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Changes needed to prevent controversial pay-for-delay pharma deals

26 May 2020

Researchers endorse a switch from the current first-filer system in the US to a system that instead rewards the first successful challenger.

New research from the University of East Anglia (UEA) recommends changes to the system which sees drug companies strike deals with competitors to stop them producing cheaper generic alternatives.

These ‘pay-for-delay’ deals involve a payment from a branded drug manufacturer to a generic maker to delay market entry. In return for withdrawing its challenge, the generic firm receives a payment and/or a license authorizing it to enter the market at a later date, but before the expiration of the patent itself.

Such deals may block entry by other generic firms and have been challenged by competition authorities in Europe and the US on grounds of being anticompetitive.

Dr Farasat Bokhari, Dr Franco Mariuzzo and Dr Arnold Polanski, of UEA’s School of Economics and Centre for Competition Policy, developed a model of generic entry and patent litigation to show that the branded firm can pay off the first generic challenger and then ward off entry by second or later challengers by threatening to launch an authorized generic via the first paid-off challenger. The model captures the essential features of market entry rules for drugs and the patent litigation in both Europe and the US.

Compared to the current first-filer system in the US, where generic exclusivity is awarded to the first generic applicant, the researchers endorse a switch to a system that instead rewards the first successful challenger, which they say will result in fewer pay-for-delay deals.

Publishing their findings in Journal of Economics & Management Strategy, they also recommend preventing a branded firm from launching a pseudo or authorized generic against an independent generic that wins patent litigation, as this will prevent pay-for-delay deals for weak patents.

They 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. This is because the payment depends on other factors as well, and therefore low payment does not necessarily mean that the underlying patent is strong and no harm has been caused to the consumers by the pay-for-delay deal.

Dr Bokhari said: “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?

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