With Supreme Court weighing a case, GSK's Andrew Witty says 'pay-to-delay' label misleading, defends such settlements

GlaxoSmithKline CEO Andrew Witty at new office in the Navy Yard. March 21, 2013. ( AKIRA SUWA / Staff Photographer )

As drugmaker GlaxoSmithKline reported 25 percent lower, after-tax profits in the first quarter of 2013 compared to a year earlier, chief executive officer Andrew Witty said Wednesday that the company would reorganize its pharmaceutical operations, opening the potential of sale of older brands.

Glaxo is based in London, but has about 1300 employees in Philadelphia's Navy Yard and more in other facilities in Pennsylvania and New Jersey.

Meanwhile, with UK authorities criticizing GSK for trying to delay the introduction of generic competitors nearly 10 years ago and the U.S. Supreme Court weighing a case, Witty defended the business practice.

The UK's Office of Fair Trading alleged on April 19 that GSK had abused its dominant position in the UK to delay the introduction of generic medicine by paying off three generic drug companies. GSK said the allegations stemmed from activity between 2001 and 2004, that it was cooperating with the investigation, but thought it had acted within British law.

In many countries, patents on drugs give manufacturers exclusivity in the marketplace, allowing them to charge more for a drug.

In the United States, branded and generic companies have had made such deals for nearly 30 years, and they are called reverse payments or pay-to-delay deals. Basically, the generic company applies to the FDA for approval of a drug that it says is close to a copy of the branded product, but not so close as to infringe on the patent. The branded company sues, claiming patent infringement. Sometimes they settle the suit, with the generic drugmaker able to sell its version earlier than it would have if it waited for the patent to expire.

But sometimes those settlements are made with the branded company paying the generic company, and that prompted the U.S. Federal Trade Commission to object. The FTC argues that the growing number of deals involving payment restrict trade and hurt consumers and taxpayers.

The U.S. Supreme Court heard arguments on March 25 and will likely decide whether such deals are legitimate by the end of its term in June.

When asked by the Inquirer about the practice, Witty declined to discuss specific cases, but he defended the general practice.

"I push back at the description of 'pay-to-delay' as a label," Witty said from London in a conference call with reporters. "It is a convenient label that people have chosen to use. But in many situations - and I'm talking generically here and not specifically about any particular case - there has been a settlement between the patent holder and a non-patent holder, which usually leads to the generic product being made available before the expiration date of the patent. What is achieved in that is the elimination of uncertainty for both sides.

"The patent holder has a patent. The challenger wants to challenge that patent. But neither side knows what the outcome of that [litigation] is going to be - other than it is going to be a difficult process and expensive. As a consequence, sometimes settlements make sense for parties concerned. But almost always, those settlements lead to the generic being made available earlier than waiting for the patent to expire. Within that, I think it is entirely reasonable that the patent holder should be able to come to settlement to take away the uncertainty. Presumably, the challenger would only enter into such a settlement if it also made sense for them, for the mirror image reason, ie., they don't have certainty either. Every case is different and every challenge is different. But I would push back on this, I think, misleading label."

As for the reorganization inside the pharmaceutical division of the company, Witty said GSK will shift about 50 "legacy" prescription medicines that are promoted lightly, if at all, into one category and that group's finances would be reported separately starting in January of 2014. This group of products will be called "Established Products."

Glaxo has a consumer segment that sells such things as toothpaste and denture products. But the other two pharmaceutical groups would be one that deals with products currently on the market and receiving promotional resources, with the second being products in the pipeline but not yet approved or launched. Glaxo has submitted six drugs for approval by the U.S. Food and Drug Administration and the European Medicines Agency.

Witty said the established products - such as Zantac, Imitrex and Zofran - amount to about $4.5 billion in revenue, and he was asked if it signaled an intent to sell those products.

"How it might play forward beyond that is an open question," Witty said. "It is a sensible move for us to make sure we are maximizing value in the short run. But, of course, it opens optionality for the future. I would not give any guidance on how or when that might evolve, but it opens some optionality."

Glaxo had $9.9 billion in sales in the first quarter, which was a drop from $10.1 billion in the same period in 2012.

The after-tax profit for the first quarter of 2013 was $1.57 billion, which compared to $2.1 billion for the same period in 2012. One factor in the difference in profit was that in January of 2012, GSK reported the $660 million sale of some of its over-the-counter brands to Prestige Brands Holdings, Inc.

Witty said Wednesday, as he has done in the past, that he has no plans for GSK to enter the generic drug market.

"There is absolutely no interest in going into the generics business," Witty said. "That is a long-held view of mine and that view has not changed."

A link to the quarterly financial report is here.