Controversial pharma deals require change, researchers argue

Researchers have recommended changes to the pharmaceutical market which sees drug companies strike deals with competitors to stop them producing cheaper generic alternatives.

The research from the University of East Anglia (UEA) argues against ‘pay-for-delay’ deals, in which a branded manufacturer pays a generics drugs maker to delay its market entry. These deals have generic firms receiving a payment from a branded drug manufacturer for withdrawing their entry into the market with a generic product. More so, the generic firm may also receive a license authorising it to enter the market at a later date, but before the expiration of the patent itself.

In essence, what these deals do is block any competition against branded drugs by a generics maker, whilst also costing consumers and health systems more money by delaying the introduction of cheaper generic drugs.

These deals have been the cause of concern for competition authorities across Europe and the US. Last year, California became the first state to ban pay-for-delay deals in an effort to lower drug prices. Studies have found that drug prices can drop by as much as 75% in the US after a generic enters the market, with pay-for-delay deals slowing an entry by up to five years.

Researchers Dr Farasat Bokhari, Dr Franco Mariuzzo and Dr Arnold Polanski, developed a model of generic entry and patent litigation to show how a branded firm can pay off the first generic challenger and also ward off entry by later challengers by threatening to launch an authorised generic via the first paid-off challenger.

Now, the researchers from the UEA’s School of Economics and Centre for Competition Policy have argued for a switch to a system that rewards the first successful challenger, which they say will result in few pay-for-delay deals.

The research, published in the Journal of Economics & Management Strategy also recommends preventing a branded firm from launching a pseudo or authorised generic against an independent generic that wins patent litigation, as this can prevent pay-for-delay deals for weak patents.

They also advise that competition authorities should be cautious about using payment to a generic firm as a workable surrogate to measure the strength of a patent. They argue that a range of other factors can affect payments, meaning that a low payment does not necessarily mean that the underlying patent is strong and no harm has been caused to the consumers by the deal.

Dr Bokhari said: “While pay-for-delay deals may be beneficial to some extent, in that they might save courts and administrative bodies, such as patent offices, time and effort, they allow branded drug firms to charge monopoly prices and in a typical deal there may be several years delay in a cheaper version becoming available.

“Investigation and fines can be important in deterring such deals. However, the more important policy question is what can be done to prevent such entry limiting agreements in the first place?

“One also has to ask why such deals are stable in the first place. If a branded firm pays the generic firm to stay out of the market and they accept the deal, what stops the next generic drug maker knocking on the branded firm’s door, looking for a similar payoff? And if they do, how much do they have to pay and how can the original deal be profitable?

“The late generic challengers can be credibly threatened that even if they succeed in invalidating the patent and enter, the branded firm will launch the authorised generic prior to their entry and will capture large portion of generic profits. Therefore, it is important that the branded firms’ ability to launch authorised generics be legislatively limited.”