilar companies, and delay the biosimilar’s launch.121 In short, several factors have the potential to promote the widespread use of biosimilars: shrinking price differentials due to lower development costs; easier pathways to achieving “interchangeable” status from the FDA; health plans or buyer institutions mandating use; and increased prescriber or patient education leading to greater acceptance are just a few.122 If any or several of these factors gain traction, the possibility of paying a biosimilar to stay off the market will become increasingly tempting for biologic manufacturers.

Apart from the increased uptake of biosimilars, other factors lend credence to the possibility of pay-for-delay. Until now, settlements under the Biosimilars Act did not have to be reported to the FTC, a striking contrast to the reporting requirements for settlements under the Hatch-Waxman Act for rapid entry of generic drugs. This left room for highly opaque settlements that could contain strategic anticompetitive behavior.123

In October of 2018, President Trump signed into law an amendment that would require certain settlements under the Biosimilars Act to be reported. The Amendment, however, only requires certain types of settlements to be reported, leaving plenty of room for settling without incurring a reporting requirement. Under the Biosimilars Act, after the biosimilar company files for approval, the brand company has 60 days to provide a list of patents it believes will be infringed, and the biosimilar applicant has another 60 days to respond. Only certain of those responses would trigger a settlement reporting obligation. In other words, if the parties choose to settle, or enter into complex side agreements before the 120-day clock runs down, there will be no reporting obligation.124 Once again, this leaves room for opaque settlements and strategic behavior in the biologic space. For example, commentators have suggested that one of the Humira settlements would not have triggered reporting requirements under the 2018 Amendments.125

Finally, creating a biologic is a much more complicated process than creating a small molecule drug.126 Therefore, there are more steps to patent, creating opportunities for large walls of patents. The sheer breadth of the patent walls, along with the complexity created by the number of patents involved, invites the type of elaborate settlements that can mask transfers of value and result in pay-for-delay.

The challenges to biosimilars and the disincentives in the Biologics Act are real. Under the current system, biosimilars and interchangeables may never provide the same price benefit as generics and therefore may never pose the same threat. Nevertheless, the dollars at stake in the biologics market create incentives to develop strategic behavior to limit or delay competition. The examples outlined in the section below suggest that pay- for-delay is, indeed, making its way into the biologics market.