Pharma's Pay-to-Delay Deals Boost Healthcare Costs (and Pharma revenue) by $3.5 Billion; a Challenge

The US Supreme Court is being asked to review yet another so-called ‘pay-to-delay’ case. The latest request has been made by the US Solicitor General – at the prompting of the US Federal Trade Commission – and concerns a case involving the AndroGel testosterone replacement drug. The agency hopes to reverse a series of lower-court rulings that found a settlement between various drugmakers was not anticompetitive.

The case dates back to February 2009, when the FTC filed a complaint challenging agreements in which Solvay Pharmaceuticals, which sells AndroGel, paid three generic drugmakers – Watson Pharmaceuticals (WPI), Paddock Laboratories and Par Pharmaceuticals, to delay launching copycat versions. in 2007, AndroGel generated more than $400 million, according to the FTC.

As the agency has in other instances, its complaint alleged that the drugmakers violated antitrust laws when Solvay paid thee generic drugmakers millions of dollars annually in exchange for their agreements to abandon their patent challenges to Solvay, according to an FTC statement. The generic competitors also agreed not to market their versions of AndroGel until 2015.

The bid to seek Supreme Court review is the latest effort by the FTC to restrict pay-to-delay settlements. The agency has regularly maintained these deals are anti-competitive and its forecasts show they force consumers to pay $3.5 billion a year in higher health care costs. As a result, the FTC has repeatedly tried to convince Congress to pass legislation that would impose restrictions.

It’s a potential issue for all of Pharma, as established companies seek to protect lucrative blockbuster drugs beyond their patent life. The industry – think Pfizer (PFE), AstraZeneca (AZN), Eli Lilly (LLY), GlaxoSmithKline (GSK), Sanofi (SNY) – is struggling to generate revenue growth.

PFE Revenue TTM Chart

PFE Revenue TTM data by YCharts

Drugmakers have defended patent settlements as not only lawful, but also valuable methods for bringing lower-cost generics to market sooner than otherwise might be possible. As we have noted previously, the generic industry trade group maintains these settlements have never prevented competition beyond a patent’s expiration and made it possible for generics to become available months or years before patents have expired. This, in turn, they argue, actually saves consumers considerable money.

But the FTC is not the only one asking the Supreme Court to review these deals. A few weeks ago, Merck asked the court to review a federal appeals court ruling that a pair of patent settlements between Schering-Plough – which Merck (MRK) purchased three years ago – and two generic drugmakers over the K-Dur blood pressure medication amounted to “evidence of an unreasonable restraint of trade.” See prior Pharma news.

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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