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House health care bill puts generic drug industry in bind

Low-cost generic drug makers expected a floor vote on a signature bill, but the law is being packaged with two measures industry opposes

Rep. Buddy Carter, R-Ga., attends a House Energy and Commerce Environment Subcommittee hearing in Rayburn Building. Carter is a sponsor of a bill that would make it harder to stretch out a six-month exclusivity period awarded to the first generic version of a brand-name drug. Generic drug pricing bills will be taken up by the House Thursday. (Tom Williams/CQ Roll Call file photo)
Rep. Buddy Carter, R-Ga., attends a House Energy and Commerce Environment Subcommittee hearing in Rayburn Building. Carter is a sponsor of a bill that would make it harder to stretch out a six-month exclusivity period awarded to the first generic version of a brand-name drug. Generic drug pricing bills will be taken up by the House Thursday. (Tom Williams/CQ Roll Call file photo)

This was supposed to be a good week for the makers of low-cost generic drugs, as a bill that is one of their top priorities gets a House floor vote. Instead, the industry finds itself clouded by allegations of price fixing, and its signature bill is being packaged with two measures they oppose.

The bill that the House will take up Thursday combines three drug pricing measures with bills to strengthen the individual health insurance market.

The three drug price bills were all approved by the Energy and Commerce Committee with bipartisan support in early April. Democrats and Republicans agree that drugs that lose their monopoly protections should face competition from lower-cost generic versions that should not be impeded from coming to market.

The bills are meant to address three unique problems lawmakers identified as slowing generic competition. One would address instances where drugmakers refuse to sell samples to potential generic competitors, while the others deal with ways some say generic drugmakers slow-walk their products for financial reasons.

The generic drug industry has been making its opposition to the latter two bills clear for months, and on Tuesday sent a letter to House leaders asking for changes.

Chip Davis, president of the generic drug industry trade group Association for Accessible Medicines, said the bills as written “cut directly against what all of these policymakers claim they actually want to achieve.”

While changes were made to one of the bills last month to accommodate a key industry concern, Congress is moving ahead with the bills over the industry’s objections. Lawmakers view the industry’s response as an overreaction.

“I really think that they’re taking ‘the sky is falling’ mentality here. We are simply trying to tighten things up,” said Republican Rep. Earl L. “Buddy” Carter, a sponsor of a bill that would make it harder to stretch out a six-month exclusivity period awarded to the first generic version of a brand-name drug.

The legislation the House will likely pass probably won’t become law as is, because the Republican-led Senate is unlikely to pass the drug price bills with the Democratic insurance market measures. While that gives the generic drug industry time to make its case to Congress, its credibility took a hit after 44 states filed a lawsuit Friday accusing some of the largest generic drugmakers of colluding to raise prices.

Davis disowned the actions alleged in the lawsuit and called it “outlier” behavior. The association pointed to data showing that overall, generic prices declined for most of the last three years.

Lawmakers, however, might not be inclined to do the industry any favors.

“This behavior is unacceptable, and another example of how we must continue to find ways to prevent drug manufacturers from taking advantage of Americans,” Energy and Commerce Chairman Frank Pallone Jr. said in a statement about the lawsuit.

Watch: Wyden: Drugmaker protects Humira exclusivity ‘like Gollum with his ring’

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Both sides’ arguments

The bill the generic drugmakers support would let them file lawsuits if a brand drugmaker refuses to sell samples of the drug that a would-be generic competitor hopes to copy. Generic companies have long encouraged Congress to pass the measure, which the Congressional Budget Office estimates would save the government $3.3 billion over a decade because lower-cost generic versions of certain drugs would be more likely to become available.

But while that bill would make it easier for some generic drugs to be approved, the industry says that two other bills being packaged together would make it harder.

One would limit arrangements where the original drug company pays a generic drug company to settle patent-infringement claims out of court and agree on a date beyond the patent expiration when the generic copy can enter the market. Lawmakers call those “pay-for-delay” settlements.

Another would give the Food and Drug Administration more power to start the clock on a 180-day exclusive sales period for the generic drugmaker who is the first to file an application to copy a brand drug, if the generic company appears to drag its feet on actually selling the product. The CBO estimates the two bills would save a combined $894 million over 10 years.

The industry argues that both bills are an overreaction to rare problems, and would raise the costs for generic drug development while reducing the benefits, discouraging generic drugmakers from wanting to compete in the first place. In both cases, the industry argues that the government already has the power to deter bad actors from anti-competitive behavior.

The bill on the 180-day exclusivity is rooted in concern that once an application is filed and the reward is secured, the generic drugmaker will “park” its application and wait until the last possible moment to finalize it.

Currently, the FDA has the power to make a company forfeit the exclusivity if 30 months have passed after the application was originally filed. A company might delay its launch for financial reasons related to the patent settlements or to give itself more time to get its insurance contracts in order before launch. Companies can also get a reprieve from the 30-month time limit if there is a manufacturing problem, such as an ingredient shortage.

While the need is often legitimate, the administration says it sees examples where companies abuse the system. The bill would give the FDA a new mechanism to discourage this behavior by letting the 180-day exclusivity start if another applicant is ready for approval while the first one drags its feet.

The generic industry says this will make companies less confident that they will maintain the 180-day exclusivity and will diminish their incentives to be the first to file. Being the first is already a challenge, they argue, since it usually requires a challenge to the branded drug’s patent — which the industry says would be harder under the approach envisioned by the other bill.

When a generic drugmaker applies for FDA approval, usually a year before the exclusive period is about to end, it notifies the brand drugmaker, who can then decide to file a lawsuit asserting patent infringement.

The two firms can take their claims to court to let judges decide whether a patent is valid, but it is usually quicker and cheaper to settle out of court. That’s when the two parties agree on a date when the competitor can come to market, and when something of value can exchange hands. It is rarely cash, but instead things like agreements for the generic company to sell an ingredient to the original company or get a license to make the generic version of a different drug.

Since 2013, after the Supreme Court decided that the government has the power to challenge settlements but that they aren’t presumptively illegal, drugmakers must notify the Federal Trade Commission about their settlements. But lawmakers say the burden of proof for the FTC to show that a deal is anti-competitive is too high, so the bill would flip the default legal presumption to illegal and would generally prohibit the deals from involving anything of value except for $7.5 million in legal fees.

Kurt Karst, a director at the law firm Hyman Phelps and McNamara who specializes in generic drug law, calls the bill an “effective ban” on settlements. He says that generic versions of some drugs would be delayed as they go through a lengthy judicial process or simply wait for the patent to expire.

An earlier version of the bill would have let the FTC re-examine any settlements reached since the 2013 Supreme Court decision to review them under the new legal standard. But the retroactive application was removed from the bill over concerns it could delay generic drugs poised to come on the market soon or take some approved generic drugs off the market.

Opponents of the bill also say the problem is magnified when considering drugs with dozens of patents, many of which are filed near the end of the original exclusive period in an effort to extend their monopoly life — another issue that Congress is trying to figure out.

Others dispute this interpretation and argue that the bill won’t reduce settlements that are legitimately competitive. Instead, supporters argue, it will limit potential loopholes that drugmakers can use to craft deals to fend off competition, and free up FTC resources to allow the commission to police other anti-competitive tactics.

“That sends a strong signal to the industry: Don’t try to find a loophole, because you’re not just going to be able to skid through,” said Michael Kades, director of markets and competition policy at the Washington Center for Equitable Growth and a former FTC attorney. “You’re going to have to have solid evidence and really good reason for why the brand is paying the generic.”

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