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New Analysis Finds All Economic Studies Of "Pay-For-Delay" Settlements Suffer From Common Flaw

Studies from FTC and others have predetermined conclusions and thus offer no guidance for courts in evaluating reverse payment settlements following FTC v. Actavis.

WASHINGTON, Feb. 20, 2014 /PRNewswire-iReach/ -- Three studies of the economic impact of "pay-for-delay" settlements, including an oft-cited Federal Trade Commission (FTC) report, share a methodological flaw that undercuts their usefulness to policymakers and courts alike, according to a new analysis conducted by economic consulting firm Matrix Global Advisors (MGA). Future consideration of pay-for-delay settlements between brand and generic drug manufacturers should rely instead on case-specific analytics based on proper valuation of terms, analysis of market dynamics, and rational differences between parties' risk aversion, among other factors.

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Economic reports from the FTC, the IMS Institute for Healthcare Informatics, and U.S. PIRG and Community Catalyst purport to measure the impact of reverse payment settlements, but each reaches a different--even contradictory--conclusion. The FTC and U.S. PIRG/Community Catalyst reports find that such settlements prevent cost savings, while the IMS report finds that they induce cost savings.

According to MGA's new analysis, instead of establishing causality between pay-for-delay settlements and the date of generic entry, each report espouses a predetermined conclusion about whether pay-for-delay settlements yield savings by allowing generics to enter the market before brand patents would have expired, or deny savings by delaying generic entry beyond when generics would have entered the market following a successful patent challenge.

"These studies are well intentioned but fail to determine the aggregate impact of reverse payment settlements on consumer welfare," noted Alex Brill, CEO of MGA and one of the authors of the report. "More importantly, none of these studies offers guidance for the courts or the FTC in evaluating the appropriateness of any individual settlement agreement."

MGA's analysis concludes that a settlement involving consideration cannot be deemed pro- or anti-competitive without considering all aspects of the patent dispute and settlement agreement, as the Supreme Court acknowledged in its FTC v. Actavis decision by applying the "rule of reason."

According to MGA, the Supreme Court's decision is appropriate in its view that pay-for-delay settlements should be assessed on a case-by-case basis, as such settlements can be anti-competitive, pro-competitive, or neutral in their effects on consumers. Because the Court granted significant latitude to the lower courts in determining how to make this assessment, parties engaging in a reverse payment settlement will likely need to conduct a case-specific economic analysis that takes into account the various economic dynamics at play in that particular settlement.


Matrix Global Advisors (MGA) is a Washington, DC-based economic consulting firm. MGA engages in consulting and analysis on a range of health care, tax, and other policy matters. Prior to founding MGA, Alex Brill served as policy director and chief economist to the House Ways and Means Committee and on the staff of the White House Council of Economic Advisers. Christy Robinson is a Director at MGA. She holds an MPP from George Mason University, where she received the Alexis De Tocqueville Award, and worked previously at the American Enterprise Institute, Nuclear Energy Institute, and Institute for Advanced Studies in Culture at UVA.

For media inquiries, please contact Jonathan Toomey at 202-558-7159.

Media Contact: Jonathan Toomey, Matrix Global Advisors, 202-558-7159, [email protected]

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SOURCE Matrix Global Advisors

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