Comments for ‘Pay for delay’ deals in the pharmaceutical industry Bertille Mazari 4 March 2017 “Pay for delay” agreements also known as “reverse payment patent settlements” occur especially in the chemical and pharmaceutical industry. A lot of controversies have come out of this theme especially about competition and consumers issues. In 1984, passed the Hatch-Waxman Act, the aim of the legislation was to increase generic drug competition. It created incentives for generic pharmaceutical companies to…Read more“Pay for delay” agreements also known as “reverse payment patent settlements” occur especially in the chemical and pharmaceutical industry. A lot of controversies have come out of this theme especially about competition and consumers issues. In 1984, passed the Hatch-Waxman Act, the aim of the legislation was to increase generic drug competition. It created incentives for generic pharmaceutical companies to challenge the patent of brand-name drugs prior to the patents expiration. This act might have not met the expected effects. Instead of increasing competition, these patent challenges often lead to pay-for-delay settlements. Following a broad competition inquiry into the pharmaceutical sector in 2008, the European Commission has been focusing increasingly on settlement agreements in patent litigation, with a particular focus on practices to delay the market entry of generic medicines. Indeed, the Final report of the sector inquiry shows that some patent settlement that may restrict generic market entry in exchange for benefits transferred from the originator to the generic company may be problematic from a competition law perspective. As said by the European commission, “Such agreements result in delayed market entry of cheaper generic medicine, to the detriment of patients and taxpayers financing the health system”. We can observe that in 2015, 10% of the settlements are limiting generic market entry showing a value transfer from originator to generic company. We can notice that this number has not increased or decreased in the past years. Indeed, the average of this kind of settlements between 2008 and 2015 is 10.375. It confirmed the continued use of patent settlements in the European pharmaceutical sector even under the threat of inquiry and sentences. This “pay for delay” matter is present both in Europe and in the US. What comes out in the hearings of the Justice Department on behalf of the FTC, the American Medical Association, and other consumer groups, is that settlements are anticompetitive. Two opinions emerges, on the one hand the ones who says that those kinds of settlement should be illegal in order to make the pharmaceutical market more competitive. And in the other hand the one concerned over the rending the practice completely illegal because it may than have an reverse effect and lower the competition and the incentives of brand name companies to innovate. Justice Sonya Sotomayor believes that “the burden of proving the settlement is anticompetitive is on the FTC, and each case should be handled individually as opposed to rendering all settlements illegal”. The other main results of those “pay for delay deals” are the con summers. According to the FTC, these settlements are estimated cost consumers $3.5 billion per year as a result of higher brand-name drug prices. And when a brand-name drug company delays the launch of a generator, it often launch herself a slightly different drug from the one she was producing so that consumers keep buying their drugs. Is this behavior not also slowing innovation and may be competition? The drawback is that the end consumers will have no other options than continuing to pay the drug at the high price set by the monopoly. Therefore, both branded drug makers and generic firms seem to increase their profits at the expense of the end consumers. What seems to appear is that the market share of generic drugs has drastically increased over the past 30 years and yet the price of prescription drugs continues to increase. Furthermore, the use of reverse settlement payments has increasingly become a means of circumventing potentially costly patent challenges. As we have seen above, these two truths seem to be in contrast with the Hatch-Waxman Act’s overarching aims of increasing competition and reducing drug costs within the pharmaceutical industry. Sources: http://www.communitycatalyst.org/doc-store/publications/top-20-pay-for-delay-drugs.pdf https://www.ftc.gov/news-events/media-resources/mergers-competition/pay-delay http://ec.europa.eu/competition/sectors/pharmaceuticals/antitrust_en.html http://legacy.alixpartners.com/en/Publications/AllArticles/tabid/635/articleType/ArticleView/articleId/885/Pharma-versus-the-Competition-Authorities-The-Economics-of-Pay-for-Delay-Settlements.aspx#sthash.OG3ST5Zl.dpbs http://www.modernhealthcare.com/article/20160114/NEWS/160119926 Show less Reply yassin 3 March 2017 What is te impact of "pay for delay"? The issue of pay for delay is more emphasized in the united states than in europe. Indeed there have been several cases in the United States with the Federal Trade Commission. We can cite the case of "pharmaceutical hopping" or the ftc to file an amicus brief before the court of appeal of the united…Read moreWhat is te impact of “pay for delay”? The issue of pay for delay is more emphasized in the united states than in europe. Indeed there have been several cases in the United States with the Federal Trade Commission. We can cite the case of “pharmaceutical hopping” or the ftc to file an amicus brief before the court of appeal of the united States. As explained in the brief, “if a brand manufacturer changes its brand product shortly before generic entry it may hinder competition from generic potential candidates who have applied for FDA approval to sell a generic version only of The original formulation, but not the replacement. “Such conduct could deprive generic manufacturers of their most effective means of distribution, automatic substitution of pharmacy – and, therefore, maintain the monopoly of the brand by illegal means. These cases concern Mylan Phamraceuticals Inc. and Warner Chilcott PLC. Another recent case involving the company was that of Endo Pharmaceuticals Inc. and several other pharmaceutical companies that violated antitrust laws by using advance payment regulations to block consumer access to cheaper generic versions of Opana ER And Lidoderm. The cases concerning the “pay for delay” for the European Union are more recent. We can talk about the astrazeneca case: In the AstraZeneca case, the Commission investigated alleged abuses of AstraZeneca regarding the patent system and the drug authorization system with the aim of delaying competition from a large-scale pharmaceutical drug Imported generic and parallel products. The Commission has adopted a number of individual follow-up decisions against pharmaceutical companies including fining Servier €330 million and several producers of generic medicines €97 million in 2014 for delaying market entry of generic high blood pressure medicine perindopril and many others. The problem is seen differently between the united states and europe, the united states judge on a case by case basis and the European commission is more severe and categorical. In his presentation Matthew Bennet proposes two policies that can be suggested. The first ( the stick) is to include pay-to-delay agreements among hardcore restrictions and the second (the carrot) is to provide guidance for pharmaceutical companies concerning agreements generally seen as legal by competition authories and include the non-compete clauses. It is difficult to regulate reforms against these practices and prove there is an offense. The Consumer loses because he does not benefit from the competition and therefore a better price. Agreements between pharmaceutical firms that include commitments harm consumers by first delaying the entry of generic drugs and then by preventing further generic competition in the market after generic entry. It is found that generic producers have less confidence in the strength of the patent. The patent offer 180 exculisivity days for product, maybe it’s necessary to increase generic producer patent life? Or strengthen the patent ? For incitate generic producer to lauch their products. Grant subsidies to the generic producer and open the market barriers so that several generic producers can enter the market. In this case it will be difficult for a company to pay any generic producer to delay the launch of a product. https://www.ftc.gov/news-events/press-releases/2015/10/ftc-files-amicus-brief-explaining-pharmaceutical-product-hopping https://www.coleurope.eu/sites/default/files/uploads/event/patent_settlements_-_bennett_0.pdf https://www.ftc.gov/news-events/press-releases/2016/03/ftc-sues-endo-pharmaceuticals-inc-others-illegally-blocking-lower http://ec.europa.eu/competition/sectors/pharmaceuticals/antitrust_en.html https://matheo.ulg.ac.be/bitstream/2268.2/1170/4/Les%20accords%20pay-for-delay.pdf Show less Reply Florent RUGI 3 March 2017 If we talk about consumers’ welfare about consumption of goods, for pharmaceutical products, we have to think differently: here, we have to settle a different point of view, because it’s about health and well-being. The consumption of drugs by users don’t allow them to feel satisfied, it allows them to stay healthy, and, for some, to just stay alive. And…Read moreIf we talk about consumers’ welfare about consumption of goods, for pharmaceutical products, we have to think differently: here, we have to settle a different point of view, because it’s about health and well-being. The consumption of drugs by users don’t allow them to feel satisfied, it allows them to stay healthy, and, for some, to just stay alive. And that is a difference that we have not to underestimate. However, companies that produce drugs are just companies, and like on every other market, their goal is to stay alive and make as profits as possible. And the pharmaceutical market is maybe the most patented market, so it works in the same way as every other markets, when a company find a new drug, it applies for a patent, and when they get it, they are in a monopolistic situation. New drugs that have been found are patented like every other patented product (or process), and the monopolistic situation comes to an end in a while. As the Gilbert-Newbery model brought something new, companies not only estimate the profit of the innovating product but also by including the arrival of newcomers in the market. So, companies try to extend their patent by paying their opponents to delay the launch of the low-cost version of their product. In a way, it is normal, because as the patent has a limited length, they have a limited time of monopoly, and newcomers that didn’t make the same research and development efforts (in terms of investment) can launch a product by lowering the price and the company that found the drug see its profits get heavily reduced. Yes, it is true that according to some economists, these kind of agreements can impede companies to innovate and find new drugs. But there is a thing that can’t make me stop thinking that our vision of this problem is biased. Here, we talk about potential new drugs to be find, so, thanks to this “potential new drugs”, we justify a behaviour that can kill people. I’m sorry but I don’t know if I have to give my point of view and I’m sorry if people who will read me won’t share my point of view, but here, in this case, we are playing with lives. Generics can help a lot of people to get drugs that can ease their dailylife, or even drugs that can save them. We are letting people (we were) not getting an access to drugs or we are justifying dangerous behaviours just because we thought that, potentially, it would impede pharmaceutical firms to find new drugs because they could have longer a monopoly situation including more benefits. We tend to forget that it also means a longer period when people won’t get an access to a decent treatment. But, here, everyone is to blame. Government that let that happened for a very long time, firms which found drugs and get addicted to monopoly situation benefits, and generic drugs making companies that (it is not a fact, just a thought) waited a patent to end to launch cheaper products, because I think that they are not motivated by curing people but more by lure of profits. The positive fact is that this behaviour tends to disappear as it tends to be illegal (even If it is still not totally illegal). In 2013, the U.S. Federal Trade Commission (FTC v. Actavis, Inc.) settle an amount of money that became illegal to pay for drug making company to another in order to delay the competition. Before that, both companies calculated the potential benefits (one for staying in a monopoly, the other for getting in the market), and they found an agreement on the amount of money the monopoly firm would give to the generic one in order to avoid competition. Here, with this decision, the amount has been drastically reduced, it means that it is not profitable for the generic company to stay out of the market, while the monopoly firm can pay enough to remain in a monopoly situation. While this was my point of view, through an objective analysis of this behaviour (pay for delay), this is an anti competitive one. And as we all learned it, the market has to be competitive to get better, competition is good for the market and consumers tend to get a bigger satisfying level on competitive markets. I just wonder when we will consider that pharmaceutical is a different market, that we have to stop playing with people’s life, but without forgetting that this is still a market, that we need competition on it and to find a way to impede innovation (and in a sense to allow big profits), but in a healthy way. https://www.fda.gov/Drugs/ResourcesForYou/Consumers/BuyingUsingMedicineSafely/UnderstandingGenericDrugs/ucm167991.htm http://www.citizen.org/Page.aspx?pid=6057 https://en.wikipedia.org/wiki/FTC_v._Actavis,_Inc. Show less Reply Paul Belleflamme 4 March 2017 Thanks for voicing your opinion and for the clear argumentation. We’ll continue the debate in class. Pauline EXPOSITO 1 March 2017 Research & Development in pharmaceutical industry are often characterized by many important expenses from big companies called princeps product companies. Indeed, drug market is very particular because it forces actors to concentrate their profits on a relatively short period of time: when a molecule is patented, it is protected during 20 years but is not the only step, industrials must…Read moreResearch & Development in pharmaceutical industry are often characterized by many important expenses from big companies called princeps product companies. Indeed, drug market is very particular because it forces actors to concentrate their profits on a relatively short period of time: when a molecule is patented, it is protected during 20 years but is not the only step, industrials must again incur expenses to obtain a market authorization. It exists many others protection which delay the arrival of drug on the market, in average the period of exclusivity conferred by the patent is 15 or 10 years. That’s why pharmaceutical groups use the “pay-for-delay” deals: this method consists to an agreement between princeps product companies and generic producers to delay the arrival on the market of generic products against financial compensation. In fact, what is happening on the market is, at the expiry of all protections on molecule, generic producers can use molecule without having incurred the research & development costs. Industrials may be tempted to delay the generics arrival on the market by unenforceable means. “Pay-for-delay” agreements is one of these means and are tracked by competition authorities at national and European level. They consider these deals as restrictions of competition which eliminate the competitive pressure exerted by generic producers on the big pharmaceutical firms. For example, the 19th June 2013, Lundbeck (Danish pharmaceutical firm) has been condemned by the European Commission to a fine of 93,8 million of euros for concluding 6 “pay-for-delay” deals with 4 generic producers to delay the arrival of citalopram molecule. The size of payment made by Lundbeck amounted the profit of generic producer if he had been able to penetrate the market. This disproportionate nature of payments shows that financial compensation wasn’t only to settling a dispute on property rights and it is like a market exclusion agreement. Beyond the effects on competition, these deals have negative effects on the well-being of consumers at short and long term. In a short term, because at his output, a generic drug is commonly sold at a lower price than the princeps product. So, as long as “pay-for-delay” deal takes effect, consumers don’t have access to the generical product which is cheaper. But the paradox is that the reduction of monopoly period for pharmaceutical companies doesn’t give incentives to produce new drugs and so to contribute to the health care improvement. To conclude, I can say “pay-for-delay” deals increases princeps product companies’ power market by allowing them to recover their costs. But in the other hand, but despite the rise of generic producers and the resulting tightening of competition, no significant change has disrupted the pharmaceutical giants ranking. Which distorts competition and increases prices, it is a bad new because we know that disease and poverty go hand in hand, so the more drugs are expensive and it not exists generic, the more the poor will not be able to heal themselves. In France for example, the paracetamol is the drug the most consumed and it is not patented since 2003 but because of the pharmaceutical industry lobbying the generic of paracetamol has still not been authorized. http://www.parismatch.com/Actu/Societe/Medicaments-generiques-pourquoi-la-France-est-en-retard-655260 http://www.elexica.com/fr-FR/legal-topics/antitrust-and-merger-control/27-linterdiction-des-accords-de-pay-for-delay-confirmee https://www.statnews.com/pharmalot/2016/11/07/supreme-court-pay-delay-glaxo-teva/ http://unctad.org/meetings/fr/SessionalDocuments/tdrbpconf8d3_fr.pdf Show less Reply Loann Millet 13 February 2017 Pharmaceutical companies use patent protection for their products in order to compensate research and development expenses. As soon as patent expires, generic companies are able to penetrate the market. We know that pharmaceutical field is very dynamic and competitive. A lot of innovations come out in a quite short time. R&D costs are very expensive in this domain, so to recoup those…Read morePharmaceutical companies use patent protection for their products in order to compensate research and development expenses. As soon as patent expires, generic companies are able to penetrate the market. We know that pharmaceutical field is very dynamic and competitive. A lot of innovations come out in a quite short time. R&D costs are very expensive in this domain, so to recoup those costs, the 20 years length patents seem to be useful but this can be challenged by generic firms who wish to enter the market Pharmaceutical firms