Supreme Court Will Rule On ‘Pay For Delay’ Deals
After more than a decade of campaigning by the Federal Trade Commission (FTC), the Supreme Court will on Monday hear arguments over the legality of so-called “pay for delay” deals, where drug companies pay generics firms to avoid patent challenges and delay the arrival of generics on the market.
In the last ten years or so, the pharma industry has seen dozens of these deals take place, yet there is a growing opposition to them from regulators and politicians. David Balto, a former policy director in the Bureau of Competition at the FTC, stated that “the courts clearly have taken inconsistent positions and the stakes for the taxpayer and consumers couldn’t be higher since these settlements cost consumers over $3.5 billion a year. Our nation’s ability to effectively control drug costs will be clearly affected by the Supreme Court’s decision.”
The case being heard by the Supreme Court involves a pay for delay agreement over the marketing of generic versions of Solvay Pharmaceuticals’ low-testosterone treatment AndroGel. Solvay, now owned by AbbVie, is accused of paying three generics firms in order to delay cheaper versions of AndroGel from reaching the market until 2015; the FTC claims that Solvay agreed to pay Watson Pharmaceuticals between $19 million and $30 million each year, Paddock Laboratories $2 million each year, and Par Pharmaceutical Companies $10 million each year until 2015. Solvay’s actions were intended to preserve profits on the drug estimated at up to $125 million per year.
The case had previously been heard in the 11th Circuit Court, which ruled that Solvay had not violated antitrust laws. The Supreme Court only took up the case after another Circuit Court, the 3rd, created a split by becoming the first court to side with the FTC and rule that such “pay-to-delay” arrangements did represent a violation of antitrust regulations, as an attempt to divide up the market. The origin of such agreements dates back to the 1984 Hatch-Waxman act, which was designed to give generics firms an incentive to challenge patents. The first generics firm to challenge the patent successfully would receive a 180-day period of exclusivity, a lucrative opportunity for it to be sole competitor to the brand. However, this led to the practice of patent holders agreeing to pay generics firms to drop their litigation; as the FTC explains, “the continuing stream of monopoly profits is large enough to pay the generic competitors more than they could hope to earn if they entered the market at competitive prices,” while allowing the brand-name drug more competition-free years to sell their drug.
Despite the FTC’s campaigning, 40 “pay-to-delay” deals were made in the 2012 fiscal year, up from 28 the previous year. The FTC said that 31 different brand-name drugs were involved in these settlements, with total U.S sales of more than $8.3 billion annually. Recently, a group of 31 state attorneys general asked the Supreme Court to review such arrangements, claiming that they cost state healthcare programs large amounts due to the lack of availability of cheaper generic alternatives to brand-name drugs.
The rise of “pay-to-delay” deals is also an issue in the European healthcare market, where the European Commission (EC) recently charged J&J and Novartis with conspiring to delay generic versions of the painkiller fentanyl. While in Europe the EC is unequivocal about the anticompetitive nature of “pay-to-delay” agreements, U.S courts have so far shied away from terming them as such; the Supreme Court’s verdict, expected at the end of June, will hopefully put an end to uncertainty in this area by deciding once and for all the legality of these deals.