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The White House is under attack. Enraged at President Obama's proposed 2014 budget, drugmakers – brands and generics alike – are speaking out and rallying against a number of potential health plans that include increased rebates in Medicare and a ban on controversial "pay for delay" deals.

By Louise Kelly on Apr 16, 2013

A number of pharma-related elements that are now included in the recently released US budget were previously put forward but then withdrawn by the US President. The return of these "stale, previously-rejected proposals" has incensed many groups, including the Pharmaceutical Research and Manufacturers of America (PhRMA).

"This budget is bad for patients, bad for innovation and bad for the economy," said PhRMA senior vice president Matthew Bennett.

Backlash from rebates

Under the projected budget, released 10^thApril, medical research is set to receive $31 billion for the US National Institutes of Health (NIH).  But as one hand giveth, the other taketh away.  The health scheme also outlines a $400 billion reduction plan over the next decade from Medicare, Medicaid and other federal health programmes.  As part of these healthcare spending cuts, drugmakers will be expected to contribute $169 billion – $123 billion being sourced by the provision of the same rebates to low-income seniors enrolled in Medicare as to beneficiaries of Medicaid.

Seniors' advocacy group AARP has welcomed the budget's further intentions to cut prescription drug costs and close the Medicare Part D coverage gap, known as the "doughnut hole," by 2015. But PhRMA warns that introducing Medicaid-style rebates to Medicare will have a detrimental impact on patients, with more expensive beneficiary premiums and more restrictive access to medicines.

And the group is joined by the Generic Pharmaceutical Association (GPhA) in its plight, which warns, "Imposing rebates would upset this (market-based competitive) structure, and likely have the unintended consequence of shifting costs onto American consumers purchasing their care in the private marketplace," the group warns.

Delay deals

The contentious “pay for delay” deals which have been the subject of much discussion and legal wrangling this year are also mentioned in Obama’s budget, with a plan to ban these agreements in a bid to reduce market exclusivity for biologic drugs. Such deals typically arise when a generic drug manufacturer has secured Food and Drug Administration (FDA) approval and only the brand-name company’s patents stand in the way of generic competition. The GPhA has condemned the proposed ban on these settlements as "based on outdated assumptions and faulty methodology."

Earlier this year, the Federal Trade Commission (FTC) published a report revealing that the number of delay deals between brand and generic firms jumped from 28 to 40 in 2012, the highest of any year since the antitrust agency began collecting data in 2003. And in nearly half of these settlements, the FTC reports that “branded firms may have used the promise that they would not develop or market an authorised generic as a payment to stall generic drug firms from marketing a competing product”.

Supporters of the FTC’s stance on “pay for delay” deals say they have no issue with these settlements – once they are simply setting the date for generic entry.  However, while this construct is acceptable, it is different when a payment becomes involved. The argument is that if a leading international pharma firms can pay a generic rival a meagre portion of its annual sales to wait an extra year before launching its product, both companies win – at the expense of consumers and patients.  

Furthermore the American Medical Association believes delay agreements undermine the balance between spurring innovation through patents and fostering competition through generics, according to group President Dr. Jeremy A. Lazarus.  Yet PhRMA contests this viewpoint, believing that discouraging patent settlements between brand and generics companies "would increase the cost of patent enforcement, decrease the value of patent protection generally and decrease incentives for taking the risks necessary to develop new medicines”.