Academic journal article Harvard Law Review

Hatch-Waxman Act - Reverse Payment Settlements

Academic journal article Harvard Law Review

Hatch-Waxman Act - Reverse Payment Settlements

Article excerpt

Pharmaceutical development is an uncertain business. The process is long and laborious, resulting in research costs that are substantially higher than in other industries. (1) The vast majority of tested drugs are never approved for patient use, and most of those that are approved fail to generate any profit for their creators. (2) Because of the high costs of bringing a new drug to market, pharmaceutical manufacturers rely on the patent system to allow them to recoup their expenses. A patent grants a new drug's developer a period of exclusivity during which the brand-name drug can dominate the market at monopoly prices. (3) Pharmaceutical developers have gone to great lengths to extend this period of exclusivity, at times resorting to questionable practices in order to generate higher profits from successful drugs. (4) Success breeds competition, however, and generic drug manufacturers frequently seek to enter the market by piggybacking on the research efforts of the original developer. (5) Rather than exposing their patents to the uncertainty of litigation, developers reach settlement agreements with generic drug manufacturers under which the developers will pay the generics to drop their patent challenges and stay out of the market during the lifetime of the patent. (6) Last Term, in FTC v. Actavis, Inc., (7) the Supreme Court held that these "reverse-payment" settlements are subject to challenge under federal antitrust laws. (8) Although aspects of the pharmaceutical settlement system create troubling incentives that may encourage anticompetitive cooperation, the Supreme Court's decision may be difficult to administer and may lead to uncertainty regarding what types of settlement agreements are permissible.

Pharmaceutical drugs cannot be sold in the United States until they have received approval from the Food and Drug Administration (FDA).(9) Novel drugs must go through a period of rigorous testing and disclosure, during which the developer must demonstrate that the drug is both safe and effective. (10) Once a pharmaceutical product has been approved, the FDA follows a streamlined process for approving bioequivalent drugs. (11) This streamlined process allows generic manufacturers to bring their products to market without duplicating the expensive research and testing that the original drug underwent and is intended to facilitate the entry of generic drugs and the consequent decrease in the price of medicine. (12) Under the Hatch-Waxman Act, (13) the generic manufacturer must make one of four certifications: (1) that the original manufacturer failed to patent the drug, (2) that the patent has expired or (3) will expire, or (4) that the patent is either invalid or not infringed by the generic. (14) This last certification is known as a Paragraph IV certification, and there are numerous incentives for being the first generic to make such a claim, the most important of which is a 180-day exclusivity period after which no other similar generic drug can receive FDA approval. (15) A pharmaceutical developer faced with a Paragraph IV certification is typically granted a thirty-month stay of the generic's application, during which the developer can attempt to demonstrate the validity and applicability of the patent by pursuing an infringement action against the generic manufacturer. (16)

In 1995, Solvay Pharmaceuticals entered into a licensing agreement with Besins Healthcare under which Solvay would market a topical synthetic testosterone product, AndroGel, in the United States. (17) Although the patent for the synthetic testosterone compound had expired, Solvay applied for and received a patent for the new gel formulation of the drug. (18) AndroGel received FDA approval in 2000 and generated nearly $2 billion in sales over the next seven years. (19) In May 2003, Watson Pharmaceuticals and Paddock Laboratories filed for FDA approval for generic versions of AndroGel under the streamlined process. (20) Both manufacturers certified that Solvay's patent was either invalid or would not be infringed; Solvay immediately filed patent infringement suits against both manufacturers in the Northern District of Georgia. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.