Supreme Court urged to ban 'pay for delay' drug settlements

The Obama administration on Monday made the case to a seemingly divided Supreme Court that drugmakers should be banned from using “pay-for-delay” settlements to keep generic drugs off the market.

The administration argued the arrangements violate antitrust laws and result in higher drug prices that cost consumers and taxpayers billions of dollars each year.

Pay-for-delay deals allow one company to simply “buy off” another and then share monopoly profits that would be much lower if the firms were to compete in the open market, Deputy Solicitor General Malcolm Stewart argued before the court.

“Agreements of this sort should be treated as presumptively unlawful,” Stewart said.

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Drugmakers, meanwhile, contend that the courts have consistently ruled that such settlements are outside the scope of antitrust laws designed to promote competition and block collusion.

The companies typically note the time and expense involved in bringing a drug to market: For every 5,000 drugs tested, only one is approved for use, and the process can take longer than a decade and cost in excess of $1 billion.

Without sufficient profits from successful drugs to cover the costs of the unsuccessful ones, pharmaceutical companies would have little incentive to innovate new and important medications, drugmakers say.

But regulators and other critics say consumers are hurt by the settlements. A study released by the Federal Trade Commission (FTC) concluded pay-for-delay settlements cost the American public roughly $3.5 billion annually. Without a generic competitor, brand-name drug manufacturers can charge as much as 90 percent more for medications.

“Delaying generic versions of a drug has serious financial and health impacts on individual patients,” said Wells Wilkinson, Director of the Prescription Access Litigation Project at Community Catalyst, a nonprofit advocacy group.

The case before the high court centers on the product AndroGel, a topical gel developed by Solvay Pharmaceuticals to treat low testosterone in men. Two other drugmakers quickly developed their own generic versions of the product. A lawsuit was filed, and Solvay ultimately agreed to pay the other companies tens of millions of dollars to keep their drugs off the market.

The FTC filed an antitrust lawsuit against the settlements, arguing they allowed the three companies to share monopoly-scale profits “at the expense of the consumer savings that would result from price competition.”

The argument failed to convince a pair of lower courts, which ruled in favor of the drugmakers, and it appeared to find skeptics on the Supreme Court, too, on Monday.

Justice Antonin Scalia questioned why the reverse payments are any different from garden-variety license agreements. Stewart replied that license agreements, unlike pay-for-delay settlements, are expressly permitted under the law.

“That doesn’t impress me,” Scalia responded. He noted that the settlements were a consequence of the Hatch-Waxman Act, legislation that created an abbreviated application process for generic drugs.

“Why should we overturn established antitrust laws just to cover up a mistake that Hatch-Waxman made?” he questioned.

Justice Steven Breyer also appeared to push against a finding that reverse payments violate the law, suggesting the matter is best left up to lower courts deciding individual cases.

Justices Sonia Sotomayor and Elena Kagan appeared more receptive to the administration’s case.

Sotomayor suggested that companies with patents on brand-name drugs could charge competitors royalties and negotiate over when generic versions would be allowed on the market. Those considerations could take place without the use of reverse payments that line the pockets of both companies.

“It’s clear what’s going on here,” she said. “The person that’s going to be injured is all the consumers out there.”

The American Medical Association, AARP, America’s Health Insurance Plans and other medical and trade organizations filed briefs in support of the administration’s case, while several drug companies submitted briefs opposing it.

The court is due to issue its verdict before its current term ends on June 24.