‘Pay For Delay’ Pharma Deals Stand

Branded-drug makers have been paying generics manufacturers to abandon challenges to the branded-drug patents to keep cheaper generics competitors off the market for several years. Last week, the Supreme Court ruled that such “pay for delay” deals can sometimes violate antitrust laws, but the arrangements are not always illegal. Lower courts can evaluate them on a case-by-case basis.

In a 5-3 decision, the high court ruled that the Federal Trade Commission (FTC) may challenge the legality of such agreements. The justices overturned a ruling by the U.S. Court of Appeals for the 11th Circuit that said the agreements were legal as long as they do not keep a generic drug off the market beyond the term of the brand-name drug’s patent.

Justice Stephen G. Breyer, who wrote the majority opinion, said the deals still could be anticompetitive. Compensation “for staying out of the market keeps prices at patentee-set levels and divides the benefit between the patentee and the challenger, while the consumer loses,” he wrote.

The decision leaves it to the lower courts to determine whether the benefits of a particular settlement agreement outweigh the harm to consumers.

The ruling largely vindicates the position taken by FTC, which estimates that the settlements cost consumers about $3.5 billion annually in higher drug costs. Calling the ruling a “significant victory” for U.S. consumers, FTC Chairwoman Edith Ramirez says the court “has made it clear that pay-for-delay agreements … are subject to antitrust scrutiny.”

C. Scott Hemphill, a professor at Columbia Law School, says he expects “fewer of these deals in the future, given the prospect of antitrust litigation from both enforcement agencies and private plaintiffs.”

The pharmaceutical industry maintains that these settlements actually speed lower-cost generics to pharmacy shelves, which saves consumers money.

“The fact is that patent settlements have resulted in hundreds of generic options coming to market—on average nearly five years in advance of the brand patent’s end date,” says Ralph G. Neas, president of the Generic Pharmaceutical Association, an industry trade group. “This means billions of dollars in savings for consumers and the health system.”