who need extra time, can use what we call « Pay for delay ». This method is explained by the fact that big brand name drugs pay some money (from extended monopoly profits) to generic companies in order to postpone new innovations, which are generally a lower cost version of their drugs. Indeed, the delayed market entry of cheaper generic medicine is made to the detriment of patients because they won’t be able to find drugs at a lower price. This case can be applied directly to patients in countries where drugs are not refunded and to payers financing the health system in country with a social welfare system. Actually, the Federal Trade Commission estimated in 2010 that such agreements cost $3.5 billion in foregone savings per year. Not every patents are very innovative. It can be a newer version of what already exist. Brand name pharmaceutical companies also use « product-hopping », which consist in changing only a little part of a current drug. The aim is to do it before generics come out. Patients will have no choice to switch to the « new » medicine because no generics will be available at this time. When a brand name firm sues a generic company. Generic manufacturer has to prove its innovation is not violated the current patent, If they do, they win the right to enter the market. If they don’t, during 6 months, no generics will be able to enter the market. A lot of authors argued that pay to delay agreements are anticompetitive. Indeed, branded name drugs are using money to keep innovators out of market. This sounds like a trust or monopoly. Innovators can’t enter the market because big branded firms are controlling it. Customers are paying a medicine at a very high price while generic firms are stuck with an innovation at a lower price. This kind of monopoly can discourage generic firms from innovate. This is why law is against such agreements : Antitrust law protects competition. European and American points of view are not opposed but they are not the same. Indeed, European system introduced a system where they don’t need to prove the effect on the market. The American’s one is also working case by case but it is more strict because of the 4 cumulative conditions. They have to prove the anticompetitive effect according to the market, the case… It’s largely explained by the fact that American market is much more developed than the European one. Pay for delay are obviously more frequent. In conclusion, IP takes an increasing place with years. Pharmaceutical field is one of the most accurate. R&D costs are very high and only patents can award enough those efforts. Pay for delay is a very important obstacle to enter the market. A balance must be found between increasing competition and affordable, safe drugs for patients. Pay for delay effects have shown that they can ruin competition but, in some cases, branded firms have interest in launching an authorized generic with the help of a generic firm and both of the parties can have interesting benefits while keeping other competitors out of the market. The new US president Trump is trying to find solutions, and his goal is to lower drug prices by lowering regulation for big pharmaceutical firms. references : 1- http://www.medicalprogresstoday.com/2012/12/pay-for-delay-anticompetitive-or-protector-of-innovation.php 2- https://united-kingdom.taylorwessing.com/synapse/ti_paydelay.html 3- http://schooloflaw.academicblogs.co.uk/2016/10/25/pay-for-delay-in-patent-settlement-agreements/ 4- http://competitionpolicy.ac.uk/documents/8158338/8368036/15-5+CCP+Working+Paper+complete.pdf/8491723f-4c10-469c-8271-d0d0b6636c37 5- https://competitionpolicy.wordpress.com/2016/02/15/the-econonics-of-pay-to-delay-deals/ 6- http://www.modernhealthcare.com/article/20160114/NEWS/160119926 7- http://edition.cnn.com/2017/01/31/politics/donald-trump-pharma-meeting/ Show less Reply Balaji Ramachandran 28 September 2016 In my comment on “pay-for-delay” deals, I will attempt to highlight its relevance in the world today, bring out the incentives of the major stakeholders and provide a recommendation on the way forward for policy makers. Relevance of “pay-for-delay” deals in today’s context: • Global With both US Presidential Candidates mentioning the banning of reverse payment patent settlements or “pay-for-delay” deals, in…Read moreIn my comment on “pay-for-delay” deals, I will attempt to highlight its relevance in the world today, bring out the incentives of the major stakeholders and provide a recommendation on the way forward for policy makers. Relevance of “pay-for-delay” deals in today’s context: • Global With both US Presidential Candidates mentioning the banning of reverse payment patent settlements or “pay-for-delay” deals, in their bids to make the pharmaceutical industry more competitive, we can see that this critical issue, despite FTC and Supreme Court rulings, is still yet to be fully ironed out by regulators and Government officials. Additionally, it is expected that pay-for-delay deals are still expected to cause a deadweight loss of ~$21 billion over 25 years, despite a sharp fall in pay-for-delay deals since 2013, based on a study by Helland & Selbury of the University of Southern California, suggesting that the incentive structure for pharmaceutical industries has not been adequately fixed to rein in the proliferation of “pay-for-delay” deals and the losses sustained by consumers. With the FTC charging Endo Pharmaceuticals in 2016 for alleged pay-for-delay violations, we can see that this is still a pressing global issue. • EU With Merck, Arrow, Ranbaxy and a host of other pharma companies who were in partnership with Denmark’s Lundbeck losing their appeal to the top court, an important precedent has been set for future lawsuits, making policy decisions at this point of time critical to impose a strong regulatory standard Analysis of “pay-for-delay” deals and its potential pitfalls • Big Pharma’s Point of View Given the risks involved in the innovation and production of drugs from its inception to the time it is ready-for-market, the high uncertainty and long waiting periods faced by Big Pharmaceutical companies like Merck, Pfizer, Allergan, Sun Pharma and so on, justify their eagerness to hedge risks via acquisitions and a pipeline of innovation. Their need to extend their period of exclusivity for as long as possible means that there is always an incentive for them to engage in private deals with generic firms in a bid to limit their entry. Simplying outlawing “pay-for-delay” deals would only shift their incentive to less obvious means of payment, such as access to funding for drug research and availability of marketing and distribution facilities to generic drug makers. • Generic Firm’s Point of View While it doesn’t seem like a generic firm has an obvious incentive to even deal with Big Pharma, the short-run possibility of profits does not outweigh the long-run risks of competing with Big Pharma companies, who have the resources to attract the best talent – a crucial point of growth for generic firms. Additionally, the existence of an authorized generic drug provider gives generic firms a nefarious incentive to engage with their theoretical competitors in Big Pharma to gain access to the exclusive right to sell a drug, even if it is delayed by a couple of years. • Consumer’s Point of View Despite overt regulation by the FTC, we can see that the consumer still suffers either from having to pay unreasonably high prices for drugs due to the lack of competition to Big Pharma companies’ drugs, or suffer from a lack of quality drugs as no incentive exists for Big Pharma to innovate and produce affordable, quality drugs. It is not easy to resolve this dilemma between competition and innovation and undoubtedly, the reservation price of consumers and the actions of generic drug makers does have a major role to play in this area. For instance, companies like La Roche and Novartis have been stung by Indian courts ruling against the validity of their patents in favor of generic manufactures like Cipla.  This reduces their willingness to invest in research facilities in India and other developing countries. In both cases, the average consumer stands to suffer the most Recommendation going forward – Removing the concept of authorized generic drugs While currently, the policies being discussed include establishing guidelines to determine what settlements between generic and Big Pharma companies are legitimate and what terms and conditions are acceptable, I posit that the underlying incentive given to generic providers of exclusive authorized access is the real problem. By removing the concept of one generic player gaining access earlier to the drug when its patent expires and opening it up instead to the free market, the incentive for Big Pharma to pay off generic firms is drastically reduced as the low barriers of entry to the pharmaceutical industry mean that millions of boutique pharmaceutical companies can start up to claim their share of the settlement offered by Big Pharma. As even the largest of these companies cannot afford to pay off all generic providers, and a strong incentive exists for generic firms to compete amongst themselves to produce the fastest and most effective replica, the primary motive for collusion is minimized. If this regulation can be combined with effective maximum price regulation by the relevant authorities, then the possibility of price retaliation by Big Pharma in a bid to maximize profits also reduces. Their need to innovate still exists as the volume of drugs sold in a period of time will become as relevant, if not more, than the profits earned, during the period of exclusivity.  While there are more nuances that need to be looked into, such as the possibility of innovation shifting only towards treatment drugs and not curing diseases, the removal of an authorized generic drug maker policy is one that is sure to benefit consumers the most. References  https://www.statnews.com/2016/09/28/pay-for-delay-deals/  https://promarket.org/pay-delay-settlements-collusive/ [3 http://www.reuters.com/article/us-court-h-lundbeck-eu-antitrust-idUSKCN11E1V2  http://europa.eu/rapid/press-release_MEMO-16-2994_en.htm  http://www.forbes.com/2010/07/15/drug-patents-pharmaceuticals-opinions-contributors-anup-malani.html  https://www.ftc.gov/news-events/press-releases/2016/03/ftc-sues-endo-pharmaceuticals-inc-others-illegally-blocking-lower  http://timesofindia.indiatimes.com/business/india-business/Cipla-infringing-Roches-cancer-drug-patent-HC/articleshow/49956000.cms  http://competitionpolicy.ac.uk/documents/8158338/8368036/15-5+CCP+Working+Paper+complete.pdf/8491723f-4c10-469c-8271-d0d0b6636c37 Show less Reply Martina De Luca 28 September 2016 The pay-for-delay topic has created controversies over time and is still a point of departure to think of the pharmaceutical world. Is it cautious to impede this kind of agreements between producers, when it is known that originals invest much more in research, innovation and continuous progress, while generic producers rely on already invented and tested products to create their…Read moreThe pay-for-delay topic has created controversies over time and is still a point of departure to think of the pharmaceutical world. Is it cautious to impede this kind of agreements between producers, when it is known that originals invest much more in research, innovation and continuous progress, while generic producers rely on already invented and tested products to create their own cheaper drugs? Is it right not to do it, bearing in mind that with those agreements consumers are left alone to face a non-competitive market where prices are fixed by monopolists? Both questions offer a different cause for reflection, but in my personal opinion they could hide the same answer: no. Let’s analyse the scenario if pay-for-delay agreements are prohibited. We will certainly have a more competitive market where six months are not sufficient to protect patents on new drugs and where generic producers are incentivized to anticipate the launch of generic products. This certainly leads to a gain in consumer’s welfare (more drugs that are available, more competition and lower prices) and a loss in producer’s profit maximization (need to create a better and cheaper product, less time to do so). Thus, gain for common people. Now let’s think about the R&D itself. Who finances scientific, pharmaceutical, chemical research? With the current crisis we are still facing from 2008 it is quite intuitive to think that recession is causing a huge cut on several public sectors, including (and in some Countries, unfortunately, mainly) research. If the States finance less and less such an important sector, who does? Of course pharmaceutical industries, and in particular original branded producers who incentive pharmaceutical research and invest in innovation more than anyone else. Abolishing pay-for-delay agreements could reduce the quality of innovation and research by original producers who will have to create a more specialised drug in a very short period of time; or it could encourage generic producers to invest more in R&D to accelerate the launch of their products. Personally, I believe the first scenario is more probable. The debate is still open and controversial and only effectively banning pay-for-delay would answer these doubts about its efficacy. Show less Reply Giulia Sargenti 27 September 2016 From my point of view, competition within the pharmaceutical market would be more convinient from consumers’s perspectives and, thus, should be implemented. Of course this issue involves a lot of other points of view for which is not easy to simply conclude like that. What is not convincing, in my opinion, is the justification of a monopolist structure to guide…Read moreFrom my point of view, competition within the pharmaceutical market would be more convinient from consumers’s perspectives and, thus, should be implemented. Of course this issue involves a lot of other points of view for which is not easy to simply conclude like that. What is not convincing, in my opinion, is the justification of a monopolist structure to guide the pharmaceutical market because of its ability of re-investment in R&D. That seems quite a devise to get more profits from that market for only few of business men. I do not want to say that the pharmaceutical sector is not a peculiar kind of market, of course it is: the humankind wealth is concerned. What I am trying to stress is that, in fact, the market of medecins and the research about drugs should not be considered as activities to be done only and solely by the same actor. I think business sometimes may have different incentives and objectives to follow from those of medecins’ research field and final consumers interest. Along with restrictions and bans of “pay-for-delay” systems, maybe would be more efficient to implement plans of investement in research by part of the state to let centers of drugs’ research, universities and also branded drug makers work but with funds coming not necessarily from the companies’ profits. We cannot solve the problem by only ban these deals, we need concrete incentives to invert the system. In my opinion, though, it would be desirable for the state to take a role within this business to let the competition work in this particular market with prices becoming more accessible and, at the same time, the incentives and capabilities of organizations to do research being preserved and boosted separately. Both the short and long run perspectives of consumers’ well-being have to be settled. The society welfare is a public interest and medecins may be seen as a public good in this sense. It is essential that the investments and investigations in this field are preserved and stimulated but, on the other side, this should not turn to be the justification of higher prices (and costs for health service) to sustain in the short-run. Show less Reply Garima Kaushal 26 September 2016 Pay for Delay settlements must be looked at from two (not necessarily opposing) viewpoints - that of reaping the benefits of R&D effort, and the policy approach followed by the resident government. While talking about R&D effort, it is important to recognize that first mover advantage only has so much of a pull in the market. Market share can be defined…Read morePay for Delay settlements must be looked at from two (not necessarily opposing) viewpoints – that of reaping the benefits of R&D effort, and the policy approach followed by the resident government. While talking about R&D effort, it is important to recognize that first mover advantage only has so much of a pull in the market. Market share can be defined as a function of three things – time of entry, share of voice, and positioning. Of these three, the first mover advantage actually has the least weight. The most important element is positioning (weight = 4), followed by share of voice (weight = 2), and then time of entry (weight = 1). Time of entry ceases to even count when the market is crowded; businesses gain advantage through share of voice and positioning mainly. Thus, pay for delay settlements are beneficial for originators who seek to elongate their position of power in a new market.SInce the originators undertook massive R&D costs to arrive at these patented drugs, should they not be given the option to derive profit from them? Looking at these settlements from the viewpoint of policy, I believe this matter can be settled much more simply. Given the nature of the pharma industry – with millions of lives dependent on their products, I believe some discretion should be granted to governments to regulate price; be it through price ceilings, or tougher patent laws. Take the example of my home country, India. Unlike the US and some European nations, Indians do not have state-provided or even compulsory insurance. Hence, there is a need for medication to be inexpensive and easily accesible. India has a number of indigenous producers of generic drugs. In this context, India not only does not allow pay to delay settlements, but also adheres to higher standards for patent recognition. This has led to a lot of unrest with major western drugmakers, but the policy on IP recognition still remains the same. Now, coming to how these viewpoints do not necessarily oppose each other. Yes, R&D costs can be huge for the innovators. But, innovation is not a social good that these companioes provide. At the speed at which innovation takes place in today´s world, it is a necessity for these companies to stay relevant in their industries. Keeping competition alive, in this scenario, would mean that originators would need to up their game in not just R&D, but also marketing efforts thereafter. Maybe this calls for a new world order, where research labs are seperated from distribution and marketing companies, and profits are earned through volumes, or added services – not pure value. Sources: 1. https://www.statnews.com/pharmalot/2016/05/23/india-patents-licenses-pharma/ 2. https://www.statnews.com/pharmalot/2016/03/31/patents-monopoly-antitrust/ 3. http://www.strategy-business.com/article/18881?gko=64116 4. http://www.jstor.org/stable/2631620?seq=1#page_scan_tab_contents Show less