Greedy tort bar tarts up the CREATES Act

When members of the tort bar start to salivate over a piece of legislation, it’s worthwhile to find out where the red meat resides.

In a rush to pass legislation to “lower drug prices,” lawmakers are pushing forward H.R. 965 (Reps. David Cicilline and Jim Sensenbrenner) and S.340 (Sen. Patrick Leahy). The worthwhile goal of this new version of the CREATES Act is to prohibit pharmaceutical and biologic companies from engaging in anti-competitive conduct that blocks lower-cost generic drugs from entering the market.

{mosads}Both bills address an important problem — but create an even bigger one.

This proposed legislation establishes a private right of action for “eligible product developers” to sue “license holders” for failure to comply with the process set forth in CREATES for providing access to a covered product. That’s good! 

But, as written, the CREATES Act is ripe for abuse by entities that have no intent to actually develop a generic or biosimilar version of the covered product. This potential for abuse is exacerbated by the significant monetary damages available under CREATES — up to the amount of revenue generated on the covered product during the period of violation. Indeed, in certain instances, it may be more profitable to litigate and obtain damages under CREATES than it would be to actually market a generic/biosimilar product. 

Can you hear the tort bar drooling? Can you hear the tort bar … drafting?

As currently drafted, the CREATES Act could have significant unintended consequences:

The damage provisions of the current draft create the potential for windfall damages, which will distort incentives. Specifically, the bill allows for damages up to the entire gross profit of the brand medicine during the period of negotiations. This creates a powerful incentive for generic companies to prolong negotiations (increasing their damage award), which will actually delay generic entry and competition in the marketplace.

Indeed, generic developers would be able to earn more from a lawsuit than from actually selling the proposed generic drug. An “opportunistic” company (Can you say “Shkreli?”) could develop a business model of demanding samples and engaging in litigation for damages without ever submitting an abbreviated application to FDA — undermining the bill’s stated goal to speed availability of lower-cost drugs for patients.

Smart changes will fix these problems, save the government money and achieve the desired policy goals of facilitating generic access to samples and increasing competition; maintaining safeguards for products subject to a REMS; and ensuring generic developers actually develop generic products. 

Here’s a savvy path forward:

Establish an affirmative defense for license holders where the license holder has made a timely offer to provide sufficient quantities of samples at commercially reasonable, market-based terms.

Such an affirmative defense is intended to prevent frivolous litigation — where samples are offered on commercially reasonable terms, the eligible product developer should not be able to decline the offer and continue litigation. The term “commercially reasonable, market-based terms” is defined to provide further clarity to all parties and avoid unnecessary litigation. Remedies would not be available if the license holder has established an affirmative defense by a “preponderance of the evidence.” This affirmative defense also protects good acting companies from protracted litigation and stops generic sponsors from unnecessarily prolonging negotiations to increase damages.

Revision to the definition of “eligible product developer” to clarify that the eligible product developer must be a person that seeks to develop “and submit” an application for a generic or biosimilar product. 

These changes will help ensure that only legitimate manufacturers are considered eligible product developers for purposes of CREATES; entities that seek only to engage in frivolous litigation and do not seek to submit a generic/biosimilar product application would not be eligible for the remedies under CREATES. The tort bar won’t like it — but this important legislation must be about lowering drug prices — not raising their income.

Peter J. Pitts, a former FDA Associate Commissioner, is president of the Center for Medicine in the Public Interest.