Reverse Payment Settlements and Biotechnology

Today I posted a short commentary on Patently-O considering the antitrust implications of reverse payments settlements, available here. Reverse payments settlements that have been challenged for violating the antitrust laws have invariably arisen in the context of Hatch-Waxman patent litigations between branded drug companies and potential generic competitors, and are thus arguably outside the scope of this blog, which attempts to focus more on core biotechnology products and not so much on conventional drugs.

Reverse payments settlements are common in the case of conventional prescription drugs, but I am unaware of any reverse payment settlement involving a biologic drug. The reason is that under provisions of the Hatch Waxman act (codified at 35 USC 271(e)(2)), a drug patent owner is permitted to sue a potential generic competitor prior to that competitor entering the market. The mere filing of an application for FDA approval to market a generic drug (technically, the filing of an Abbreviated New Drug Application (ANDA) containing a paragraph IV certification) constitutes a form of “artificial infringement” under Hatch Waxman. Reverse payments settlements are incentivized by the unique structure of Hatch Waxman patent litigations. Basically, the risks of the parties are reversed, as explained in my Patently-O post and my law review article cited in that post. Because there is currently no abbreviated approval pathway for most biologics, there has been no incentive for reverse payments settlements.

However, the situation for biotechnology companies might change in the future. Legislation is currently being considered by Congress that would create a statutory abbreviated approval pathway for biologics (H.R. 1427, H.R. 1548 and S. 726). Of the alternative bills, H.R. 1548 is generally considered the more favorable for the biotechnology industry. All of the bills would amend 35 USC 271(e)(2) to permit biologic patent owners to bring patent infringement lawsuits against a potential competitor that has filed an application for abbreviated approval of a follow-on biologic, prior to market entry. This will create the same sort of risk dynamics and incentives that currently exist with respect to Hatch-Waxman patent litigation, and will likely lead to reverse payments settlements in the context of biologics. On the other hand, Congress is also considering legislation that would ban some reverse payments settlements. As discussed in my Patently-O article, so far the courts have for the most part rejected antitrust challenges to reverse payments settlements, but Congress could enact legislation that will dramatically change the status quo.