Reply Nicholas Chin 25 September 2016 Having personal desires to pursue a career in the pharmaceutical industry, I would like to acknowledge that I innately have a bias towards these topics. With that being said, I have tried to maintain neutral and think critically and rationally on this topic - I have taken a devil’s advocate stance and will approach it as such. The role of…Read moreHaving personal desires to pursue a career in the pharmaceutical industry, I would like to acknowledge that I innately have a bias towards these topics. With that being said, I have tried to maintain neutral and think critically and rationally on this topic – I have taken a devil’s advocate stance and will approach it as such. The role of a multinational pharmaceutical company is much more than just an enterprise that makes drugs for consumers. This specific type of MNE has a role that is more intricate and sensitive when compared to another MNE of its respective size. Along with creating positive relations within their departments that other MNE’s have (ie. marketing, sales, data analytics, HR, finance etc.) they also have to incorporate the opinions of researchers, physicians and the general public – considering the sensitivity of what they are dealing with, human health. MNE pharma companies have more parties to involve in their business model and therefore require more resources to support this supply chain. To maintain adequate, cutting-edge R&D is not cheap and they can therefore use this argument to legitimize their monopolistic marketing scheme. Now, on the other hand of the coin is the healthcare accessibility argument, whereby these raised drug prices are limiting access for certain marginalized communities. If generic companies did not contribute to the monopoly of certain pharma companies, drugs may be more accessible for all and improve QOL for more populations in the world. Now, personally I do not think that completely banning these pay-for-delay deals will benefit mankind nor the pharma companies. These smaller scaler generic companies do still have a bottom line and if and when prices are reduced because there is more competition in the market, the market entry barriers will be reduced and even more competitors will make a foray. Subsequently, increasing drug prices again and the cycle starts all over again. This would also de-incentivize the drug companies from investing heavily into R&D and ultimately limiting the progression of healthcare diversity. But that’s not to say this current system is without its flaws. I am confident that if we introduce another party into the system then we will come closer to an equilibrium for consumers and the MNEs alike. If the third party we introduce is more rational and understands both parties’ needs – we can come closer to a solution that accounts for everybody. For example, if we incorporate organizations such as the World Health Organization or the International Dispensary Association we can satisfy all parties. As opposed to having the government strictly determine the fate of this dilemma, these non-governmental organizations can introduce a perspective that is for the betterment of global health, whilst still understanding the necessity for the bottom line and R&D. Show less Reply Francois Wilberz 23 September 2015 Although pay for delay practices by pharmaceutical firms have been strongly reprimanded by the US Federal Trade Commission (FTC) since 1999 (1) , we can observe that those anti-competitive deals are still present in the main headlines of prestigious newspapers. The recent case of Teva with a fine of 1.2 billions of dollar is only an example through others (2).…Read moreAlthough pay for delay practices by pharmaceutical firms have been strongly reprimanded by the US Federal Trade Commission (FTC) since 1999 (1) , we can observe that those anti-competitive deals are still present in the main headlines of prestigious newspapers. The recent case of Teva with a fine of 1.2 billions of dollar is only an example through others (2). But is the risk to be fined and to lose their integrity to the eyes of the public worth? According to Charles River Associates, a pharmaceutical firm has theoretically a big incentive to pay the generic firm to remain a monopole even if it shares part of the profit with the generics firm. In return, the situation of the final customer is deteriorated. In practice, the apparition of a generic on the market can reduce the total price of a pill up to 90% and as a consequence a significant part of its revenues (3) . This can easily explained why those firms try as much as possible to delay the introduction of the generic version of their products. According to the federal trade commission, this practice would represent an additional cost of 4 billion of dollar per year to the collectivity just for the US (4) . Moreover, the generics are often the only way for Americans to receive an appropriate treatment because original drugs are not affordable for them. For those reasons, I tend to believe that such deals deteriorate the situation of the customer in the short term but also in the long term. Indeed, some of them will not be there to enjoy the potential new innovations financed with the money saved by the pharmaceutical firms because they die before for want of affordable medicines. On the other hand, the pharmaceutical are confronted to high R&D cost and to long trials before to launch a drug on the market. Moreover, part of the 20 year patent (5) is already expired when the medicine can finally be launched on the market (6). The short period remaining might tend to reduce the willingness to innovate for those firms. A solution would be then to attribute a small percentage of the generic drug to the concerned pharmaceutical firm during a period equals to the time required to develop the drug and approved to be launched on the market. This would be an incentive for the firm to innovate while the impact on the customer would be almost negligible. Moreover, new stricter measures and punishments have to be taken against pharmaceutical firms which will pay generic firms to delay the launch of generics on the market to make sure that this practice belongs to the past. Sources: (1) – https://www.ftc.gov/sites/default/files/documents/reports/pay-delay-how-drug-company-pay-offs-cost-consumers-billions-federal-trade-commission-staff-study/100112payfordelayrpt.pdf (2) – http://www.bloomberg.com/news/articles/2015-05-28/teva-to-pay-1-2-billion-to-resolve-ftc-pay-for-delay-lawsuit (3) – http://www.natlawreview.com/article/pay-delay-big-pharma-s-dirty-secret (4) – http://www.natlawreview.com/article/pay-delay-big-pharma-s-dirty-secret (5) – https://www.coleurope.eu/sites/default/files/uploads/event/patent_settlements_-_bennett_0.pdf (6) -http://www.fdareview.org/approval_process.shtml Show less Reply Alberto Fragapane 23 September 2015 I think this problem is a complex problem of collective-action, one of those situations that are deeply studied in Game Theory. We have two kinds of firms who share the production of one good: the human's wealth. These two agents want to maximize their profit, but they start from different conditions: the branded drug makers must face an higher level of expenditure…Read moreI think this problem is a complex problem of collective-action, one of those situations that are deeply studied in Game Theory. We have two kinds of firms who share the production of one good: the human’s wealth. These two agents want to maximize their profit, but they start from different conditions: the branded drug makers must face an higher level of expenditure due to R&D, while the generic groups acts like “free riders”, cause they don’t have to pay money for the scientific research but, after a defined period, they can benefit from the same results. These two firms have found a solution to solve their game: the “Pay for delay deals”, that we may define as a Pareto Optimal Equilibrium of this game. But now the problem is that there is a third actor, that actually is included also in the two other ones: people. People are worse off, because after the pay for delay deals the will pay higher prices for their wealth than before. But what would have happened without these deals? Probably there would be a lower level of research, due to less incentives for the branded drug makers, therefore a lower level of human wealth. So now the questions are: how do we solve this complicated kind of game? How do we consider human wealth? Is it a public product, a private product or something else? What are the real actors of this game? I think that the last question is the most important. The real actor is one: people, because the consumers are persons, but the producers are persons too. Starting from the director of the most branded firm, till the last worker that constructs the containers of the less expensive generic medicine. A worker that probably will be penalyzed by the pay for delay deals. We should try to start thinking seriously that there are products that cannot be exchanged in a market in which are applied the same reasoning that we apply for the other products. Anyway since that’s seems to be impossible, we must solve this game in an alternative way, that will maintain the same incentives for R&D and low prices of the medicines for the people. This is one of the most important government’s duty, the creation of one or more focal points that must be able to converge the interests of all the agents. I try to make an example, let’s imagine two different norms made by the goverment to solve this specific problem. The first norm positively correlates the duration of the exlusivity period with the level of investement in R&D made by the branded drug maker. So the more you invest, the more you’ll monopolize the market. The second norms negatively correlates the medicine’s price with the duration of the exclusivity period. The more you’re the only actor in the market, the less you sre free to raise up the price of your medicine. Obviously this is a simple example and there all some other variables that must be included, but I hope it could give an idea and a starting point for further reasoning and studies. Show less Reply Charles Brassinne 19 September 2015 “Pay for delay” or “reverse payment” has become a complex issue over the last few decades, particularly in the pharmaceutical industry. The incentive of such deals is that both parties involved will capture higher profits by keeping the monopoly intact than by entering in competition with each other at the end of the patent or the exclusivity period. The drawback…Read more“Pay for delay” or “reverse payment” has become a complex issue over the last few decades, particularly in the pharmaceutical industry. The incentive of such deals is that both parties involved will capture higher profits by keeping the monopoly intact than by entering in competition with each other at the end of the patent or the exclusivity period. The drawback is that the end consumers will have no other options than continuing to pay the drug at the high price set by the monopoly. Therefore, both branded drug makers and generic firms increase their profits at the expense of the end consumers. The question that arises from this situation is: “Should we abolish “pay for delay” deals?” knowing that, by doing so, consumers will enjoy lower prices but pharmaceutical companies will have less incentives to develop new drugs as stated in the present article. The objective of the Antitrust laws is: “to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up” (Federal Trade Commission). According to this objective, I personally think that the Federal Trade Commission should fight against “pay for delay” deals as it obviously creates monopoly situations from which the consumers will suffer. More practically, the FTC must abolish such practices by creating heavy punishments in order to remain capable of enforcing antitrust laws. That being said, the real question becomes: “How to make sure that the pharmaceutical companies will still have enough incentives to develop new drugs?”. In that regards, I think that a move in the good direction would be to think of a variable exclusivity period that would depend on several parameters. Examples of these parameters would be the overall costs of Research and Developments engaged by the companies for the drug involved, the price of the drug on the market and the expected demand for that specific product. With this methodology, pharmaceutical companies will have the certainty to get return on their investments once the product is launched on the market and will keep the incentive of developing new drugs. To sum up, I am not bold enough to believe that I have solved the “pay for delay” problem! I think that the FTC should remain in control of enforcing antitrust laws for the protection of consumers, which is impossible by allowing the presence of “pay for delay” deals. Instead, the focus should be on finding a way to keep the development of new drugs attractive for pharmaceutical companies without the practice of such deals. The starting point for a solution may be to establish variable exclusivity period that would take into account the expenses and expected future profits that the new drug would generate. Source: – https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws – http://www.ipdigit.eu/2010/10/pay-for-delay-deals-in-the-pharmaceutical-industry/ Show less Reply Fabian Bald 19 September 2015 Allow me to broaden the ongoing debate on pay-for-delay-deals in the pharmaceutical industry by focusing on the economics of generic drugs in developing countries. As Anup Malani rightly pointed out in his Forbes article most patients in North America and Europe are covered by health insurance schemes and thus only pay a small fraction of the real costs of drugs…Read moreAllow me to broaden the ongoing debate on pay-for-delay-deals in the pharmaceutical industry by focusing on the economics of generic drugs in developing countries. As Anup Malani rightly pointed out in his Forbes article most patients in North America and Europe are covered by health insurance schemes and thus only pay a small fraction of the real costs of drugs themselves. In developing countries this is quite different which leads, in my opinion, to different results when thinking about generic drugs and originators´patents. Using the distinction by Towse et al( 20011) in their paper on the economics of drugs and vacccines in developing countries, both ” global diseases” ( such as diabetes, cancer etc) and ” neglected diseases( e.g. Malaria, Ebola,..) exist in developing countries. I will first focus on the ” global diseases” ( which are also common in develped countries). Many drugs and therapies exist nowadays to treat theses diseases efficiently. However the originators´products are in most cases simply not attainable or affordable for the majority of the population in third world countries due to financial and logistical constraints. At the same time a multitude of cheap and untested generic drugs( in most cases imported from China or India or home-made) do exist and are sold at only small fractions of the price in developed countries. As these generic drugs are often introduced into these markets irrespective of patent existence in developed countries( due to lack of patent legislature or filing in the developing countries), these generic drugs are not only much cheaper but also often untested for efficiency of treatment or possible side effects. In many cases there is a lack of control of the ingredients and properties of these generics and they are thus also highly welcoming to fraud. This author himself has seen simple antibiotics being sold as malaria drugs in Ghana( which are completely in fighting the effects of malaria). Allowing for a quicker introduction of tested generic drugs in rich countries, these generics will also spread in developing countries and can thus help fight many of the above- mentioned problems with untested generics. The pay- for- delay policy from pharmaceutical firms in rich countries therefore directly impacts on the distribution of drugs in developing countries as well but with completley different implications and consequences. Allowing for the spread of untested and possibly ineffective drugs in developing countries by the reasoning of a higher profit share of originators seems highly questionable from a normative point of view when thinking about developing countries. The economics of “neglected diseases” is however different. What sets these diseases apart is that they are prevalent in developing countries. For many of these diseases no drugs for treatment exist which can partly be explained by only small amounts of R&D of pharmaceutical companies being used on development of possible cures and drugs to these third-world specific diseases. The reason is that the expected revenue( even with working patent legislation in these countries) would be too low to make up for the huge R&D costs. This can best be illustrated by the outbreak of Ebola in different West African countries last year. At the outbreak, no drugs against Ebola existed and only after the promise of the WHO and different governments to support financially pharmaceutical research was a first drug developed in only a few months. While the first cases of Ebola were already registered in the 1980s it was at the time not feasible to direct big fractions of R&D spending on finding drugs to treat supposedly few( and poor) patients. After the huge outbreak last year, however, much more money was poured into research of this disease and it took pharmaceutical companies less than a year to develop a drug which halfed the mortality rate of new patients. Regarding neglected diseases, it might be in the interest of governements( and the WHO)- at least from an ethical point of view- to even support monopolies financially in order to increase the chances of developing a public good. In this cases natural monopolies will exist and allowing for competititon for public funds will probably not increase efficiency. Taking into account the direct consequences of competiton from generic pharmaceutical companies also for developing countries shows that a quicker introduction of genric drugs may be welcome for ” global diseases, while natural monopolies will prevail in the market for drugs to treat ” neglected diseases”. Of course these results are not unkonown to the WHO and that is a reason why it has been demanding the faster introduction of generic drugs in developing countries for many years. Sources: http://www.forbes.com/2010/07/15/drug-patents-pharmaceuticals-opinions-contributors-anup-malani.html Drugs and vaccines for developing countries. Office of Health Economics Research( 2011). Towse et al, retrieved from: https://faculty.fuqua.duke.edu/~dbr1/research/developing-Oxford.pdf WHO programmes, under http://www.who.int/trade/glossary/story034/en/ Show less Reply Fares Yanis 30 October 2014 The market of pharmaceutical drugs posses a huge potential. If we understant more accurately the situation between generics drugs producers and patents owners, we can easily say that we are here in a situation of cartel. As we know, the Hatch-Waxman