Patent Settlement Restrictions Could Reduce Incentives to Bring Generics to Market, Says New White Paper



WASHINGTON, DC — (July 22, 2013) A new white paper released today, The Benefits of Patent Settlements: New Survey Evidence on Factors Affecting Generic Drug Investment, by Jonathan Orszag and Bret Dickey of Compass Lexecon, shows that when companies consider bringing new generic medicines to market, the ability to settle patent litigation significantly influences their decision.

These findings are particularly timely as the U.S. Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights holds a hearing tomorrow on limiting settlement options for generic pharmaceutical companies that pursue patent challenges. Report author Jonathan Orszag will be among those testifying.

“For the first time since 1957, spending on prescription drugs in America has dropped, largely due to the widespread availability and use of generic medicines,” said Ralph G. Neas, President and CEO of the Generic Pharmaceutical Association. “The Hatch-Waxman law encourages generic competition and works extraordinarily well, with generic medicines now comprising 84% of prescriptions dispensed. This paper offers more evidence of the wisdom of preserving the current system, including patent settlements with consideration. Limiting settlement options will actually drive down investment in generics and drive up the cost of medicine for patients.”

The white paper provides an economic analysis and a survey of 14 manufacturer members of GPhA representing 85 percent of the generics market.

“For too long, the policy debate has ignored how patent settlements with consideration affect incentives of brand and generic pharmaceutical manufacturers to develop critical medicines,” said Jonathan Orszag, Senior Managing Director of Compass Lexecon and former Economic Policy Advisor on President Clinton’s National Economic Council.

“Patent litigation is already expensive and risky. Restricting the options for settling patent litigation reduces the ability of generic manufacturers to settle these cases, and increases that cost and risk. This, in turn, lowers manufacturers’ incentives to bring generic drugs to market.”

Key findings include:

  • Settlement is an important option for resolving patent litigation. On average, generic manufacturers report resolving 64 percent (165 of 256) of patent suits by settlement.
  • Companies report losing two out of every three times they pursued litigation to judgment.
  • The likelihood of “first filer opportunity” is the most important factor when considering a patent challenge. (First filer opportunity is the legal incentive for generic manufacturers to file challenges as early as possible and potentially earn 180-day market exclusivity).
  • The ability to settle patent litigation also was recognized as an important factor in determining whether to invest in bringing a generic drug to market. Other factors identified by generic company respondents as important considerations when deciding whether to challenge a brand patent included type and perceived strength of patents, as well as market size.

These findings coincide with the growing body of research that shows patent settlements are pro-consumer, save money and increase access to affordable generic medicine.

In a 2010 report, Orszag asserts that when litigation is carried out in full, even when generics win, removing a settlement option can delay market entry. And, when litigation extends all the way to a court decision and a generic company loses, the generic medicine will be delayed even longer. Without a settlement option, either scenario results in fewer generics on the market, increasing prescription drug costs for millions of Americans.

Case Studies for Cipro, K-dur and tamoxifen, as well as statements, fact sheets, legal briefs and related materials on patent settlements are available at:

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