The Fatal Attraction of Pay-for-Delay
37 Pages Posted: 25 Jan 2019 Last revised: 23 Mar 2019
Date Written: January 15, 2019
This piece addresses a critical aspect of strategic behavior in the pharmaceutical industry that is responsible for the rising costs of medication. Pay-for-delay settlements, a tactic in which brand-name drug manufacturers induce generic companies to agree to stay off the market by sharing portions of their monopoly profits, once constituted bread-and-butter anti-competitive behavior in the pharmaceutical industry. The article uses both anecdotal evidence and an analysis of summary reports from the Federal Trade Commission to argue that despite reports of the demise of Pay-for-Delay tactics, drug companies may still be using reverse payment settlements to stifle competition from generic competitors among new types of drugs and in more nuanced, hard-to-detect ways than before.
Part I begins with a background discussion of the Hatch-Waxman Act, which created a streamlined pathway for the market entry of generic drugs. A general explanation of reverse payment settlements and examination of the implications of the Supreme Court’s FTC v. Actavis decision follow. Part II explores potential reasons to believe this tactic is still alive – including the FTC’s changing categorization of brand-generic settlements, the potential for the practice to infiltrate the relatively new biologic/biosimilar drug market, and a sampling of recent reverse payment settlements surrounding top-selling drugs. Part III concludes that pay-for-delay has not been defeated but has merely changed its appearance, offering brief recommendations to address the evolving landscape surrounding this strategy.
Keywords: pharmaceutical industry, pay-for-delay, brand-name drug, drugs, generic, drug companies, reverse payment settlements, competition, Hatch-Waxman Act, brand-generic settlements
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