Act of 1984 has played an important role in this long term battle between those two actors. This act “which…Read moreThe market of pharmaceutical drugs posses a huge potential. If we understant more accurately the situation between generics drugs producers and patents owners, we can easily say that we are here in a situation of cartel. As we know, the Hatch-Waxman Act of 1984 has played an important role in this long term battle between those two actors. This act “which lowered the regulatory barriers preventing generic drug producers from entering pharmaceutical markets” has an important catch : “The generic producer could not enter if it infringed on an innovator’s drug patent.” That includes that we’ve arrived in a trade-off situation: “Under these pay-for-delay settlements, the innovator would share a portion of its monopoly profits if the generic dropped its patent suit and delayed entry. ” In order to test their drugs pharmaceuticals firms need the patent, which is the opposite situation for others businesses. A key factor which has to be taken into account is : the welfare. “On the one hand, delaying the entry of cheaper drugs certainly has a negative impact on the well-being of consumers in the short run. Yet, on the other hand, shortening the exclusivity period during which pharmaceutical firms enjoy monopoly profits is likely to reduce their incentives to produce new drugs, which may harm the consumers’ well-being in the long run.” The ban on pay-for-delay settlements wouldn’t eliminate drug patents, it would just shorten the duration of those patents, but why shortering ? We need to focus on the benefits and costs output. The upside to longer patents is that they encourage the development of new drugs. The bigger the reward for producing a new drug, the greater the investment in developing and testing such drugs. An important point has to be taken into account : ” In most industries, the downside to longer patents is that the patented product is sold at a high price that renders it inaccesible for many consumers “. (lowering welfare) But also : ” The longer the patent on a product lasts, the larger the number of consumers who are unable to afford it.” Lowering welfare as well. “If there is no cost to patients from longer drug patents, why does the House bill seek to shorten those patents?” Actually, those collusive deals are made to keep generics off the market but it’s also a win-win proposition for the pharmaceutical indstry, but a lose-lose for everyone else. The New-York Times has qualified those pay-to-delay deals as one of the worst abuse accross the board in health care. What about this dilemma ? If the drug generic company wins the case, it’s rewarded with a six month period during which it will be the only company that can make a generic, this include a huge profit for the generic drug company. Show less Reply Aurélia Job 29 October 2014 EU Commission recently fines a large French pharmaceutical company Servier to pay 427 million euro fee for a "Pay for delay" case(1). Indeed, the EU Commission bans collusion including cartels as it claims to be damageable for economy, innovation and consequently to social welfare. At first sight, we might thought that pharmaceutical cartels are preventing the initiators to innovate by keeping…Read moreEU Commission recently fines a large French pharmaceutical company Servier to pay 427 million euro fee for a “Pay for delay” case(1). Indeed, the EU Commission bans collusion including cartels as it claims to be damageable for economy, innovation and consequently to social welfare. At first sight, we might thought that pharmaceutical cartels are preventing the initiators to innovate by keeping their monopolies on a molecule for a longer run than legally permitted. However an incentive from firms to establish such a cartel would resides in the non-efficiency of the patent length. It is obvious that the time-frame of a patent encourages strategic innovation. However, a too short patent period also limit the content of the innovation. As it happens with the pharmaceutical industry, firms has to find molecules that are complex enough not to be easily copied by means such as reverse engineering. Indeed the innovative firm has to generate from its new product an sound return on its R&D investments, to have an incentive to further innovate contrary to a generic drug producer, who do not support innovative costs including risks (investment on the research,validation from the authority, consumer claims…). This implies, pharmaceutical firms have to spend time searching for a cure and for a cure that will be protected from competitors know-how. In other words, if some diseases could be easily cured with easy-to-imitate molecules, there would be no profit for the discovering firm which would have an incentive to either look for a more elaborated drug or to search to prevent from a different disease. Another option to counter the patent time-frame issue is to put a further premium on the product price which would make early adopter of the drug supporting more costs of it. As such, competition and reveals of patent, according to this example, do not increase social welfare but short-termism vision contrary to “industry-made” patent horizon which leads to a win-win situation for both firms from an innovative and a social welfare point of view. Source: (1) http://euobserver.com/news/124917 Show less Reply David Vanraes 29 October 2014 It is clear that the pay for delay on pharmaceutical product deals have made a lot of controverse. And that if pay for delays become prohibited that this will have important repurcussions on the innovation. I strongly believe entreprises need a space of creative breath allowed by a delay of the pattent-length. Enabling more innovation and therefore also more new…Read moreIt is clear that the pay for delay on pharmaceutical product deals have made a lot of controverse. And that if pay for delays become prohibited that this will have important repurcussions on the innovation. I strongly believe entreprises need a space of creative breath allowed by a delay of the pattent-length. Enabling more innovation and therefore also more new inventions are strongly needed for potential future patients that need these inventions to be cured. But these pay for delays Increase the consumer well-being only in the long-term but not really in the short-term. Besides this pro-protection positive argument, it is clear that there is another side of the medal , a negative side in the short term: that the price of pharmaceutical products stay very high with a pay for delay. From an ethical perspective this is unacceptable. Even if we know that in Europe a big part of the costs of medicaments are reimbursed, the proportion that the consumer has to pay finally stays quite high. Knowing that in some cases a patented medicament becoming generic can have easily a 8O% decline in its price. From this last ethical perspective it is clear that there has to be found a method against pharmaceutical companies that pay for delay on medicaments that are important for the public health and well-being. Show less Reply Thomas Boreux 28 October 2014 « Pay for delay » deals are extended to several domains: we can consider it as an economic, a politic, a social and a legal issue, and that makes this subject’s complexity. Let’s analyse to what extent consumers, policy makers and pharmaceuticals entreprises are concerned by the banning of this kind of settlement. Firstable, in my opinion, we can clearly…Read more« Pay for delay » deals are extended to several domains: we can consider it as an economic, a politic, a social and a legal issue, and that makes this subject’s complexity. Let’s analyse to what extent consumers, policy makers and pharmaceuticals entreprises are concerned by the banning of this kind of settlement. Firstable, in my opinion, we can clearly say that this form of settlement is a case of cartel. The two sides of the market decide together to find an agreement in order to avoid competition and the market rules. Branded drug makers and generic groups act like two entities working together to maximize their profit, and consequently, consumer’s welfare. Of course, it is well known that anticompetitive relations between firms like cartels are prohibited by the european legislation. Nevertheless, according to Oliver L., Roush C. and Breed L., « as long as the brand name manufacturer’s patent are valid and being infringed, a settlement agreement restricting the entry date for the generic drug does not have any impact on lawful competition. Furthemore, the typical case of pay for delay according to professor Belleflamme is simple: «branded drug makers pay generic groups to delay the launch of lower-cost version of their drugs». Let’s see the positive and the negative impacts of these settlements on different market’s actors. Pay for Delay practices allow branded drug maker’s to put high prices on their products (monopoly case) more time. Of course, this aspect of the settlement represent a economic advantage. After, keeping a patent during more time could be an incentive for companies to invest in R&D in that they can make more money on their innovations. Of course, the first people enjoying these innovations are the consumers. Acoording to this aspect of the problem, Pay for Delay practices are benefic for firms and consumers as well. After, banning this kind of situation would spur an hyper competition on the pharmaceutical market (after patent’s life). Of course, generic groups will lower prices and this competitive situation can be synonym of bankruptcy for some firms which don’t have the same technology or the same means. Maybe entry barriers can be promoted by the shortening of patent’s life. In this case, Pay for Delay’s forbidding can have a negative effect on some firms. Acoording to the pro’s and the co’s, we could simply say that this kind of cartel is generally benefic for the market. But can these advantages compensate the diminution of consumers’ welfare ? It is an economic problem, but also an ethic problem. In Belgium, drugs are partly paid bu social security and insurances, we think thus consumers are not really affected by these kind of settlements. But the government have to pay these extra costs, and they have to fill the gaps by creating new taxes. At the end, the consumer will indirectly pay for this cartel. In my opinion, these economic uncertainties and ethic issues are sufficient to ban these deals. As a conclusion, I would say that through these readings, I learned a lot about the pharmaceutical market, the legislation about patents, and relation between entities concerned, and the several domain affected by these Pay for Delay deals make this debate really complex. Show less Reply Ritej Bachhawat 28 October 2014 This is a very interesting piece of debate as people get too much into the economics side of it to conclude that abolishing such “pay for delay” deal may not be a very sensible thing to do. Let’s understand why I would disagree and assert that it makes sense to abolish such deals. When an originator gets challenged by a…Read moreThis is a very interesting piece of debate as people get too much into the economics side of it to conclude that abolishing such “pay for delay” deal may not be a very sensible thing to do. Let’s understand why I would disagree and assert that it makes sense to abolish such deals. When an originator gets challenged by a generic drug manufacturer, more likely than not, the chances are that generic side expects higher probability of patent annulment (as per presentation by M.Benett referred in the article). In other words, as per their research conducted, the generic firms believe there is a greater chance of patent infringement or patent invalidity from the side of the originator. Now what if ‘Pay for delay’ scheme goes through in these circumstances? It is nothing but providing incentives for the originator to extend the patent length for such invalid patents. For sure, by allowing such deals to take place, you can argue that you are providing incentives for more R&D and many more similar innovations. But do you actually want to encourage ‘similar’ innovations – where patents may be invalid if evaluated in greater depth. Makes no logic at all to not abolish such deals. Note that, in the above pro-abolishing “pay-for-delay” argument, I am not even considering a major driving factor – reduced the health-care costs to be borne by the government with more competitive pricing. Forbes suggested here (http://www.forbes.com/2010/07/15/drug-patents-pharmaceuticals-opinions-contributors-anup-malani.html) that it does not make much difference to customers whether the deal is abolished or not as with the co-pay schemes they pay only so much as a generic drug would cost them. But the article ignores the fact here that government money is tax-payers money and with these shabby patents getting elongated, the consumer (indirectly through government) has to bear the heavy healthcare costs too. So, all in all, I see this abolishment to be a move in the right direction. Show less Reply Alvarez Soto 28 October 2014 The 19th June 2013, the European Commission fined Danish pharmaceutical company, Lundbeck, and eight generic drug producers a total of €146 millions for delaying the supply of a cheaper version anti-depressant drug, Citalopram (marketed as Celexa or Cipramil) to consumers. First of all, we can see “pay-for delay” as a strategic entry barrier. Big pharmaceutical firms share part of their…Read moreThe 19th June 2013, the European Commission fined Danish pharmaceutical company, Lundbeck, and eight generic drug producers a total of €146 millions for delaying the supply of a cheaper version anti-depressant drug, Citalopram (marketed as Celexa or Cipramil) to consumers. First of all, we can see “pay-for delay” as a strategic entry barrier. Big pharmaceutical firms share part of their monopoly profits with their competitors. The explanation given in 1982 by Richard Gilbert and David Newbery can be completed with Furderben and Tirole taxonomy (1984) (1). According to Funderben and Tirole taxonomy, the big pharma firms have decided an entry accommodation strategy called “the fat-cat”. They decided to overinvest (paying big amounts to their competitors) in order to accommodate entry by committing as incumbent to play less aggressively later. Secondly, social welfare effects of this strategy are clearly the deadweight loss for the patients (consumers) and the risk of increase the deficit of social security national systems. But all the citizens, included patients, pay thanks to our taxes. Finally, what will be the effect of forbidden the pay-for- deals over the innovation of the pharma firms? The big pharmaceutical companies would afford the sunk cost of paying the fine and according with Funderben and Tirole taxonomy we would expect maybe underinvestment. (1) The fat-cat effect, the puppy-dog ploy, and the lean and hungry look. Fundenberg and Tirole (1984) http://www.nuff.ox.ac.uk/users/klemperer/IO_Files/Fudenberg%20and%20Tirole.pdf Show less Reply Florian Barthélemy 28 October 2014 If we start with the presentation from Charles River Associates about the competition between branded drugs companies and generic ones, we can see two incentives: first, branded companies want to pay for delay to keep their monopolistic position due to the patent length's "prolongation", second, generic ones have incentives to enter before the loss of patent's exclusivity to get a…Read moreIf we start with the presentation from Charles River Associates about the competition between branded drugs companies and generic ones, we can see two incentives: first, branded companies want to pay for delay to keep their monopolistic position due to the patent length’s “prolongation”, second, generic ones have incentives to enter before the loss of patent’s exclusivity to get a first mover advantage but this leads to litigation. And here we can make a first remark: if litigation costs are higher than consumer’s welfare increase from the generic entry, there is a loss for the society as a whole (Charles River Associates). To go on with settlement and competition, we note that settlement can be efficient for the society if three conditions are followed (see CRA presentation) because it implies an earlier entry for the generic pharmaceutical companies than without. The problem is, how can competition authorities distinguish between pro-competitive and anti-competitive settlements? Now comes the second remark, competition authorities are not always able today to differenciate pro or anti-competitive agreements. So the question is: is it not preferable to regulate against pay for delay or will the welfare of the society be optimized with some exemptions? The debate is still opened and we are waiting for guidance from the Supreme Court and the Commission. But beside this, if we consider the way some institutions tackle the problem, there are some disconcerting points. At first, what is the goal that authorities are pursuing when they allow the Federal Trade Commission to attack pay for delay settlements and thereby force courts which are not qualified enough to decide the validity or not of these settlements? (in “Pay-For-Delay Or Pay-For-Innovation?” article). Further, more recently, when the FTC opens always new invistigations into agreements between generic and branded pharmaceutical companies, saying that a consequence of these agreements are a loss for the consumers, is it not a unique point of view? (in Bloomberg website: “U.S. Steps Up Probes of Deals to Block Generic Drugs”). What I’m trying to say is that in this case we have always two (or more) sounds of a bell. Nobody today could demonstrate without hesitation a perfect theory to solve this issue. I’m personnally against the monopolistic situation of some phamaceutical companies. But, as we know, patent means litigation costs and I don’t find that bringing all the time to courts are an optimal solution to protect consumer’s welfare but quite the opposite. I’m looking forward to see the evolution of the debate and regulation altough I think that some incentives in the competition laws for branded companies to innovate supports welfare development rather than destroys it. Show less Reply Xavier Alexandre Pedrós 28 October 2014 In my opinion this debate entails the analysis of two broad issues. First, whether pay-for-delay effectively provides further incentives for innovation. Secondly, as raised by Douglas Clement, whether monopolistic structures forward better performance in terms of innovation output. I will focus on the former issue: altogether, I strongly believe that the costs of allowing pay-for-delay in the pharmacy industry do…Read moreIn my opinion this debate entails the analysis of two broad issues. First, whether pay-for-delay effectively provides further incentives for innovation. Secondly, as raised by Douglas Clement, whether monopolistic structures forward better performance in terms of innovation output. I will focus on the former issue: altogether, I strongly believe that the costs of allowing pay-for-delay in the pharmacy industry do not counteract its costs. From a social