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FTC Publishes Annual MMA Report—Continues to Scrutinize Pharma Patent Settlements

On December 3, 2020, the Federal Trade Commission (FTC) published its annual report on pharmaceutical patent settlements filed with the FTC under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)—its fourth annual review since the Supreme Court's seminal decision in FTC v. Actavis addressing "reverse payment" settlements.

 

The FTC Concludes Patent Settlements Are Up While "Reverse Payments" Are Down

Since 2004, the FTC's MMA reports have largely focused on the number of pharmaceutical patent settlements executed each year and the provisions that the FTC considers to be part of such settlements, including potentially anticompetitive "reverse payments." As addressed in the Supreme Court's decision in FTC v. Actavis, 570 U.S. 136 (2013), reverse payment claims generally allege that an innovator pharmaceutical company provided financial inducement to a potential generic competitor to settle patent litigation or to obtain a later settlement entry date than the generic company otherwise would have accepted, absent the innovator's financial inducement.

Relying on the latest available data from fiscal year 2017, the FTC's recent MMA Report, published on December 3, 2020, concludes there is a continuing "decline in use of the types of reverse-payment agreements that are most likely to harm consumers."1 The report identifies no-authorized generic agreements and so-called "side deals" as such potentially harmful agreements. 

No-Authorized Generic Agreements. Of the 226 final patent settlements filed with the FTC and the Department of Justice (DOJ) pursuant to MMA reporting requirements, the FTC finds that "for the first time since FY 2004, no settlement agreement in FY 2017 contains a no-AG commitment."2  Similarly, "of the 232 final settlements received in FY 2016, only one contained a no-AG" agreement.3  Thus, no-AG deals appear to be on the decline. Starting around 2015, some courts, including the First and Third Circuits, held that certain no-AG agreements may be subject to antitrust scrutiny under Actavis.4  

"Side Deals." The recent MMA report also addresses so-called "side deals" in which the settling parties enter into an additional agreement contemporaneous or close in time to the settlement of the patent litigation, such as supply, development, asset, co-promotion and manufacturing agreements. Unlike FYs 2015 and 2016 in which the FTC reported no "side deals,"5  the same is not true for FY 2017:

  • One settlement "involves a side deal in which the brand manufacturer assigned the generic manufacturer five patents unrelated to the litigated product at no cost";
  • Another settlement "involves a side deal in which the generic sold intellectual property related to the litigated product to the brand manufacturer" and other "possible compensation" (discussed below); and
  • A third settlement "involves the brand manufacturer acquiring the generic manufacturer's potentially competing 505(b)(2) product that was the subject of the patent litigation."6

The legality of no-AG agreements and "side deals" (as well as other terms) continue to be litigated under Actavis and may be subject to antitrust scrutiny under certain circumstances,7 making it imperative to consider the antitrust risks before executing a patent settlement.

 

The FTC's "Possible Compensation" Category Demonstrates Increasing Complexity 

The recent MMA report also includes a "possible compensation" category in which "it is not clear from the face of each agreement whether certain provisions act as compensation to the generic patent challenger."8 In October 2020, the FTC explained that "the ‘possible compensation' category arose precisely because of the increasing complexity of some pharmaceutical settlement agreements and need for facts beyond the face of the agreements to assess their true nature and likely effects."

In FY 2016, the FTC reported a seventy percent (70%) increase in pharmaceutical patent settlements compared to FY 2015 in which the settlement agreements included "possible compensation."10 Similarly, for FY 2017,11 settlements containing "possible compensation" continued but decreased slightly from 14 such agreements in FY 2016 to 11 in FY 2017.  According to the latest MMA report, examples of possible compensation include:

  • "A commitment from the brand manufacturer not to use a third party to distribute an authorized generic for a period of time, such as during first-filer exclusivity," which "could have the same effect as an explicit no-AG commitment";
  • "A declining royalty structure, in which the generic's obligation to pay royalties is reduced or eliminated if a brand launches an authorized generic product," which "may achieve the same effect as an explicit no-AG commitment";
  • "An agreement that provides AG supply to a non-first-filer ANDA holder during the first-filer's exclusivity period, thereby permitting the non-first-filer ANDA holder to sell an authorized generic during the exclusivity period," which "could also induce the ANDA holder to abandon patent litigation that might result in earlier generic entry."12

 

The FTC Continues to Endorse a US$7 Million Litigation Cost Threshold 

In Actavis, the Supreme Court recognized that "where a reverse payment reflects traditional settlement considerations, such as avoided litigation costs or fair value for services, there is not the same concern that a patentee is using its monopoly profits to avoid the risk of patent invalidation or a finding of noninfringement."13 The MMA reports continue to track such litigation-cost payments. 

