New study questions savings from patent settlement restrictions

By Julian Pecquet - 08/12/10 02:07 PM ET

A new study funded by the drug industry suggests congressional budget scorekeepers "significantly overstated" the savings from a proposed ban on "reverse payment" patent dispute settlements.

The preliminary economic analysis of the so-called "pay-for-delay" legislation limiting generic drugmakers' ability to accept money to settle patent disputes criticizes the CBO's methodology as well as a previous study by the Federal Trade Commission. In particular, the new study says both the CBO and the FTC were wrong to assume that banning reverse payments would speed up generic entry into the marketplace by 17 months.

"Under many circumstances, reverse payment patent settlements between branded and generic manufacturers can benefit competition and consumers," the study says, "particularly by averting continued litigation that may well delay generic entry substantially."

The CBO has said the restrictions would save the federal government about $2.7 billion over 10 years and the FTC said it could save American consumers at least $3.5 billion a year.

The study was authored by Jonathan Orszag, a former member of President Bill Clinton’s National Economic Council; Bret Dickey, Senior Vice President with the economic consulting firm Compass Lexecon; and Robert Willig, Professor of Economics and Public Affairs at Princeton University.

The trade group representing the generic drug industry immediately praised the study.

"This new analysis refutes the flawed assumptions that have been used as the foundation of pending legislation to ban patent settlements," the Generic Pharmaceutical Association said in a statement. "The faulty assumptions include: (1) the conclusion that banning settlements will accelerate generic competition; (2) that banning settlements will save money; and (3) that further restrictions on settlements are needed beyond the authority FTC currently has to police patent settlements and reject those that are anti-competitive."

The House has already passed "pay-for-delay" legislation and it has also been attached to the Senate's pending FY2011 Financial Services Appropriations bill.