view, pay-for-deal equals prolonging patents length. Theoretically, we would expect dynamic efficiency to be enhanced at the expense of static efficiency. Yet, I believe that it is highly likely that such a policy would not have a positive net effect for two reasons: the present discounted value of firms profits are low, while social costs seem to be higher. Firstly, 20-years patents on drugs are already providing effective exclusion for other competitors. As we have seen, the pharmaceutical industry is within the small group of those reporting that patent protection is effective in terms of exclusion –while in other sectors it may operate as a sort of coordination device or as a measure of output. In other words, despite fixed costs on R&D in this industry are especially high, it seems that firms are able to capture the returns of their investments. Crucially, stretching a 20-year patent length would not provide too much further innovation incentives since additional compensation occurs many decades in the future. Its present value is, therefore, small. On the side of costs, as we know, providing further monopolies on inventions generates a deadweight loss. Importantly, here, the outcome should not be measured as “abstract” social welfare loss but –as the World Health Organization says- disability-adjusted life years. Again, bearing the discounting factor, the present value of this innovation from a social perspective is rather small, since it takes place many decades in the future. Still, “life years” deadweight loss and a reduced social value of invention are not the only costs. On top of that, patenting drug products and processes block competitors from innovation “based” on previous research. Provided the pharmaceutical patents actually assure exclusion, further development on the basis of past research is delayed. Anyways, if the previous reasoning is wrong, I don’t see the point in allowing pay-for-delay. If it is seen as an effective innovation incentives enhancer, then policy makers should just increase patent length. The point of having a regulatory framework establishing a patent length is that policy makers have a tool to weight the dynamic versus static efficiency trade off. Allowing pay-for-delay means that part of that trade-off is solved not from the policy perspective but from the market perspective. However, as I have argued, this does not seem to be the case: there is a high social cost associated to increasing patent length –which, by the way, may be underestimated- and due to discounting on future flows of profits of both innovators profits and social welfare. Finally, the debate linking market structure to innovation incentives needs for a deep, sectorial analysis. However, at this stage, most of empirical research outlines that competition is associated to higher innovation and productivity. Theories outlying the mechanisms through which monopolistic structures have greater incentives seem to be discarded due to the existence of the so-called “replacement-effect”. Show less Reply Aditya Chandrasekar 27 October 2014 Pay for Delay deals can be analyzed from multiple angles. First let’s look at it from the point of view of the pharmaceutical company that has been granted the patent for developing the drug. A lawsuit by a generic drug manufacturer disputing the validity of the patent would affect the big pharmaceutical major in two ways. Firstly, in terms of litigation…Read morePay for Delay deals can be analyzed from multiple angles. First let’s look at it from the point of view of the pharmaceutical company that has been granted the patent for developing the drug. A lawsuit by a generic drug manufacturer disputing the validity of the patent would affect the big pharmaceutical major in two ways. Firstly, in terms of litigation costs, which could be significant in case of prolonged court battles, which these lawsuits often turn out to be, and secondly, if the patent is annulled, it would result in loss of the monopoly profits which it otherwise would have earned. Hence, it may be prudent to settle out-of-court with the generic drug maker, to not only save litigation costs, but also to ensure that there is delay in the introduction of the generic drugs. Secondly, looking at this situation from the point of view of the generic drug manufacturer, an upheld patent could result in significant litigation costs which it would have to bear, and an annulled patent could result in making the market for the drug competitive and reducing the monopoly power of the big pharma company, in which the case the generic drug maker would extract profits. From the societal point of view, the whole situation seems like a double edged sword. An upheld patent would result in the pharmaceutical major enjoying monopoly power for a longer period of time, thus resulting in higher drug prices, which could make them inaccessible to a section of the population. An annulled patent, would undoubtedly result in lower drug prices in the short term, but would also discourage pharmaceutical majors from investing in R&D and developing new drugs, which in the long term would be harmful for the society as a whole. Hence, it is an extremely delicate situation where any decision would inevitably benefit one party and hurt the other. On one hand, the Government, especially the Consumer Protection agencies and departments, such as FTC and Canadian Competition bureau, have taken a tough stand against the pharmaceutical majors making Pay for Delay settlements to the generic drug makers. There have been an increasing number of cases in the recent years where major drug manufacturers engaging in Pay for Delay deals have been found guilty of anti-trust regulations. For example, very recently, French firm Servier was ordered to pay EUR 427 mn, one of the largest fines to date in the EU.There are several cases in progress in the US courts as well. The large drug manufacturers and economists, on the other hand, argue that banning Pay for Delay settlements would have no impact on the drug prices and that the consumers would be worse off, as innovation in the industry would be seriously affected. In the article in Forbes, Anup Malani argues that since most patients get their drugs through national health insurance plans, the price of drugs do not matter much to them. This is the other angle of the argument. Personally, being from a country in which an efficient and integrated health services plan covering all citizens does not exist, I find that the price of drugs in the short term has a great impact on the consumers. Prices charged by the large pharma majors is often many times the price that could be charged by a generic drug maker. With almost 30 percent of the population of India being under the poverty line, the presence of a generic drug at lower prices could be the only way to save their lives or the lives of their loved ones. However, I do realize that this is a biased opinion, and having understood the long term economic and societal welfare of patents, I realize that this is a much more complex issue that could possibly never have a definite, black or white answer. Sources: 1. http://www.forbes.com/2010/07/15/drug-patents-pharmaceuticals-opinions-contributors-anup-malani.html 2. The economics of Pay for Delay cases – Dr. Matthew Bennett, Vice President, CRA 3. http://euobserver.com/news/124917 4. http://ftc.gov 5. http://www.antitrustupdateblog.com/blog/canadian-competition-bureau-chief-takes-tough-stance-pay-delay-agreements/ 6. http://www.fdalawblog.com/2013/04/articles/reverse-payments/supreme-court-hears-arguments-on-pay-for-delay-agreements/ Show less Reply Dernicourt Anthony 27 October 2014 Firts of all, let's take a look about what happens today in Europe. Around 2008, there was a high competition level between pharmaceutical firms. They were used to practice the Pay for delay with generic firms. The European Commission identified a huge number of those practices. Some of them are illegal. Following the Commission approach (on competition law aspects) in…Read moreFirts of all, let’s take a look about what happens today in Europe. Around 2008, there was a high competition level between pharmaceutical firms. They were used to practice the Pay for delay with generic firms. The European Commission identified a huge number of those practices. Some of them are illegal. Following the Commission approach (on competition law aspects) in some cases this practice is a breach in the European competitive rules. If for example it is seen as patentee’s payments, there is no illegal element and the Pay for delay is possible. So, the point here is that the European Commission is currently trying to limitate this phenomen but doesn’t succed as well as it could. The Commission wants to encourage social welfare. And as the article here says, Pay for Delay practicies reduce the social welfare on a short and long run. So, in their role of European Commission, searching for this kind of objective, they do have to develop solutions in order to avoid those practices. However, we have to consider the impacts of definitively stopping such practices. If all the eneric firms would start to launch their own cheap version of pharmaceutical products, it will lead to more competition in this sector. A good point for the consumers, and the social welfare in general. But what about the risk of seeing a lot of generic firms launching themself in big production, high competition level and so takin risks. The fact is that they don’t have the same dimensions and experiences that bigger monopolistic pharmaceutical firms have. Managing an innovation is not as simple as it may look. What about the consequences of such failures of those generic firms ? In the US, they adopted this law that forbid Pay for delay. But in the US, they don’t have the same concept of failure than in Europe. Tey are risk takers and we’re less so. Is this application in Europe going to fit with our market ? Of course it could also lead to more innovation in this sector, because they will not develop something that could be delayed anymore (and so that will not be used). But developing the project is not launching it on the market. In case of failure, the generic firm disappear and less other firms will have the incentive to try to follow that way. The Pharmaceutical sector is really important for the whole population so if we put this sector in a bad position, we will all suffer from it. We need innovations, we need to improve them and of course competition will lead to more innovation that the actual “monopolist” situation. But there are other elements to take into account. Are we willing to take a risk of pharmaceutical crisis just to allow cheaper products on the market ? Show less Reply Laura J. Clarke 26 October 2014 The article refers to the “pay-for-delay” issues or called as well “reverse payment patent settlement” in the pharmaceutical industry. Branded drug makers paying the generic groups to delay the launch of the cheaper version of their drugs. The core debate is regarding the legalisation forbidding these out-of-court settlements in US and Europe. Although, at first sight it appears as a suitable…Read moreThe article refers to the “pay-for-delay” issues or called as well “reverse payment patent settlement” in the pharmaceutical industry. Branded drug makers paying the generic groups to delay the launch of the cheaper version of their drugs. The core debate is regarding the legalisation forbidding these out-of-court settlements in US and Europe. Although, at first sight it appears as a suitable solution to the imposing monopolistic power over generic pharmaceutical companies and over society, the article identify positive and negative impact through the “pay-to-delay” influence. So far, we know that regarding the negative effect; it would affect harmfully the well being of consumers on the short run. While, instead, if the prohibition goes through, it will reduce the innovative company exclusivity period, therefore, will decrease their incentives to generate new drugs, harming the consumers’ well-being on the long run. However, time has passed since October 2010 and updates have been made, and we can now found new arguments for the banning and against it. But let’s bear in mind the issues is complicating involving political, social and especially legal complications. However, before identifying the favor against and for the antitrust law, I was outraged by this method, without knowing further information, I was about to claim that these kind of scheme should be immediately banished. However, after getting in touch with the reasons behind it, my opinion altered. Arguments against the law are: First of all, the prohibition will have no effect on the price patients pay for drugs. Secondly, the court has found out it does not violate any anti-trust law as opposed of what FTC implies. Thirdly, these are out-of-court settlement avoiding high cost of patent litigation, uncertainty of trial and wasting time that could be spend into the drugs production. So, indirectly, harming the futures patients well being. Moreover, the “pay for delay” method is a win-win for pharmaceutical patent holders and generic manufacturers: brands companies are able to maintain market exclusivity for longer than the suit would allowed, and the generic gets some valuable considerations either cash or “generic exclusivity”. We can explain this situation with the dead weight loss increasing through time. The brand company sells, at the consumer’s expense, their producers surplus to their opponent, improving their profit, Furthermore, if courts would intervene, they wouldn’t understand the unique role of pharmaceutical patents and invalidate patents that should to be secured. Consequently it would lower the brand companies’ incentives and therefore decreasing innovation as mention before. Arguments in favour of the law implies: Initially, due to the anti-competitive aspect it represents. It’s technically against the economical market theory. Furthermore and most importantly, it implies a financial burden on consumers. Studies (FTC) have shown that the deals cost consumers and taxpayers $3,5 billion in higher drug cost every, meaning $35 billions over these 10 last years! However, we know now that this law has been Finally, the arguments against the law anti “pay-for delay” offsets the arguments in favour leading us to the conclusion this law should be rejected. In my opinion, the fact is, we need to find a balance between the consumers’ well-being and the companies’ health. Easier said than done. First off, we should more focus on the patent protection, because this is the core of the issue, the settlements are done because the pharmaceutical firms knows their patent won’t be efficient anymore to protect their profit and therefore needs to find a new arrangement. A solution needs to be found first regarding the patent protection! Source: http://www.ipdigit.eu/2010/10/pay-for-delay-deals-in-the-pharmaceutical-industry/ http://www.ftc.gov/news-events/media-resources/mergers-and-competition/pay-delay http://thehill.com/regulation/healthcare/290167-pay-for-delay-drug-settlements-assailed-at-supreme-court http://www.forbes.com/2010/07/15/drug-patents-pharmaceuticals-opinions-contributors-anup-malani.html Show less Reply Florian Simon 26 October 2014 According to the Federal Trade Commission, Pay-for-Delay is one of the top priorities that US have to deal with. Indeed, a study reveals that these anticompetitive deals cost consumers and taxpayers $3.5 billion in higher drug costs every year. For the record, Pay-for-Delay involve branded drug makers paying generic groups to delay the launch of lower-cost versions of their drugs.…Read moreAccording to the Federal Trade Commission, Pay-for-Delay is one of the top priorities that US have to deal with. Indeed, a study reveals that these anticompetitive deals cost consumers and taxpayers $3.5 billion in higher drug costs every year. For the record, Pay-for-Delay involve branded drug makers paying generic groups to delay the launch of lower-cost versions of their drugs. In other words, branded drug makers pay to their potential concurrent in the purpose of soften competition. Everythink has two side, and the Pay-for-Delay is clearly not an exception. That’s why I will discuss the advantage and disadvantage of prohibiting such a method. Then, I will try to express my point of view, in particularly, by bringing out potential solutions. On one hand, prohibiting drug companies from using the pay-for-delay method could lead to a drop of costs for generic drugs in the market more quickly. So, Consumers and government could beneficiate of savings. Then, from an ethical view, it could also ameliorate patient health. In fact, generic drugs would increase medication adherence. Therefore, for patients who rely on multiple medications to help them stabiliza and manage their conditions. One the other hand, for pharmaceutical companies, agreements such as pay-for-delay are a cheap way to subtitute patent lawsuits. As a result, there are a quickly solution, it could avoid a paralisie of the market. An other advantage, it’s that it create incentives for branded drug maker to invest in research and development which is a need for the welfare of the consumer. So, as far as I’m concerned, I would say that pay-for-delay is a good way to create incentives to innovate and invest in research for branded drug makers. Nonetheless, I think that it would be forbidden a few years after patents end up. Show less Reply Marta de Sousa Lucas Caeiro 25 October 2014 According to the Federal Trade Comission (FTC), the anticompetitive deals such ” pay for delay” cost consumers and taxpayers $3.5 billion in higher drug costs every year. Recent developments have showed that “The FTC has viewed these agreements as anticompetitive and contend that such deals are per se illegal. In Actavis, the Supreme Court declined to go so far…Read moreAccording to the Federal Trade Comission (FTC), the anticompetitive deals such ” pay for delay” cost consumers and taxpayers $3.5 billion in higher drug costs every year. Recent developments have showed that “The FTC has viewed these agreements as anticompetitive and contend that such deals are per se illegal. In Actavis, the Supreme Court declined to go so far as to declare all “pay-for-delay” presumptively illegal, but held that agreements are governed by the “rule of reason” and that courts should examine a number of factors before determining whether the restraint was reasonable.”