For FY 2017, the FTC reports that "[i]n 17 of the 20 final settlements that contained explicit compensation to the generic company and a restriction on selling a generic product for a period of time, the only explicit compensation was US$7 million or less in litigation fees," with an average payment of US$2.78 million.14 Similarly, for FY 2016, 29 of the 30 settlements that restrict generic entry and include explicit compensation "contain payment in the form of litigation fees, with the brand manufacturer's payment to the generic manufacturer ranging from US$250,000 to US$7 million," with an average payment of US$2.85 million.15

This is not the first time the FTC has endorsed a US$7 million threshold. For example, the MMA report for FY 2015 states that "recent stipulated orders for permanent injunction entered by the Commission in reverse payment cases have not prohibited settlements that restrict a generic's entry and include a cash payment of US$7 million or less in litigation fees."16

 

The FTC Vows to Closely Scrutinize Settlements; MMA Filing Procedures Evolve

The FTC warns that it "will be closely scrutinizing such agreements as filings with side deals and traditional no-AG commitments continue on a downward trend."17 Additionally, in June 2019, the FTC announced procedural updates for filing certain settlements of pharmaceutical patent litigation with the FTC and DOJ, including that starting on June 17, 2019 MMA filings should be submitted electronically. The FTC also has recently emphasized that Congress extended reporting requirements to certain biologic and biosimilar agreements,18 and "expanded the types of documents that must be submitted with any relevant agreement," such as "any agreements that the parties entered into within 30 days before or after a relevant agreement."19 Monitoring such filing developments is essential to avoiding civil penalties and other potential enforcement actions.20

 

1 FTC Staff Issues FY 2017 Report on Branded Drug Firms’ Patent Settlements with Generic Competitors, FTC Press Release (Dec. 3, 2020) . 
2  Id. 
3  Jamie Towey & Brad Albert, Then, now, and down the road: Trends in Pharmaceutical Patent Settlements After FTC v. Actavis, FTC Bureau of Competition (May 28, 2019).     
4  See Michael Gallagher, Eric Grannon, Heather McDevitt, Kristen O’Shaughnessy, Adam Acosta, Kevin Adam and Trisha Grant, United States: Pharmaceutical Antitrust 2021, Global Competition Review (Oct. 19, 2020). 
5  Trends in Pharmaceutical Patent Settlements After FTC v. Actavis, supra note 3.
Overview of Agreements Filed in FY 2017, A Report by the Bureau of Competition 
7 Pharmaceutical Antitrust 2021, supra note 4.
8 Overview of Agreements Filed in FY 2017, supra note 6.
9 Brad Albert et al., MMA Reports: No Tricks or Treats—Just Facts, FTC Bureau of Competition (Oct. 27, 2020).
10 Trends in Pharmaceutical Patent Settlements After FTC v. Actavis, supra note 3.
11 FTC Staff Issues FY 2017 Report, supra note 1.
12 Overview of Agreements Filed in FY 2017, supra note 6.
13 FTC v. Actavis, 570 U.S. 136, 156 (2013). 
14 FTC Staff Issues FY 2017 Report, supra note 1. 
15 Overview of Agreements Filed in FY 2016, A Report by the Bureau of Competition.
16 Overview of Agreements Filed in FY 2015, A Report by the Bureau of Competition
17 Trends in Pharmaceutical Patent Settlements After FTC v. Actavis, supra note 3.
18 Pharmaceutical Agreement Filing Procedures Updated, FTC Press Release (June 6, 2019).
19 Id.
20 See, e.g., Agency Does Not Take Enforcement Action, But Urges Industry to Closely Consider Advisory, FTC Bureau of Competition (May 10, 2011). 

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