Winners and Losers in Senate Bill on Pay-for-Delay Deals

(MoneyWatch)  The Senate Judiciary Committee passed a bill that would bar drug companies from paying to prevent generic rivals to their branded drugs from being launched. So called "pay-for-delay" deals prevent cheap generics from reaching the market for years, the bill's proponents argue. By banning the deals, consumers will benefit from generics arriving sooner when companies that make them demonstrate that the brand patents are invalid.

So who wins and who loses if the bill is passed? Among Big Pharma, both Merck and Pfizer have begun generic marketing strategies. Those strategies could be more fruitful if, as the bill predicts, generics reach the market sooner. Of course, if it's Pfizer and Merck's brands that are being made generic at earlier dates, then both companies will lose more than they win.

Counterintuitively, generics companies such as Novartis' Sandoz and Teva could be losers. Currently, these companies receive money for nothing -- they announce they will start marketing a branded drug and the targeted company immediately pays them not to do so. With that practice becoming illegal, generic companies would actually have to apply to launch a drug or sue a company with a claim that its patent is invalid. Patents, however, tend to be valid. Thus generics companies may find themselves waiting out the full term of the patent or launching "at-risk" and hoping they win the litigation. That litigation would be more expensive and have higher stakes if settlements that delay launches are banned. And litigation is often not speedy.

There's a Nov. 15 "grandfathering" deadline, so expect a flurry of settlements before then. (In fact Shire just settled with Sandoz over Adderall XR.) Also, Medicis better hurry up and settle with Mylan over that Solodyn patent.

Jefferies & Co. analysts Corey Davis and Oren Livnat sent an amusing note to investors on this topic this morning. Here's a digest:

LogicSchmogic. ... We think it's based on faulty premises, inaccurate data, and incomplete reasoning. But, in the current environment where politics trump logic, we place a high probability on this becoming law.

... we predict an increase in at-risk launches for a day followed immediately by "paymentless" settlements.

Toldya: BNET predicted in June that the FTC's litigation could trigger the Senate to act.

• Related:
• The FTC's Pay-for-Delay Threat: It's All Cephalon CEO Baldino's Fault
• Medicis' Solodyn Sales Stay Strong Despite Generic Challenges; Pay-to-Delay Works
• Medicis Q1: One Day's Generic Competition Cost Company Up to 17% of Solodyn Sales