Pay-to-Delay Deals by Big Pharma Could be Headed to Supreme Court

Last month, a federal appeals court ruled that a pair of patent settlements between Merck’s (MRK) Schering-Plough and two generic drugmakers over the K-Dur blood pressure medication amounted to “evidence of an unreasonable restraint of trade.” The decision by the US Court of Appeals for the Third Circuit, which reversed a ruling by a federal court in New Jersey, was quickly hailed by the US Federal Trade Commission as proof that such deals are anti-competitive (see Pharma news).

Now, Merck has asked the US Supreme Court to review the case, which the drugmaker argues is a perfect example of why the issue should be examined. “This case presents one of the most significant unresolved legal questions currently affecting the pharmaceutical industry: what is the appropriate antitrust standard for evaluating settlements of patent litigation between brand manufacturers and generic manufacturers, where the settlement includes a payment from the brand manufacturer to the generic manufacturer?”

A flattening out of revenue at the major Pharma companies – including Merck, Pfizer (PFE), Bristol-Myers Squibb (BMY), Eli Lilly (LLY) and GlaxoSmithKline (GSK) – is in part due to expirations on patents covering blockbuster drugs.

MRK Revenue TTM Chart

MRK Revenue TTM data by YCharts

“That question has been percolating in the lower courts for more than a decade. Until the decision in this case, the courts of appeals had consistently held that the federal antitrust laws generally permit a settlement that includes a payment from the brand manufacturer to the generic manufacturer, as long as the settlement does not exclude competition beyond the scope of the patent. The Third Circuit’s decision in this case dramatically departs from the prevailing view,” Merck lawyers write in their brief.

To date, drugmakers have defended patent settlements, which some also call ‘pay-to-delay,’ as not only lawful, but also valuable methods for bringing lower-cost generics to market sooner than otherwise might be possible. In fact, the generic industry trade group maintains that these settlements “have never prevented competition beyond a patent’s expiration” and have made it possible for generics to become available months or years before patents have expired. This, in turn, actually saves consumers considerable money.

For its part, the FTC has regularly maintained these deals as anti-consumer and noted that its forecasts show they cost consumers $3.5 billion a year in higher health care costs. The agency, which last year took the unusual step of filing a so-called friend-of-the-court brief in support of pharmacies and wholesalers that filed suit against the Schering-Plough settlements (see Pharma news), has repeatedly tried to convince Congress to pass legislation that would impose restrictions.

To read the remainder of this article, go to Pharmalot.

Ed Silverman is the editor of Pharmalot and a contributor toYCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.

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