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Today, US federal regulators will argue at the Supreme Court that it should be illegal for companies holding pharmaceutical patents to make payments to delay rival generic drug manufacturers from marketing cheaper drug versions.

By Lucy Brake on Mar 25, 2013

The argument revolves around big pharma corporations who have been paying generic drug competitors to delay releasing their cheaper versions of brand-name drugs. The Federal Trade Commission believes that this practice denies consumers significant cost savings for what can amount to many years.

The action is being supported the American Medical Association and consumer groups who claim this practice can add $3.5 billion annually to pharmaceutical bills.

The pharmaceutical manufactures believes that the significant revenue from patented products must be protected if they are to recover the billions they are spending developing new drugs. But government officials see that the number of potentially anticompetitive patent settlements is increasing.

The Federal Trade Commission claim that pay-for-delay deals increased from 28 to 40 in just the last two fiscal years and the deals in 2012 covered 31 brand-name pharmaceuticals, which had combined annual U.S. sales of more than $8.3 billion.

The landmark case involves a deal reached between Belgium-based Solvay (now part of AbbVie Inc) and generic drug maker Watson Pharmaceuticals (now called Actavis Inc) which allows it to launch a cheaper version of Solvay's male hormone drug AndroGel (whose patent is until August 2020) in August 2015.

It is claimed that Solvay agreed to pay Watson an estimated $19 million-$30 million annually and that Watson also agreed to help sell the brand-name version, AndroGel. The Federal Trade Commission considered that the deal anticompetitive and sued Watson. The federal district and appellate courts both ruled against the government, and the Federal Trade Commission appealed to the Supreme Court. AbbVie said in a statement that they are “confident that these decisions will be upheld by the Supreme Court".

The federal regulators argue the agreements are illegal if they're based solely on keeping the generic drug off the market. Solicitor General Donald Verrilli believes that the “pay for delay” agreements should be considered “presumptively unlawful because of the potential effects on consumers".

The American Medical Association believes pay-for-delay agreements undermine the balance between spurring innovation through patents and fostering competition through generics. AMA President Dr Jeremy A. Lazarus said, "Pay for delay must stop to ensure the most cost-effective treatment options are available to patients".

However, the industry has a very different view on this matter. Generic Pharmaceutical Association's head, Ralph Neas, said the settlements are "pro-consumer, pro-competition and transparent". He noted that every patent settlement has meant that a generic drug has come to market before the patent expiration.

The Pharmaceutical Research and Manufacturers of America consider that because generic companies tend to challenge patents of every successful drug, the Federal Trade Commission's position would impose significant legal costs on brand-name pharmaceutical manufacturers and limit their ability to fund expensive research into innovative medicines.