(1) Federal Trade Comission(2) defines pay for delay as a process in which the brand –name pharmaceutical companies (innovator) seeks to delay the competitor´s entrance in the market (generic), that constitutes a major threat, in the sense that it lower prices. Therefore, a pay for delay is an agreement between both parties, the innovator pays a generic competitor to avoid that the competing product is placed earlier in the market. A suitable explanation for this process can be given by the specificities of the pharmaceutical industry within the production of knowledge and use of intellectual property rights, namely patents. As stated by Julien Penin(3) , the main idea behind patenting systems is that they are only used to benefit from market power is confirmed in pharmaceutical industry, rather than in other kind of industries, where this statement seems not to be held. In fact, pharmaceutical industry evidences a high reliance on patent protection, mainly because new drugs are developed in anticipation of the profits that patents secure. Furthermore, a patent is considered necessary to recoup an initial R&D investment, that in most cases accounts for a big amount and effort . In addition, a drug is an information good, and once its formula is understood, imitation is straightforward and does not entail such huge costs. Consequently, pharmaceutical companies, when compared to other type of industry “cannot as easily rely upon a head start, complementary assets, and scale of production as means to preserve profits.” Also, it is not easy to maintain the chemical formula secret (4) . For the brand – company to prevail and hinder entry, it must successfully defend the validity of its patents and demonstrate that the generic’s product would infringe its patents. Thus, pay for delay processes emerge as an alternative or even avoidance to patent litigation between the parties involved – the innovator and the generic – competitor who wishes to compete in the market with the same drug prior to the patent´s expiration. The major issue here is that if the generic competitor wins in litigation, either by establishing the invalidity either non- infringed status of the competing good, the generic firm wins and have the right to enter in the market, lowering the prices, being is an important source of allocative benefit to consumers. As a result, the innovator pays the generic firm in order to the last one delayed its enter in the market, agreeing the parts to dismiss the patent issues. The goal behind this process is to eliminate the likelihood of early competition in medicines and further welfare improvements on consumers. When criticizing this strategy, one might consider the both sides of the coin: pharmaceutical company in one side and the society on the other side, recalling, simultaneously the importance of balancing dynamic and static efficiencies. Hence, taking into consideration the company side, it is understandable that pharmaceuticals might protect its products, once it incurred on huge R&D investments (5) that are just recouped under market power framework; and as already mentioned, potential competitors usually do not need to invest considerable amounts when imitating. So, it seems natural that they would like to maintain monopoly´s profits longer, being shared with generic companies ( pay for delay system). Nevertheless, it seems that the shortcomings of this approach outweigh the advantages (namely for brand – companies). It is clear that consumers lose a lot, missing out generic prices, which can be 90 % lower than the brand ones. This is particularly serious when considering the lower purchasing power of some consumers or, even broader low-income countries that are not able to purchase branded drugs. Moreover, it is argued by several previous researches that pharmaceutical´s market power does not enhance innovation, with special incidence for highly needed medicines, such as malaria and HIV diseases. Lastly, this kind of issues fall, necessarily in the scope of the social responsibility of the pharmaceutical companies. (1)Available at http://www.lexology.com/library/detail.aspx?g=9600d3d6-dded-4cff-a0a5-001a7a603a80 8 September 2014 (2)FTC, “ Pay for delay: how drug company pay-offs cost consumer billions” (3)Penin, Julien “Patents vs ex-post rewards: a new look”: “ Only firms located in industries that involve chemical –based knowledge (pharmaceuticals, organic and inorganic chemicals, petroleum, plastic materials) seem to rely strongly on the patent system in order to protect their innovations from imitation” (4)Hemphill, Scoot.C “Paying for Delay: pharmaceutical patent settlement as a regulatory design problem” (5)Penin, Julien “Patents vs ex-post rewards: a new look”: “(…) for instance, the federal Trade Comission( …) the innovation rate would decline by approximately 60% in pharmaceuticals(…)” Show less Reply Sebastian Singer 25 October 2014 “Pay for delay agreements” also known as “reverse payment patent settlements” occur especially in the chemical and pharmaceutic industry, presumably due to easier imitation possibilities of innovations than in other industries. Therefore firms in this markets are lend to patent innovation more often than to keep it secret which causes the mentioned phenomenon that again can be seen as a…Read more“Pay for delay agreements” also known as “reverse payment patent settlements” occur especially in the chemical and pharmaceutic industry, presumably due to easier imitation possibilities of innovations than in other industries. Therefore firms in this markets are lend to patent innovation more often than to keep it secret which causes the mentioned phenomenon that again can be seen as a natural monopolist behavior to prolong the respective hegemony. In the following comment I would like to discuss the different views on the topic out of an overall welfare maximization perspective. Firstly, on the one hand, one has to point out that the “Pay for delay” practices, as we can see from the article, are part of an incentive system which is connected with the patent. Hence as a reaction of a ban that prohibits this possibility, firms could be deterred to create new innovations in the mentioned markets. E.g. in the USA – indeed, at first glance, since the time of the first bigger debates about the “Pay for delay agreements” and the finally ban we can observe a distinct decrease in pharmaceutical patents (see sources). Of course there might be other factor which influence the statistic which can be mainly found in a well-defined analysis, it is just to get some impressions in the first place. On the other hand supporter of the ban may assume that a monopolist will put more effort in building market entry barriers (lobbying, rent seeking) than to create innovation compared with a firm that is situated in a perfect competition market – that might be an interesting approach for another discussion. Nevertheless one has to mention that “Pay for delay agreements” are kind of collusion between the monopolist and potential firm which want to enter the market e.g. of a particular medicine. Therefore numerous states declared that behavior as illegal. Furthermore due to such arrangements the deadweight loss(DWL) over time increases. In fact the monopolist offers a part of its producer surplus to the potential rival. It is a “win-win” situation for both on the expense of the consumer surplus. On the one hand the monopolist prolong its state of hegemony which involve the consequences of DWL. On the other hand the potential rival gets a granted amount of money without facing the risk of litigation and market entry costs. According to this the amount of money the potential rival will earn depends on its bargaining power and the risk behavior of the agents. To sum up in an overall view the disadvantages might outweigh the advantages. Moreover there are a few sophisticated approaches with the goal to provide incentives for the potential rival to enter the market without the need to ban „Pay for delay agreements” like the “Hatch-Waxman Act”. Therefore a ban can only be seen as an ultima ratio. Sources: http://www.insidecounsel.com/2012/08/15/supreme-court-may-decide-whether-reverse-payment-s http://epub.ub.uni-muenchen.de/12734/1/Gratz-Economic_Analysis_of_Pay-for-delay_Settlements_and_Their_Legal_Ruling.pdf http://stats.oecd.org/Index.aspx?DataSetCode=PATS_IPC Show less Reply Virág Dezső 25 October 2014 The generic drugs appear differently in the drug distribution systems of countries, but the clear trend is definitely that the social security and health insurance companies prefer the cheaper treatment with generic drugs, so they could generate savings at institutional settings such as hospitals, as well. I think nowadays the factors of economic policy are really strong to influence the…Read moreThe generic drugs appear differently in the drug distribution systems of countries, but the clear trend is definitely that the social security and health insurance companies prefer the cheaper treatment with generic drugs, so they could generate savings at institutional settings such as hospitals, as well. I think nowadays the factors of economic policy are really strong to influence the pharmaceutical industry regarding to the long-term social welfare, so in that case I must agree with the U.S. Court of Appeals that ruled that pay-for-delay agreements were in violation of the Sherman Antitrust Act of 1890. In the last few years most of the countries were forced to take austerity measures to curb their spending on healthcare, so that is the reason why they will foster the distribution of generic drugs in the future as well. The opposite acts of big pharmaceutical firms to hinder the governments’ this kind of endeavors seem to be unethical. In the growth of the global pharmaceutical industry the generic market has a faster pace – thanks to the fact that patents of products with significant selling datas will expire in the future – so it’s increasing importance is predictable. But on the other hand there are some patients who do not like the replacement, first because the generic drug was not advised by their doctor and secondly because they do not want to share in medical and pharmacists responsibility. In that case they are really stucked to their previously used medicines and do not change even if the generic products could be cheaper. To summarize this case I can say that I am fully disagree with the pay-for-delay deals, because they hinder competition on the market. To reach a kind of equilibrium we should give the chance to the patients to decide what kind of products they would like to use in the future. Show less Reply PETRE 23 October 2014 The issue of the "pay for delay" deals in the pharmaceutical company is a truly complicated one. Before starting reading the materials which is proposed in this blog, I was outraged by this practice which seemed to me identical to price fixing agreement. Now, my thought are much more mitigated. Therefore I choose to express two views that seemed equally…Read moreThe issue of the “pay for delay” deals in the pharmaceutical company is a truly complicated one. Before starting reading the materials which is proposed in this blog, I was outraged by this practice which seemed to me identical to price fixing agreement. Now, my thought are much more mitigated. Therefore I choose to express two views that seemed equally valuable to me. The first one will defend the practice of “pay for delay” while the second will do the opposite. Let’s start with the elements that support the “pay for delay mechanism”. Here, it is useful to explain how particular is the patent system in the drugs market. A new drug developped by a company will usually be patented before starting its experimentation on human beings. As a consequence, there is an important period of time between the patenting and the commercialisation of a new drug. Therefore, the effective period of time during which a drug company can charge monopoly prices is greatly reduced compared to the theoritical length of a patent (20 years). In practice this means that a drug company has, on average, 8 years to cover its very high R&D costs before having to cut its prices by 80% because of the entry of generic drugs. Another important particularity of the drugs market, at least in the US, is that the federal authorities promote challenging of drugs patent. Indeed the first generic firm that can prove the invalidity of a patent will obtain a 6 month monopoly in the commercialization of this drug. When you take into account all of these elements, drugs companies doesn’t look like priviliged at all. The effective length of their patents is extremely short (8 vs. 90 years in the case of cultural products such as movies, books…) and they have to spend a lot of money in the court defending them against generic companies which are encouraged to challenge them. The “pay for delay” deals seems therefore unaccaptable. Not because this practice is a form of trust. But because innovative drugs producers have to pay their competitors to get what they righfully desserved, i.e. those 8 years during which they can truly benefit from their efforts in R&D. In the real life, those deals are the only way to make the developement of new drugs profitable. In this way, they increase the total social welfare as they boost the panel of new drugs that are brought to the market. Now, let’s switch to the other point of view according which those deals should be forbidden. Why would drug companies owning a valuable patent make a settlement with a competitor that is challenging it? The only valid explanation is that this patent is highly likely to be invalid. Indeed, no one would try to sue a drug company that has been winning all its lawsuits so far. The existence of those deals allows companies to charge high prices for products which are not innovative at all. At the end, the total social welfare is smaller. As you can see, the issue of “pay for delay” is quiet messy. Strong arguments can be put forwards to defend both view. It would be interesting to study further how the profitability of those innovative drugs firms has evolved since those kinds of deals are strucked. If it is shrinking then “pay for delay” deals should be considered as a the only way for innotive drugs companies to get some return on their high R&D costs. On the other hand, if the profitability is growing they should be seen as a form of cartel and be prohibited. Source : file:///C:/Users/benoit/Documents/UCL%20master2/Economics%20of%20innovation/contribution2/patent_settlements_-_bennett.pdf and http://www.ipwatchdog.com/2013/06/18/supreme-courts-actavis-decision/id=41999/ Show less Reply Nsiangani Tatiana 23 October 2013 For the pharmaceutical firms, conceiving a new medicine is enormously expensive. In addition, the results of the R & D activity are sometimes uncertain, laboratories are often forced to abandon a late line of research which proved promising. At the same time, the exclusive marketing conferred by the patent is reduced by the duration of clinical trials and deadlines of Marketing…Read moreFor the pharmaceutical firms, conceiving a new medicine is enormously expensive. In addition, the results of the R & D activity are sometimes uncertain, laboratories are often forced to abandon a late line of research which proved promising. At the same time, the exclusive marketing conferred by the patent is reduced by the duration of clinical trials and deadlines of Marketing authorization : like 12 years elapse on average between the filing of a patent and marketing of the new drug, the duration of effective protection is therefore reduced from seven to eight years for a statutory period of 20 years. Once the patent expires, the medicine falls in the domain public and thus in the hands of the producers of generic medicines, who will be able to produce it at a lower cost. And who says lower cost, says lower price. From a point of view of the consumer and the State, generic medicines are a good thing. The first is satisfied because he acquires the product at a more affordable price, assuming that brand doesn’t brand hardly affects their choice. As for the second, to subsidize more affordable medicine would allow to adjust expenses in Social Security. Faced with the decreasing profitability of R & D and cope with competitive pressure and increased regulatory, laboratories try to optimize the commercial exploitation of their drugs beyond the life of the patent. If the defense of exclusive rights to a drug is legitimate, the use of agreements in order to preserve a monopoly can harm consumers, depriving them of acces cheaper alternatives. In the end, it is the consumer who suffers from it most .The generic laboratory so avoids being “”surrounded” because of suspensive period resulting from the dispute of forgery, whereas the patented laboratory maintains his monopoly. Source : Combe E. (2006). Les laboratoires pharmaceutiques face à la concurrence des génériques : quels enjeux pour l’antitrust ? Doctrines /Concurrences, 1, pp. 47-62 http://www.emmanuelcombe.fr/portfolio/propriete-intellectuelle/ Show less Reply Daniel Scurtu 23 October 2013 I agree with what most people posted regarding these 2 facts: - the welfare loss, especially to the huuuuge part of the market that can't afford the brand-name drugs, is too high to ever justify pay for delay - this basically constitutes a cartel that results in monopoly, higher prices, and by definition should be illegal But there is another possibility of…Read moreI agree with what most people posted regarding these 2 facts: – the welfare loss, especially to the huuuuge part of the market that can’t afford the brand-name drugs, is too high to ever justify pay for delay – this basically constitutes a cartel that results in monopoly, higher prices, and by definition should be illegal But there is another possibility of welfare loss. Historically speaking, innovations throughout history have come from a large number of people, all working in different areas and facing different constraints and problems. If we limit the number of firms and people working on a specific line of drugs, we are effectively lowering the probability that any significant innovations will be made in a given time. This is a very general evolutionary principle, for instance, look at Australia… the smallest and most isolated continent, and life there is generally less evolved than life on the other continents, which were larger and connected. The big pharmaceutical companies say that this is the only way for some drugs to be profitable enough to warrant such high investments to make the innovations in the first place. But we have to remember something: their objective isn’t to innovate and provide good healthcare products to the masses, their priority is to make money. And speaking of making money, big pharmaceutical firms aren’t incentivized to find cures for diseases, just treatments. The most logical move for them is to have patents for cures, and only release them on the market as punishment for other firms releasing theirs. This means that the only firms with an incentive to find cures for major persistent diseases (like HIV) are smaller firms (besides non-profit organizations). So while there is not way to predict what-ifs in the future, there can only be a loss, and no gain, from pay to delay deals. Show less Reply Srikanth Ramanolla 23 October 2013 The FTC and the US Supreme Court in recent judgments have rightly taken the side of the consumer by banning such pay for delay tactics. The argument that banning pay for delay practices all together reduces the incentive for pharma companies to innovate doesn’t hold water. I believe that the existing patent regime is strong enough to ensure protection to…Read moreThe FTC and the US Supreme Court in recent judgments have rightly taken the side of the consumer by banning such pay for delay tactics. The