Biosimilars & “Pay-for-delay” Settlements

By: Samantha Schram


Competition in the pharmaceutical industry is fostered by the regulatory frameworks enacted to achieve a balance between innovation and consumer interests. In 1984, Congress enacted the Hatch-Waxman Act in an effort to address the growing cost of health care, as well as the necessity of continued medical innovation.[2]  The Hatch-Waxman Act presented a trade-off for brand-name drugs: In exchange for permitting generic drug manufacturers to rely on safety and efficacy data from the brand-name manufacturer to gain FDA marketing approval, the brand-name drug receives a period of regulatory exclusivity and patent term extension.[3]  The Hatch-Waxman Act has been credited with lowering the cost of drugs to consumers.  According to some experts, generic medications decrease prices from sixty to ninety percent on branded medications.[4]  Importantly, the Hatch-Waxman Act regulates chemical drugs, which consist of small and easily identifiable molecules. This feature makes approving generic drugs more feasible because the generic drug manufacturer only has to demonstrate that the generic product contains the same active ingredient as the approved product.

However, the Hatch-Waxman approval pathway left out an essential category of drug products: biologics.  In 2010, Congress enacted the Biologics Price Competition and Innovation Act (BPCIA), which established an abbreviated pathway for biosimilar drugs that are “highly similar” to a previously approved biologic.[5]  The BPCIA was enacted with a similar Congressional purpose as the Hatch-Waxman Act to offer an alternative to expensive brand-name drugs. The underlying scientific difference between chemical drugs and biologic drugs makes it impossible to create an exact copy of a biologic, which is precisely why the BPCIA was needed to regulate biosimilars.[6]  Despite the BPCIA’s enactment eight years ago, biosimilar approvals have been relatively slow and current litigation demonstrates that the BPCIA is in its early stages of statutory interpretation.

Since the Hatch-Waxman Act was enacted over thirty years ago, systemic abuses within the pharmaceutical industry continue. In particular, drug manufacturers have exploited features of the Hatch-Waxman framework to extend exclusive right beyond the periods Congress intended.  “Pay-for-delay” settlements, also known as reverse payment settlements, occur in the pharmaceutical industry as an alternative to patent litigation between the manufacturer of an “innovator” patented drug and the manufacturer of its potential competition, the “generic” drug.[7]

In a pay-for-delay settlement, a brand-name drug pays off its generic competition to abandon current patent litigation and delay market entry. When drug companies can succeed in delaying generic entry, patients will pay higher prices for prescription drugs. In FTC v. Actavis, the Supreme Court held that “reverse payment settlements” could sometimes fail to pass antitrust muster and are subject to a “rule-of-reason” analysis.[8]  The Actavis decision and subsequent lower court decisions have addressed reverse payment settlements in the Hatch-Waxman context. Whether similar antitrust scrutiny applies to biosimilars and the BPCIA has not yet been addressed, although the FTC has expressed continued concern.[9]  In July, Markus Meier, the Acting Director of the FTC testified before the U.S. House of Representatives’ Judiciary Committee Subcommittee on Regulatory Reform, Commercial and Antitrust Law, and described  the FTC’s efforts to stop anticompetitive conduct in the pharmaceutical industry.[10]  Director Meier specifically noted concern that branded firms could frustrate the timely entry of biosimilar competitors by making it difficult to meet the BPCIA requirements related to preclinical and clinical data.[11]  As biosimilars begin to enter the market, whether the Actavis decision extends to biosimilars and the BPCIA is likely to be addressed.


[1]See Antitrust Concerns and the FDA Approval Process: Hearing Before Subcomm. on Regulatory, Reform, Commercial and Antitrust Law of the U.S. H.R. Judiciary Comm., 115th Cong. 18 (2017) (prepared statement of Markus H. Meier, Acting Director, Bureau of Competition, U.S. Fed. Trade Commission) [hereinafter Meier].

[2] See Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585 (1984) (codified as amended 21 U.S.C. § 355 (1994)).

[3] See Meier supra note 1, at 12.

[4] See Judith A. Johnson, Cong. Research Serv., R44620, Biologics and Biosimilars: Background and Key Issues (2016).

[5] See Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119, §§ 7001-7003 (2010).

[6] See Johnson, supra note 4, at 1, 5-6 (defining biologics as drug products made from living organisms and biosimilars as therapeutic drugs that are similar but not structurally identical to an approved brand-name biologic).

[7] See C. Scott Hemphill, Paying for Delay, Pharmaceutical Patent Settlement as a Regulatory Design Problem, 81
N.Y.U. L. Rev. 1553, 1557 (2006).

[8] See FTC v. Actavis, Inc., 133 S. Ct. 2223, 2237.

[9] See Meier supra note 1, at 14.

[10] See id.

[11] See id. at 12.