FTC 'cure' for reverse-payments worse than disease

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By now, you've probably heard about FTC efforts to ban reverse-payment patent settlements. FTC chairman Jon Leibowitz claims pharma-generic company deals are among “the most corrupt practices in healthcare today,” asserting settlements prevent cheaper generic drugs from entering the market sooner, delaying savings to consumers.

In this case, the FTC “solution” would create much larger problems, harming scientific innovation and consumers alike.

FTC's position assumes that, were the option to settle patent lawsuits out-of-court outlawed, generics firms would win a vast majority of lawsuits and be granted near-immediate market entry. But there are no guarantees in the courthouse. One estimate suggests generics firms win just 46%-48% of cases and another, 52%-54% of patent lawsuits. (Even the recent lawsuit against Bayer, which FTC touted as proof that reverse-payment settlements should be deemed unlawful, was struck down.)

More troubling, is the domino effect on innovation. Generics firms use litigation to create “risk-benefit” around patents and encourage innovators to agree to an earlier authorized generic entry in exchange for ending a lawsuit that could cost millions in legal fees. Drugmakers see these settlements as a critical lifecycle-management tool to guard innovation, ensuring appropriate returns on drug-development investment. For all parties, settlements reduce risk, legal expenses, provide a level of planning certainty and bring authorized generics to market sooner.

Lawmakers must therefore consider a critical question: without the possibility of reverse-payment settlements, would generic companies actually take on the financial risk of a costly lawsuit? If they did challenge patents, would they aggressively charge after deep-pocket big pharma. Or would midsized companies—the new champions of drug innovation—become legal targets?

Similarly, without knowing when a drug is set to go off-patent, how can pharma companies plan expensive and lengthy clinical trials?   

Much of the future of biopharma innovation is tied to equity investment. FTC's quick fix would reduce investment capital, increase uncertainty in the pharma market and result in fewer jobs.

Gil Bashe is EVP and health practice director, Makovsky+Co.
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