argument that banning pay for delay practices all together reduces the incentive for pharma companies to innovate doesn’t hold water. I believe that the existing patent regime is strong enough to ensure protection to companies which have a genuinely innovative product. Pay for delay is simply a method used by drug companies without ironclad patents or so called probabilistic patents to extend their exclusivity privilege and for generic drug manufacturers to avoid expensive litigation. It is plain and simple exploitation of a loophole in the law to make more money for all parties. In the process, the consumer is the one person who sees no benefit whatsoever. The incentive for innovation lies primarily in the market for the drug not the competition per se. Companies will continue to spend heavily on R&D so long as a large enough market exists for the drug. This practice of pay for delay has become so common in the industry. A recent study has shown that at least 20 essential drugs have generic versions which were kept of the market in the US because of such tactics. This forced consumers to shell out atleast 10 times more than what they would have paid for the generic. Companies with truly innovative drugs will continue to enjoy exclusivity without such deals. Therefore it is wrong to conclude that banning the practice will discourage innovation. Show less Reply Anissa Belkhazri 23 October 2013 The issue of the-pay-for delay can appear when a patent is «weak». If the patent is invalidated in court, the protection of the monopolist ends prematurely. Instead of solving the problem in court, holders of "weak" drug patents offer an amount of money to generic companies in exchange for promises to stay off the market. In other words, they settle…Read moreThe issue of the-pay-for delay can appear when a patent is «weak». If the patent is invalidated in court, the protection of the monopolist ends prematurely. Instead of solving the problem in court, holders of “weak” drug patents offer an amount of money to generic companies in exchange for promises to stay off the market. In other words, they settle their disputes out of court by the pay-for-delay agreement. It seems obvious that the generic producers accept such a deal if it provides them with a sum of money as large as if they had entered the market. Before june 2013, several appeals courts in the USA did not consider the pay-for-delay as anticompetitive if the settlement agreements fell «within the scope of the patent»(1). Recently, however, two decisions of justice have sanctioned the pay-for-delay, one in the USA, U.S. Supreme Court decision in FTC v. Actavis, and, another in EU; both have considered that the pay-for-delay is anticompetitive. «The European Commission has imposed a fine of € 93,8 million on Danish pharmaceutical company Lundbeck and fines totalling € 52,2 million on several producers of generic medicines. In 2002, Lundbeck agreed with each of these companies to delay the market entry of cheaper generic versions of Lundbeck’s branded citalopram, a blockbuster antidepressant. These agreements violated EU antitrust rules that prohibit anticompetitive agreements (Article 101 of the Treaty on the Functioning of the European Union – TFEU)»(2). In such litigations, two interests are to be placed in balance. On the one hand, giving the incentives to spur research and development to innovate and on the other hand, respecting the laws that protect competition. In my opinion, the second interest must dominate the first one otherwise big drugs companies play in the market according to their own rules pretexting they have deep pockets. Moreover, the goal of the antitrust law is to promote competitive markets and thus improve the consumers welfare. We can find a tradeoff between these two requirements without violating competition law. From an anti-trust perspective one of the possible solutions is to deliver «production licenses to the generic drugs producer»(3). In my opinion, the pay-for-delay agreement gives «extra time» of protection to the brand name companies by paying the generic drugs producers off the market. This practice is clearly anti-competitive because a monopoly exists despite a «weak» patent that would probably be invalidated by a court. In conclusion, we would not see this problem appear in the case of «strong patents»(4) because in this case, the brand drugs producers would have a valid patent, then they would legally act as monopolists. Therefore, the pay-for-delay would not be seen as violating the competition rules. The question of pay-for-delay brings us back to a preliminary issue, it is the issuance of “weak” patent itself. In fact, if the patent applicant is examined more carefully upstream, we could possibly minimize problems downstream. (1) RUDOLPH J.R. PERITZ, Taking antitrust to patent school: The instance of pay-for-delay settlements,The antitrust bulletin, Vol. 58, No. 1, Spring 2013, p.159. (2) http://europa.eu/rapid/press-release_IP-13-563_en.htm (3)http://mjlst.umn.edu/prod/groups/ahc/@pub/@ahc/@mjlst/documents/content/ahc_content_457227.pdf (4) http://cblr.columbia.edu/archives/12723 Show less Reply Aneta Spychalska 23 October 2013 « Pay for delay » to postpone the entry of generic drugs from branded drug makers keep the monopoly position longer. This approach is widely practiced by both parties, branded and generic drugs makers and both benefit from it. On the one hand extension of the monopoly position and on the other hand attractive sums of money. In the…Read more« Pay for delay » to postpone the entry of generic drugs from branded drug makers keep the monopoly position longer. This approach is widely practiced by both parties, branded and generic drugs makers and both benefit from it. On the one hand extension of the monopoly position and on the other hand attractive sums of money. In the article, “Pay-For-Delay or Pay-For-Innovation?”, we can read that banning pay-for-delay has already no effect on the price paid by patients and just has a result to reduce innovation. Moreover, patents in pharmaceutical industry operate differently than other patents. Besides, in most countries, patients benefit from health insurance plans meaning that they don’t pay full price but only a co-play. Recent studies by Darius Lakdawalla, Tomas Philipson and Richard Wang and by Frank Lichtenberg and Gautier Duflos concludes that the quantity of drug sold does not rise after an introduction of generic drugs. This study demonstrates that argument which explains the idea that introduction of generics drugs it’s a mean to decrease prices and allow more patients benefit from drugs not hold here. Most dangerous, if exclude pay-for-delay is a reduction of innovation and incentives for pharmaceutical industry to continue to invest heavily in research. This explanation accents the importance of maintaining the pay-for-delay practice. My analysis suggest that ban pay-for-delay it’s a bad thing because this prevent incentives to innovate. This is also harmful for society as a whole in long term. We can see in the article “Challenging pharmaceutical patents: a « death spiral » for generic companies?” which explains that patents are indispensable for promote research and development. It’s important not only focus on short term (competition) but also on long term objectives and consequences. Pharmaceutical sector need much time to recover his investments and the procedure to commercialize a drug is very precise and complex. Patents allow a protection for some years but this discourage firms if generic companies have access to drugs production without any investment in R&D. Allow people in poor countries or in countries where health insurance doesn’t exist to have access to drugs without prevent R&D and investment must be follow by a greater implication of government to pay back drugs and in this way permit people to benefit from drugs. Government must be more applied by allow people to live in good health, it’s not to companies invest heavily in research, reduce prices and accept generic drugs entry, all in a short time. Show less Reply Mariama Dicko 23 October 2013 While assessing « pay for delay » deals’ effect on society welfare, we are again facing the tradeoff between static and dynamic efficiency. Giving incentives to drug companies by allowing the extension of the monopoly period is the main argument in favor of these complementary practices. How far should the society go to increase dynamic efficiency? Are the profits generated…Read moreWhile assessing « pay for delay » deals’ effect on society welfare, we are again facing the tradeoff between static and dynamic efficiency. Giving incentives to drug companies by allowing the extension of the monopoly period is the main argument in favor of these complementary practices. How far should the society go to increase dynamic efficiency? Are the profits generated during the patent period not enough to motivate the companies? Do we have to “strengthen” the incentives? At which cost? The nature of the product is important here because it involves health. Consumers’ price elasticity of drug demand is likely to be low (even, relatively inelastic). Most of them would certainly be willing to pay the price of the branded drug to make sure they are getting the best chance to recover from (or prevent) a disease. Consumers that would turn to generic drugs would mainly be the ones that cannot afford buying the branded drugs, therefore, prolonging the monopoly situation would impede their access to the most basic condition towards welfare: health. In countries where citizen benefits from good health care system reimbursement (e.g. EU countries), this may be a less important issue but the drug companies – having their headquarters in those countries – are producing the only solution for consumers other countries (e.g. Developing countries). Should we allow the diffusion delay there too? From my perspective, “pay for delay” deals in the pharmaceutical industry are not only inefficient from a static point of view but also unethical! I believe that the long term “gain” from the dynamic point of view are far from compensating the losses in the short and middle term. It is regrettable that those deals are common practices in the industry and, for me, legislators are right to try to prohibit them. Show less Reply Biglia Alexia 23 October 2013 ‘Pay for delay’ is not a good thing because when we speak about drugs we need to think first of the welfare of consumers. Pay for delay is certainly a good thing for the branded drug makers because they pay generic laboratories to delay their entry in the industry so that they can pay back their fees before competition with generics…Read more‘Pay for delay’ is not a good thing because when we speak about drugs we need to think first of the welfare of consumers. Pay for delay is certainly a good thing for the branded drug makers because they pay generic laboratories to delay their entry in the industry so that they can pay back their fees before competition with generics begins. If generics enter the industry before branded drug makers paid back their investment in R&D for example it’s bad for pharmaceutical laboratories because their prices are higher than the ones of the generics so consumers will buy generics and it will lower the profit of the pharmaceutical laboratories. But if generics accept this deal it will extend the situation of monopoly and this is bad for consumers who will pay a higher price than if generics enter the market and it will also lower the profit of generics laboratories. Therefore it’s normal to think that generics will not accept the deal because they are worse off but if the price branded drug makers are willing to pay is sufficiently large to cover the losses of profit generics will accept it. I also think that generics laboratories accept this deal because they are not sure people will buy their product because branded firm have a big marketing budget, doctors always prescribe branded drugs and the pharmacy show branded drugs and not generics. Pay for delay is bad for consumers because when they buy by the branded drug makers they have to pay a higher price. But we have to keep in mind that if generics always enter the market before branded drugs wanted to pharmaceutical laboratories will have no incentive to produce new drugs because their profit will be smaller than generics. Show less Reply Justine Costeur 22 October 2013 By reading the press about the subject, it appears that lately the goal has been to ban «Pay- For-Delay» settlements. The main reason metionned in articles is that these deals and high drugs' prices that follow would cost consumers and taxpayers an average of $3,5 billion per year (1). Nowadays, these settlements are said uncompetitive and therefore are more and…Read moreBy reading the press about the subject, it appears that lately the goal has been to ban «Pay- For-Delay» settlements. The main reason metionned in articles is that these deals and high drugs’ prices that follow would cost consumers and taxpayers an average of $3,5 billion per year (1). Nowadays, these settlements are said uncompetitive and therefore are more and more forbidden in the pharmaceutical industry. To my mind, banning them is not necesseraly a good thing because it might have the consequence of lowering incentives to invest in R&D, research, and innovate in this sector. That would mean less new medicines which obvisously is not a good news for the welfare of the population. By giving money to generic medicines’ makers to prevent them from entering the market, innovators stay in a position of monopoly. This position leads them to earn more money than if a competitor was on the market selling the same but cheaper drug. The extra money earned also may reimburse the costs involved in the innovation path and patent filing of the drug. If enough earnings were not garanteed at the sale of the new medicine, and if other companies can make medicines’ duplicates without having to invest in R&D or pay for licences, why would innovators bother in creating new ones? What’s more, it has been found that with the entry of cheaper generic drugs in the market, the number of drugs sold does not increase (2). It can be easily understood with the fact that health care systems reimburse in most case some or the full price of the drugs. As a consequence, I believe that monopolies and higher prices are not a valid arguments for not allowing settlements. I think that the pharmaceutical system can not be compared to another industrial sector. It does not work the same way. Giving innovators incentives to create new medicines is even more important in this sector. Moreover, health care system are supposed to be there to help the consumers taking care of them. So a good idea maybe to let innovative firms be in a position of monopoly for some time to enable them to reimburse their former expenses in R&D and make enough profits to incentivize their researchers to keep looking for new ones. Then, once enough money is gained, the generic drugs could enter the market which will decrease the costs paid by the health care system, taxpayers and citizens. (1) FTC [Federal Trade Comission] (2010) “Pay-for-Delay: When Drug Companies Agree Not to Compete”. (2) Malani A. (2010) “Pay-For-Delay Or Pay-For-Innovation?”, Forbes. Show less Reply Guillaume d'Oreye 22 October 2013 I don't think that "Pay for delay" is a bad thing. The pharmaceutical sector is one of the sector which needs the most time to recover the investments made. Of course patents are there to protect the commercialization of a new drug but sometimes it's easy to product a drug, inspired by the orginial one, with similars effect and…Read moreI don’t think that “Pay for delay” is a bad thing. The pharmaceutical sector is one of the sector which needs the most time to recover the investments made. Of course patents are there to protect the commercialization of a new drug but sometimes it’s easy to product a drug, inspired by the orginial one, with similars effect and without infringing an active patent. Therefore, without any deal done, the company which produced the original drug faces a deficit. So a law done to avoid these deals are against the free economy and is clearly not an incentive for innovation. Of course our politician argue that it’s for the welfare of the Society. I say it’s more for the welfare of their electorate and sometimes for the welfare of the social security. It’s true that if there is a monopoly prices will be higher but is that a real problem for us in our everyday life? We, I hope, are not sick everyday and when we are we will anyway buy the drugs we need to get healed. In some countries it’s fully reimburse so the problem is only for the finance of the state. Ethicaly speaking the pay for delay deals are awful because people are asked to make efforts, by consuming general medecine and so reducing the social security deficit, and they could pay less for the same drug. But there is always the economic problem and this neverending circle. Show less Reply Goergen Stephanie 22 October 2013 The balance between incentivising innovation and promoting competition in the pharmaceutical drug development sector is permitted by the grant of a patent. As long as the patent holds, the innovator enjoys monopoly profits but as soon as the protection ends, generic producers are free to enter the market. In order to extend the exclusivity period, branded pharmaceutical companies opt for…Read moreThe balance between incentivising innovation and promoting competition in the pharmaceutical drug development sector is permitted by the grant of a patent. As long as the patent holds, the innovator enjoys monopoly profits but as soon as the protection ends, generic producers are free to enter the market. In order to extend the exclusivity period, branded pharmaceutical companies opt for pay-to-delay (or reverse payment) deals which are agreement between the pharmaceutical company holding a drug patent and its generic challenger. The generic firm not only receives a payment but it also gets an authorized licensed entry at a later date, but before the expiration of the patent itself (Bokhari, 2013). In other words, reverse payments are used to preclude generic competition by means of a privately negotiated agreement, rather than relying on enforcement of the patent in courts. In this context, they can be seen as “out-of-court” settlements. Generic companies agree to preserve the branded drug company’s monopoly in return for a share of the monopoly profits, so they can make more money from the settlement than they would from sales of the drug during that time period. By delayering the entry of generic drugs on the market, such agreements cause welfare loss for consumers because they have to pay supra-competitive prices. If there was perfect competition, i.e. there are generic and branded drugs on the market, the competition with the generics would drive down the price of the brand name drugs and thus reduce the sales of branded drugs as well as decreases their prices which in turn lower the profits of the branded pharmaceutical companies. In other words, pay-to-delay agreements restrain competition from lower-cost