The High Price of Drug Patents

Good article on drug patents and "reverse payments". Oddly enough my problem with reverse payments is in principle, not so much in practice:

In the meantime Congress has stepped in. On Jan. 17, Senator Herb Kohl (D-Wisconsin) proposed a bill that would make it "unlawful" for a settlement between a drug patent holder and a generic challenger to "include an exchange of anything of value." Expect major pushback from both generic companies and the notoriously powerful Big Pharma lobby.


Besides Congressmen, the FTC has another ally - Bernard Sherman, the Apotex CEO. Here's how he played out his "settlement" with Bristol and Sanofi: First, Sherman asked the patent holders for permission to launch generic Plavix right away should the FTC and state attorneys general turn the settlement down. (The regulators had that power because Bristol was operating under a consent decree stemming from past bad behavior over its patented drugs.) Bristol and Sanofi agreed and said generic Plavix could stay on the market for a window of five days in such an event.

Then Sherman's lawyers told the regulators that Bristol had offered Apotex unwritten side arrangements. The regulators rejected the settlement. They decline to say why, and Sherman says he thinks they would have rejected the deal regardless of the side arrangements.

Apotex immediately flooded the market with generic Plavix it had already made, selling a six-month supply before Bristol could get an injunction to stop it. Instead of the $40 million that it would have collected in the settlement, Sherman's company probably made multiples of that by actually selling the drug. In September, Dolan - long under fire - lost his job, at least partly as a result of this bungled deal.

The Justice Department has launched a criminal antitrust investigation into the settlement. Bristol denies that it ever made any unwritten side agreements. (It also says that the $40 million in the settlement would not have been a payment to keep generic Plavix off the market, but rather one to reimburse Apotex for what it had manufactured.)

Sherman won't actually come out and say that his settlement agreement was a ruse, but he has said that he extracted concessions from Bristol fully expecting that the regulators would scuttle it. He says Apotex has never settled a patent case: "Both generics and brands are trying to make more money at the public expense," he says.

This article sheds light on why generics companies are so eager to make deals for short term access to the market:

Generic drugmakers produce and sell drugs after patents expire. Generic drugs are most profitable in the six months following patent expiration, when the price only drops by about 40 percent because there is only one generic drugmaker producing it.

Generic companies fight over this six-month window of exclusivity, because the price drops another 40 percent when it runs out, cutting into profits.