Published on 28 January 2013
Legality of Pay for Delay Settlements: SCOTUS Pharma and Biotech Case Preview

The 2012 Supreme Court got a lot of attention for its decision to uphold most of the Affordable Care Act (ACA) health reform law in NFIB v. Sebelius. But this year’s court docket will be no dud. There will be a number of interesting and important cases for pharma and biotech manufacturers, health plans, hospitals, and other providers.

This post is the first in a series about Supreme Court cases that affect the pharma and biotech industries. Future posts in the series will preview cases that deal with patenting human genes, state tort liability for drug injury, and the National Vaccine Injury Compensation Program (VICP).

FTC v. Watson Pharmaceuticals: Legality of “Pay for Delay” or “Reverse Payment” Settlements

In FTC v. Watson Pharmaceuticals, prescription drug maker Solvay Pharmaceuticals paid three generic drug makers – Watson Pharmaceuticals, Paddock Laboratories, and Par Pharmaceuticals – to hold off selling a generic version of AndroGel until 2015. The deal resulted from a patent infringement lawsuit Solvay – now called Abbott Laboratories – filed after the generic drug makers applied for approval from the Food and Drug Administration (FDA) to market the generic equivalent of AndroGel, which argued Solvay’s patent was invalid.

Solvay in 2006 agreed to pay each of the three generic drug companies between $2 million and $30 million per year – supposedly to market the products to urologists and primary care physicians, or to serve as back-up suppliers. In exchange Watson, Par, and Paddock – now owned by Perrigo – agreed to hold off marketing the AndroGel generic until 2015. Those types of deals are called pay-for-delay or reverse-payment settlements.

Federal law prohibits a company from paying a competitor to stay out of the market, and the Federal Trade Commission (FTC) challenged the Solvay deal as an illegal anti-competitive move. The legal question in this case is whether reverse-payment agreements are always anti-competitive and unlawful, or whether they are “per se lawful unless the underlying patent litigation was a sham or the patent was obtained by fraud,” says the petition for a writ of certiorari filed with the Supreme Court.

Arguments begin March 25, 2013, and anyone interested in the lower court opinions should check out the case page on scotusblog.com.

Generic Prescription Drug Use on the Rise

Generic drugs are an important topic because of their potential to reduce health costs and spending for Medicaid, Medicare, and private health plans. For example, a recent Kaiser Family Foundation report showed Medicare Part D spending was 30 percent less than the Congressional Budget Office (CBO) initially projected, in part because the low price of generic drugs offset costs for expensive brand-name medicines. In FTC v. Watson Pharmaceuticals, Watson and Paddock planned to sell the generic version of AndroGel for only 15 percent to 25 percent of the brand-name price, snagging 90 percent of the market for that product and cutting Solvay’s profits by an estimated $125 million each year.

Such large potential losses might be one reason why reverse-payment settlements increased from 28 in 2011 to 40 in 2012, according to a recent FTC report. We might expect to see more such settlements as a slew of drug patents expire in the next few years. The FTC projects drug consumers pay $3.5 billion more each year as a result of pay-for-delay settlements.

The Drug Price Competition and Patent Term Restoration Act of 1984, or Hatch-Waxman Act, made it easier for generics to enter the market, in part by making FDA generic drug approval less onerous. As a result, generic drug use in the U.S. rose from 19 percent in 1984 to 78 percent and rising today.

About Author

An expert on Medicaid, Medicare, and health reform, Kip Piper, MA, FACHE, is a consultant, speaker, and author. Kip Piper advises health plans, hospitals and health systems, states, and pharma, biotech, medical device, HIT, and investment firms. With 30 years’ experience, Kip is a senior consultant with Sellers Dorsey, top specialists in Medicaid and health reform. He is also a senior advisor with Fleishman-Hillard and TogoRun. For more, visit KipPiper.com. Follow on Twitter @KipPiper, Google +, Facebook and connect on LinkedIn.

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