Future of pay-for-delay in hands of SCOTUS

Last month, the Supreme Court heard Federal Trade Commission v. Actavis, which could impact the future of the generic drug industry at a time when 80% of all prescriptions dispensed in the United States are generic.

The case involves a deal between Solvay Pharmaceuticals, currently a subsidiary of AbbVie, and Watson Pharmaceuticals, which changed its name to Actavis following the recent acquisition of the latter. In 2009, Watson, Par Pharmaceuticals and Paddock Labs agreed to delay launching generic versions of the topical testosterone ointment AndroGel in exchange for a share of profits on the drug. The FTC sued, alleging an antitrust violation.

Such deals are a common practice in the drug industry. Usually, a generic drug company that wishes to market a version of a branded drug before its patent expires files an approval application with the Food and Drug Administration containing a paragraph IV certification, which asserts that the patent is invalid, unenforceable or won't be infringed. In response, the branded drug company will generally file a patent-infringement lawsuit to stop the approval of the drug. The companies will often reach a settlement that allows the generic drug to launch before patent expiration.

For the FTC, the issue is when the generic drug company agrees to hold off launching the drug in exchange for some type of consideration from the branded drug company, such as monetary payment or an agreement by the latter not to launch a cheaper version of the drug through a third-party company. Opponents of such deals call them "pay-for-delay" settlements and contend that they keep drugs out of the hands of consumers for longer than if no settlement had taken place. The FTC estimated that the deals cost the country $3.5 billion per year.

"If there's money on the table, the generic firm will accept a later entry date," David Balto, former FTC policy director under the Clinton administration, who filed an amicus brief with the court in support of the FTC's position, told DSN. "If there's no money on the table, the generic firm will bargain for the earliest possible entry date."

Balto expressed optimism for the FTC side, saying that the court appeared highly skeptical of the generic drug industry's position. "Ultimately, this will be very good for consumers because the FTC's position will get generic drugs into the hands of consumers faster," Balto said.

Meanwhile, the Generic Pharmaceutical Association contends that the settlements are ultimately pro-consumer because they get generic drugs to the market months or years ahead of patent expiry. The group points to a 2010 study by the Royal Bank of Canada of 370 patent-litigation suits, which found that when the suits went to trial, the generic drug industry prevailed 48% of the time, compared with 76% of the time when litigation was settled.

"The FTC's case is built on a house of cards," GPhA president and CEO Ralph Neas said, adding that the agency's position relied on "assumptions and methodologies that are false" and was based on a study more than 10 years old.

"We believe the FTC's position, if upheld by the court, would harm consumers," Actavis president and CEO and former GPhA chairman Paul Bisaro also said.

In the Senate, a bill is under consideration that also would seek to restrict patent settlements between branded and generic drug companies. In a recent white paper, former Clinton administration solicitor general Paul Bender called the bill, S. 214, "hopelessly flawed," saying it would interfere with litigant rights to settle, create unfair burdens of proof, conflict with the statutory presumption of patent validity, frustrate provisions in the Hatch-Waxman Act of 1984 that favor litigation and preclude settlements.