generic medicines. They are an attempt of the branded drug company to maintain market exclusivity and to set monopoly prices. They also affect consumer well-being in the long run. In fact, drug patents are different from other patents in terms of granting. The drug patent is granted before the research is completed, and serves as an incentive to conduct clinical tests in order to prove the safety and effectiveness of the drug. So without the patent, the drug could not enter the market. In this context, banning pay-for-delay settlements, i.e. shortening the period during which the branded pharmaceutical companies enjoys monopoly position, could reduce pharmaceutical innovation because some firms may not have the needed incentives to spend in R&D in order to produce new drugs. It should be noticed that the presence of generics can also have positive effects on branded drugs. According a study published by the National Bureau of Economic Research, generics increase the total volume of drug sales – both the brand and the generic – when the patent expires and generics start to enter the market. The researchers also found that generic competition actually prompted drug companies to raise prices on branded drugs. According to Holman (2006), “courts find reverse payment settlement in violation of the antitrust laws to the extent that the agreement contains restrictions on competition that exceed the exclusionary potential of the patent”. In June 2013, the EU Commission has fined for the first time companies on the grounds that reverse payment settlements contravene EU competition law. The EU Commission fined Danish pharmaceutical company Lundbeck for entering into reverse payment settlements with several generic producers (Alpharma, Arrow, Merck KGaA/Generics (UK) and Ranbaxy). In their view, Lundbeck paid the generic companies not to compete, and these agreements delayed the entry of generic medicines on the market at the expense of patients and public health systems. References: – Bokhari, F. A. (2013). What is the price of pay-to-delay deals?. Journal of Competition Law and Economics. – Holman, C. M. (2006). Do Reverse Payment Settlements Violate the Antitrust Laws. Santa Clara Computer & High Tech. LJ, 23, 489. Show less Reply Suzanne Beguin 21 October 2013 Since 2008, the European Commission keeps an eye on patent settlements in the pharmaceutical sector. In the latest report, it says that the number of settlements has significantly increased. The kinds of agreements like “pay for delay” are against the European competition approach. The fact that originator keeps generic companies outside the market longer than necessary (entry deterrence) is a…Read moreSince 2008, the European Commission keeps an eye on patent settlements in the pharmaceutical sector. In the latest report, it says that the number of settlements has significantly increased. The kinds of agreements like “pay for delay” are against the European competition approach. The fact that originator keeps generic companies outside the market longer than necessary (entry deterrence) is a breach of the EU competition rules, and an infringement to the article 101 of the TFUE. The FTC ( US Federal Trade Commission) has also seen a large increase of the use of pay for delay deals by pharmaceutical manufacturers of branded drugs in its latest rapport published in 2013. Since 2001, it has been the main focus of the FTC to fight against these anti-competitive agreements, by filing lawsuits to stop theses delay deals (these kinds of deals also breach the US antitrust laws). A case was recently pending before the Supreme Court: the case of the generic testosterone replacement gel Androgel. The FTC suited the company Actavis for a case of reverse payment settlement that was anti-competitive. In this case even the defendant, Actavis Inc., who was paid by Solvay to delay the launch of its generic drug, argued that “pay for delay” settlement should be immune from antitrust law scrutiny. But the Supreme Court decided to disagree with both parties and declared that all agreement should be examined with regards to the “rule of reason” approach of antitrust laws (laws to promote fair competition for the benefit of consumers in contrast with competition laws which benefit only to firms). That means that each payment is not necessary a hindering to competition, and must be judged according its size of its scope. This decision is a big step in the problem of the cost of these agreements for consumers. Let’s first recall that the pharmaceutical industry is a particular sector. In fact, we can say that is the exception that actually follows the traditional view of patents. This view claims that patents lead to a monopoly position that allows monopoly profits, inducing firms to invest in R&D. Or, the pharmaceutical sector need a long and costly process in innovation and products are easily imitable. It’s thus harder to give to the firms an incentive to innovate and make research. I think that the “for delay” payments are just a way the industry found to fight against its own environment. As patent are short, and products imitable, a way to try to keep its monopoly position is to bribe the competitors, or at least try to keep them far away for a certain time. In this sector, it’s difficult to say if it’s justified or not. The paradox in this sector is than, on one hand, patent and monopoly position of firms are necessary to spur research and innovation, and on the other hand, there are huge consequences on social welfare. By its decision, the Supreme Court tries to weight pro and cons of each settlement. A case shouldn’t be handled as a competition case infringement, but should first be examined with regards to the rule of the reason approach of antitrust laws. The firms and the justice should take the consumer’s losses due to “pay for delay” agreements in count. The FTC estimated the cost of “pay for delay” agreement for the consumers to $3.5 billion a year, it’s a huge loss and there must exist other solutions to foster innovation in pharmaceutical sector than monopoly position (different than post-reward or prizes as it was studied in Julien Penin’s paper). The question is how to stop the “par for delay” practice if both parties are advantaged by a longer monopoly position or by a bribe? Show less Reply De Greef 21 October 2013 According to my opinion, we should ban the « pay for delay deals ». Indeed, this deals are providing a situation of monopoly to the pharmaceutical firms and this situation costs consumers of drugs a lot. But we have to keep in mind that those deals are incentives for pharmaceutical firms to invest in R&D. A situation where the incentives…Read moreAccording to my opinion, we should ban the « pay for delay deals ». Indeed, this deals are providing a situation of monopoly to the pharmaceutical firms and this situation costs consumers of drugs a lot. But we have to keep in mind that those deals are incentives for pharmaceutical firms to invest in R&D. A situation where the incentives are too small would lead to a worst situation than those with the deals because some drugs would simply not be product. « Pay for delay deals » insure the profitability of the drugs since the patent is not long enough to cover costs and to make profit to do some more R&D. To solute this situation, I think we should extend the lifetime of patent to be sure that firms are profitable and can support the cost of their R&D. This solution is, according to me, the ideal compromise between the situation of monopoly that provide enough profit to pharmaceutical firms to do some R&D (theoretically very long with the « pay for delay deals » because those deals are reapplicable) and the situation of competition (with generic drugs) that provides low-cost drugs. Show less Reply Sourav Das 20 October 2013 The global market for generic drugs is $242 billion and is poised for greater growth. Obvious reason is the need for cheaper drugs especially with growing demand in developing countries such as India and Brazil where not many would be able to afford drugs at the exorbitant prices quoted by the original drug makers. In June 2012, India, Brazil and…Read moreThe global market for generic drugs is $242 billion and is poised for greater growth. Obvious reason is the need for cheaper drugs especially with growing demand in developing countries such as India and Brazil where not many would be able to afford drugs at the exorbitant prices quoted by the original drug makers. In June 2012, India, Brazil and China defended the right of poor countries to access cheap generic medicines at the World Trade Organization. In fact in April this year, the Indian Supreme Court rejected a patent bid by Novartis for its updated version of the blockbuster cancer drug ‘Glivec’. With demand stagnating in the ‘mature’ economies of the world, all drug companies are looking to target the so-called ‘Pharmerging’ economies where lack of widespread health insurance coverage and greater poverty implies that generic drugs become not an option but the norm. Even in the United States the drug supply last year was a whopping 84% generic, according to the IMS Institute for Healthcare Informatics. It’s in this context that the whole ‘Pay for Delay’ debate is based. The Hatch-Waxman Act of 1984 lowered the regulatory barriers preventing generic drug producers from entering pharmaceutical markets. It created a pathway, the Abbreviated New Drug Application (ANDA), which allowed a generic drug company to simultaneously challenge a patent and demonstrate to the FDA that it could make a drug. The ANDA offers high returns for the companies that risk almost certain litigation by first challenging patents. If a company succeeds, it gets six months of exclusive sales after the patent lapses, allowing the generics company to charge up to 80% of the brand-name price during that period. After that, others can jump in, and the price would drop to about 5% of the original price. Thus it is all about being first and why challenging patents has become a trend amongst the generic companies. Clearly the bigger pharmaceutical companies see them as a threat and thus the widespread usage of ‘Pay for Delay’ deals. Patents in the pharmaceutical industry differ. They are awarded even before the drug actually comes into the market so as to incentivise the company coming out with the drug to perform extensive clinical trials. If the patent were not structured this way, companies wouldn’t subject the drug to thorough trials and consumer health might be compromised. Due to the Act of 1984 generics began challenging drug patents before they expired, arguing that the patents were invalid and should be terminated early. The dark side to all this is that even if the court upholds the generic companies claims; are enough measures being taken to ensure that the generic companies are performing drug trials properly? All this came to a head in the famous case when Ranbaxy, an Indian generic company that pleaded guilty to seven federal criminal counts of selling adulterated drugs. Read all about it in the Fortune article included in the sources. The horrifying thing is that in 2009, regulators inspected only 11% of foreign drug manufacturing plants, while they inspected 40% of domestic ones. Clearly, drug trial monitoring needs to be stepped up a notch. So there are a lot of things that need to be put in place before we can say that shortening of patents by the House Bill would lead to cheap and safe drugs. Additionally, as pointed in the article ‘Pay-for-Delay or Pay-for-Innovation’ in the developed countries, healthcare insurance is fairly widespread and hence reduction of patent duration would have minimal effects in term of price for the actual consumers. In case of ‘pharmerging’ economies like India and Brazil cheap drugs are a must but again safe drugs must be the prime concern. The original drug manufacturers are much more reliable than the generic ones. Instead of the ‘Pay-for-Delay’ method used by the big drug manufacturers; maybe they could give the right to sell the generic version of their drug to a specific company in return for the latter sharing in the expenses of conducting the clinical trials. The feasibility of such an idea needs to be checked out but sure seems like a good start to me. Why do generic companies agree to the ‘Pay-for-Delay’ settlement when they can easily earn millions by selling the generic versions? The thing is it’s not that easy. Succeeding in the court challenge is improbable in addition to the costs of litigation. The big drug behemoths are backed by superior legal teams and one upping them might not be possible in most cases. Hence they settle for the compensation offered for backing out. In any case, such generic drug companies probably challenge multiple drug patents. They might back out in most of such cases in lieu of money and might go the distance in case of few special drug patents (in which they find the highest probability of success). Sources: http://www.taylorwessing.com/synapse/ti_paydelay.html (Refer for recent developments) http://features.blogs.fortune.cnn.com/2013/05/15/ranbaxy-fraud-lipitor/?iid=F_F500M (Refer for the Ranbaxy story) Show less Reply Willems Margaux 20 October 2013 First, we can say that we are clearly in the case of a "cartel". The two sides agree not to compete and find agreements. We know that generic drug are cheaper, this is the aim. In a cartel, the two sides find agreement to improve their welfare to the detriment of consumers (patients) that the majority think but this is…Read moreFirst, we can say that we are clearly in the case of a “cartel”. The two sides agree not to compete and find agreements. We know that generic drug are cheaper, this is the aim. In a cartel, the two sides find agreement to improve their welfare to the detriment of consumers (patients) that the majority think but this is not the case at all… Since June 2013, the European commission forbids this type of agreements and some manufacturers have received fines. In one side manufacturers lose a lot of money when generic drug are introduce and in the other side, patient save a lot of money. As generic manufacturers sell their drugs really less costly than the brand drug, the amount of money perceived to postpone the launch represents a higher amount than the one of sales. Then, the power in this industry is in the brand manufacturer hand because, they have money to put in R&D department and they have a brand name around the world. The innovation comes from their side. To me, if we place in the patient side, the long-term welfare is more important than the short term, indeed, we all want to have the best medicine to solve each possible problem. But to that, we need inventors or researchers… In the side of investor: they don’t want to invest in a sector that bring nothing or less profitable than before. – In the short term, patient can obtain drug cheaper but brand manufacturer lose a lot of sales and fire employee. It represents a lot of people. (http://www.agoravox.fr/actualites/economie/article/les-licenciements-dans-l-industrie-128602) – In the long term, brand manufacturer lose money and don’t search anymore new innovation so it’s a drastic problem for patient. In addition, generic manufacturer will not have enough money to invest in R&D. The conclusion is very bad and the future of this sector not glorious unfortunately, we all crucially need pharmaceutical sector!! Finally, the “pay for delay” was not so bad. The patient or people interesting by medicine (now or in the future) represent the majority of the world, the entire welfare will be very low with this decision to ban “pay for delay”. Industry worked well and brought what all wanted: good medicine. I don’t know the best solution but the one take here is critical because the perspective is worrying. http://www.bloomberg.com/news/2013-06-17/drugmakers-opened-to-pay-for-delay-suits-by-high-court.html Show less Reply Vandan Jain 5 October 2016 With the increasing health cost around the world, the case for "Pay for Delay deals" makes much more sense than ever. Analysis of the Pay for Delay deal: - Societal Point of View While past statistics are no measure of the probability of the patent being upheld, one things is for sure. Litigation does involve a huge cost which might / might not…Read moreWith the increasing health cost around the world, the case for “Pay for Delay deals” makes much more sense than ever. Analysis of the Pay for Delay deal: – Societal Point of View While past statistics are no measure of the probability of the patent being upheld, one things is for sure. Litigation does involve a huge cost which might / might not outweigh benefit of low cost generic drugs. So, it is not in the overall interest of the society to ban “Pay for Delay” deals. – Consumers point of View While it is pretty clear that in case these deals are banned, the consumers would be benefited with a chance of getting cheaper pharmaceutics earlier in their life span. However, it should also be kept in mind that banning such deals might potentially discourage the originator from investing so much into R&D thereby leading to lower drug discovery. The strategic advantage of having a more skilled R&D department would be lost. So from the outside, it might look to benefit the consumers but it does bring along with it a set of setbacks to the consumers. – Originator’s Point of view A company’s objective is to create value for its shareholders. If it is not able to reap the benefits of investing in R&D, then there is no justification to the shareholders for actually investing there. A company stands to benefit from these “Pay for Delay deals” and any ban on such deals is prone to discourage new drug discovery to tackle future diseases. – Generic Company’s Point of View Banning pay for delay deals also stand to be huge setback for generic makers. Generic drug makers are usually much smaller in size as compared to the originators. They cannot match their financial strength. Litigation does involve a huge cost which might not be possible for a generic company to bear. And as it, winning the litigation does not really mean benefitting from it. While it changes the characteristics of the market, it does also make the market more attractive to other generic makers. So, the potential benefit of winning a litigation decreases the war chest of the first mover thereby rendering it not possible to fight other generic makers. Conclusion While it might come out to be a big point in political agenda of presidential candidates, it comes at a cost of societal loss. And as it is, litigation means generic company would be stabbing themselves in their own back since it would lead to discouragement of future drug discovery and hence there will be no drug at all for whose generics they will have to fight for. Show less Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment You may use simple HTML tags to add links or lists to your comment:<a href="url">link</a> <ul><li>list item 1</li><li>list item2</li></ul> <em>italic</em> <strong>bold</strong>Name * Email * Save my name, email, and website in this browser for the next time I comment. Notify me by email when the comment gets approved.