More scrutiny for drug settlements

“The Federal Trade Commission has been battling for years to end a devious tactic used by some drug companies to pay competitors to delay putting cheaper generic versions of their brand-name drugs on the market. The tactic, known as pay-for-delay, results in higher costs for consumers.

The U.S. Supreme Court, in a 5-to-3 decision, gave the commission a partial victory that will allow it to bring antitrust charges against pay-for-delay practices that lower courts had deemed legal, provided the deal did not keep a generic off the market beyond the patent life of the brand-name drug. The commission estimates that such agreements cost Americans $3.5 billion a year in higher drug prices. In Federal Trade Commission v. Actavis, Solvay Pharmaceuticals obtained a patent in 2003 for a testosterone gel only to have Actavis, a generic maker, apply for approval of a copycat version on grounds that the patent was invalid and its product did not infringe it. Solvay sued Actavis, and the two settled the case in 2006. Actavis agreed not to bring its drug to market for nine years, which was still more than five years before Solvay’s patent was due to expire. Solvay agreed to pay Actavis an estimated $19 million to $30 million annually during that period.

The court said such agreements could have anti-competitive effects—and be subject to antitrust scrutiny—even though they involve drugs still under patent. The FTC had asked the court to hold such settlements “presumptively unlawful,” but the justices refused to go that far. Instead, they said the agency must prove its case against any settlement, based on factors like the size of the payments and whether there was any other explanation for them. Still, by allowing legal challenges, the court gives the agency power to ensure more market competition.”