[Infowarrior] - SCOTUS: Pharma can be sued for 'pay to delay' practices

[Richard Forno]

Drugmakers Opened to ‘Pay for Delay’ Suits by High Court

By Greg Stohr - Jun 17, 2013

http://www.bloomberg.com/news/print/2013-06-17/drugmakers-opened-to-pay-for-delay-suits-by-high-court.html

Drugmakers can be sued for paying rivals to delay low-cost versions of popular medicines, the U.S. Supreme Court said in a decision that rewrites the rules governing the release of generic drugs.

The 5-3 ruling is largely a victory for the Federal Trade Commission and the Obama administration, reversing a lower-court ruling that had effectively insulated pharmaceutical companies from liability. The FTC says those “pay for delay” accords cost drug purchasers as much as $3.5 billion a year. The industry says the deals are legitimate patent settlements.

The ruling may lead to lawsuits by wholesalers, retailers, insurers and antitrust enforcers. Bayer AG (BAYN), Merck & Co. (MRK) and Bristol-Myers Squibb Co. (BMY) units already have faced claims. The FTC says 40 pay-for-delay accords, also known as reverse payments, were reached in fiscal 2012 alone.

“A reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects,” Justice Stephen Breyer said in the court’s majority opinion.

Breyer stopped short of adopting the FTC’s proposal that such agreements should be presumed anticompetitive. He said the accords should be evaluated under a longstanding antitrust test known as the “rule of reason.”

A federal appeals court had said pharmaceutical companies can’t be sued unless the patent litigation is a sham or a generic-drug maker agrees to delay introduction even after the patent has expired.

Drug Settlements

The high court decision may discourage brand-name and generic pharmaceutical companies from reaching settlements.

The case divided the court along ideological lines, with Justices Anthony Kennedy, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan joining Breyer in the majority.

Chief Justice John Roberts and Justices Antonin Scalia and Clarence Thomas dissented. Justice Samuel Alito didn’t take part in the case. As is the court’s custom, Alito didn’t give any reasons.

The disputed settlements stem from the economics of the pharmaceutical industry, where companies can reap billions of dollars from blockbuster drugs and then have sales plummet the moment a generic alternative appears.

The FTC says generic drugs sell for an average of 15 percent of the original price, with the brand-name company losing 90 percent of its market share by unit sales. Generics have saved purchasers $1.1 trillion in the last decade, the industry says.

FDA Approval

Pharmaceutical patent settlements typically arise just as a generic-drug maker is securing Food and Drug Administration approval to introduce its version of a drug. At that stage, only the brand-name company’s patents stand in the way of competition.

The FTC and its allies say they don’t object to settlements that merely set the date for a generic drug’s entry to the market. They say a payment to the generic-drug maker changes the equation, suggesting the companies are agreeing to delay the generic drug, keep prices high and split what economists call “monopoly profits.”

A 2010 FTC study found that the accords cost purchasers $3.5 billion a year, a figure the drug industry contests.

The high court case centered on Androgel, a treatment for low testosterone in men that is made by Solvay Pharmaceuticals Inc. The FTC sued Solvay and three generic-drug companies, including Actavis Inc. (ACT)

Profit Loss

The FTC says the price for Androgel was poised to fall at least 75 percent in 2007 after the Food and Drug Administration cleared the way for competition. Faced with the prospect of losing $125 million in annual profits, Solvay instead paid the generic-drug makers as much as $42 million a year to delay their competing versions until 2015, the FTC says. At the time, Actavis was known as Watson Pharmaceuticals.

The companies said Solvay, which is now part of AbbVie Inc. (ABBV), had a patent that, if backed by the courts, would have protected the drug an additional five years -- until 2020.

The companies said the payments were compensation for services to be provided by the generic-drug makers, including Watson’s marketing of Androgel to urologists.

The case is Federal Trade Commission v. Actavis, 12-416.

To contact the reporter on this story: Greg Stohr in Washington at gstohr at bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1 at bloomberg.net.


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