Shire, Barr Swap Drugs, Not Money

As more innovator companies are faced with patent challenges from generic makers--and the in-vogue solution of reverse-payment deals comes under greater scrutiny--a recent collaboration between Barr and Shire could mark a new way of handling patent challenges in the future.

After filing suit against Shire for the rights to manufacture a generic version of Adderall XR (extended release mixed amphetamine salts), Barr accepted Shire's proposal for an out-of-court settlement, securing earlier rights to manufacture the attention deficit hyperactivity disorder drug as opposed to taking its chances in court.

Last month, the two companies came to a three-pronged agreement: Barr will hold off on marketing generic Adderall XR until April 1, 2009. Barr subsidiary Duramed will purchase from Shire the rights to Adderall (immediate release mixed amphetamine salts) for $63 million. And Shire will gain European marketing rights to Duramed's contraceptive Seasonique (levonorgestrel/ethinyl estradiol 0.15 mg/0.03 mg and ethinyl estradiol tablet 0.01 mg), as well as its transvaginal ring technology, which the company says will ultimately encompass five products.

Shire CEO Matthew Emmens described the deal, in which the innovator company shelled out no money and instead traded eight years of patent life for new products, as unique. "It's consumer-friendly; it's FTC-friendly," said Emmens. "I think it's good for the American public."

More specifically, it's a way for consumers to purchase cheaper Adderall sooner--and might be a way to keep federal authorities off both companies' backs. The Federal Trade Commission considers reverse-payment deals--where an innovator company pays a generic firm not to produce a copy of its drug--anti-competitive, because they prevent cheaper generics from reaching consumers. A recent report from the FTC found that a majority of patent challenges over the past year were settled with this kind of pay-for-delay provision, prompting the FTC to crack down on these deals.

Shire's Emmens says the deal with Barr was about more than dodging bullets, however. "We could have won," had the case gone to court, said Emmens, but, "we wanted certainty for the investor."

A Barr spokeswoman did not respond to a request for comment.

As more generic companies develop their own branded products, there are more opportunities for collaboration and deals that go beyond cash payments.

Some observers urge caution, however, and speculate that the FTC might be waiting for another test case after losing a closely watched reverse-payment ruling involving Schering-Plough drug K-Dur in federal appeals court.

"The FTC continues to look for as aggressive a stance as it thinks a court will sustain," said Robert Reznick, a partner at law firm Hughes, Hubbard & Reed. In the case of Shire and Barr, said Reznick, "The parties have tried to make their deal an unattractive target. They have avoided the red flag of a payment, and added to the mix some new elements that they believe make the deal even more attractive to consumers."

Patent attorney Bill Heinze, of law firm Thomas, Kayden, Horstemeyer & Risley, called the settlement a "win-win situation," citing the reduced risk of losing a patent challenge altogether, and the ability to cut down litigation costs.

"Reverse-payment deals sound so fishy to so many people," Heinze said. Taking a more collaborative approach to a patent challenge "makes it that much more difficult for the investigating authorities to value these kinds of deals, [and therefore] it's much more difficult for them to object."