High court knocks drug firms’ profit-sharing deals
Antitrust law can be used in challenges
WASHINGTON Profit-sharing deals between brand-name and generic drug companies that preserve patents and prevent competition can be challenged under antitrust laws, the Supreme Court ruled Monday.
The verdict was a victory for federal regulators, who had argued that settlements keeping generic drugs off the market benefited manufacturers at the expense of consumers.
But the court, in a 5-3 decision written by Justice Stephen Breyer, did not automatically strike down such deals between drug companies. It ruled that the government must apply a “rule of reason” and challenge each deal individually. That’s likely to lead to more lawsuits.
Breyer was joined by Justice Anthony Kennedy and the court’s liberal members. Chief Justice John Roberts wrote the dissent. Justice Samuel Alito took no part in the case.
The so-called pay-for-delay deal, Breyer said, “simply keeps prices at patentee-set levels ... while dividing that return between the challenged patentee and the patent challenger. The patentee and the challenger gain. The consumer loses.”
Roberts said the deal between the two drugmakers to exchange money for dropping a legal claim is routine. “In doing so, they put an end to litigation that had been dragging on for three years,” he said. “Ordinarily, we would think this is a good thing.”
The deals are the product of a 1984 federal law that aims to get generic drugs on the market as soon as possible. Without the occasional settlements, generic-drug makers must win patent lawsuits — and if they lose, the patent runs its full course.
The ruling leaves billions of dollars at stake. While consumers benefit most from early entry of generics — which can slash drug prices by 85% or more — settlements can reduce the duration of brand-name patents. When generics are blocked — usually 20 years — consumers lose the most.
The case, Federal Trade Commission v. Actavis, involves the topical drug AndroGel that raises testosterone levels in men. To ward off three generic companies that were challenging its patent, the FTC says, Solvay Pharmaceutical agreed to pay them $31 million to $42 million annually through 2015, at which point they could enter the market with generic versions of the gel.
The government charged that such deals give generic-drug makers an incentive to sue and then settle for a quick profit, rather than challenge the patent in court and win. The generic-drug makers argued that they win only about half the time — and when they don’t, consumers lose, too.
Federal courts have declared most settlements legal, particularly because they replace patents, which by their nature are anti-competitive. Drugmakers and others, notably technology companies, need patents to recoup their investments in product development. It takes an average of 10 to 15 years to bring a drug to market, at a cost of $1.3 billion.
The FTC has fought such pay-fordelay settlements for a decade as their number has grown, from just three in 2005 to 40 last year. They were joined in this case by a coalition of 36 states that argued the deals should be subject to challenge.
“Today’s ruling is a victory for millions of Americans who depend on generic drugs to treat illness and pain,” New York Attorney General Eric Schneiderman said.
Drugmakers say that without such settlements, millions of dollars would be lost in litigation — and that when generics lose challenges, lower-cost drugs remain off the market even longer, or until the brand name’s exclusive patent expires.
Ralph Neas, president of the Generic Pharmaceutical Association, said the decision could lower the number of patent challenges brought by generic manufacturers and add to their administrative burdens.