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Pay to delay puts Big Pharma, generics in same corner

Opposing sides are unlikely allies as Supreme Court considers whether these settlements are anticompetitive, bad deal for consumers

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Pharmaceutical companies and their generic competitors, often courtroom adversaries, are fighting on the same side to protect their right to settle patent disputes out of court through cash payments.

The uncommon alliance comes as the Supreme Court considers whether brand-name manufacturers should be allowed to pay their generic counterparts to delay the entry of cheaper-priced drugs onto the market.

The top court, which picked up the case after the Federal Trade Commission challenged such a settlement, heard arguments in late March, and both industry and consumer groups say much is at stake when a decision is rendered, likely in June.

Federal patent law gives drug developers market exclusivity for 20 years from the date they file the patent, but generic companies often challenge those patents in court. Federal law encourages such challenges by granting six months market exclusivity to the first generic firm to successfully challenge a given patent. Cash settlements that allow the generic to enter the market at a set date before the original patent would have expired are one way of settling those disputes.

But those so-called pay-for-delay settlements have been opposed for years by consumer groups, who argue such agreements are anticompetitive. The Federal Trade Commission estimates such deals cost consumers $3.5 billion annually by denying them access to generic drugs, which can be up to 90 percent cheaper than brand names.

"The brands and generics do really well, so the consumer is still holding the bag paying higher drug prices for invalid patents," said Michael Carrier, law professor at Rutgers School of Law in Camden.

Carrier filed a so-called "friend of the court" brief to the court on behalf of 117 professors supporting the FTC's position. Though most settlements do involve payments, the FTC said cash deals have been occurring more frequently, including 40 in 2012, up from 28 the prior year.

Pharmaceutical and generics companies counter that such settlements reduce litigation, and ultimately save consumers money, by bringing generic drugs to market sooner than if patents were never challenged. Banning those settlements, the Generic Pharmaceutical Association said, would force companies to continue lengthy litigation until a court decision.

GPhA spokeswoman Claire Sheahan said betting on generics to prevail in patent cases amounts to a "crapshoot" — generics win less than half such cases — whereas out-of-court settlements allow an alternative solution.

"The system is working now," Sheahan said. "There are millions of dollars in savings we are getting now. The benefits we get from the current system are proven. We can't predict the future, but what's working is what's at stake."

The pharmaceutical industry argues its companies spend billions to research and develop new drugs. Removing the right to voluntarily settle patent disputes with their generic counterparts will jeopardize their investments and reduce incentives for innovation, the industry says.

New Jersey pharmaceutical giants including Merck, Johnson & Johnson and Bayer referred comment to the Pharmaceutical and Research Manufacturers of America, a Washington, D.C.-based industry advocate.

"Patent settlements are a vital aspect of a patent owner's ability to protect intellectual property and are common in numerous industries," PhRMA said in a statement. "At the most fundamental level, a patent owner has the right to defend a valid patent, and settlements are a tool that can allow this to happen without the burden of engaging in a costly, extensive legal battle."

Pfizer, which has operations in New Jersey but is based in Manhattan, said in a statement the right to voluntarily settle patent cases "reaffirms the value and importance of intellectual property and the country's well-balanced system of creating incentives to develop innovative drugs that save and enhance patient lives, while at the same time establishing a strong generics industry."

The case reached the Supreme Court after the FTC challenged an appellate court ruling allowing the former Watson Pharmaceuticals and other generics to launch a cheaper version of the male hormone drug AndroGel starting 2015.

Parsippany-based Watson, now called Actavis, struck the deal with Belgian pharmaceutical company Solvay, whose patent for Androgel was otherwise protected until 2020. Solvay agreed to pay Watson an estimated $19 million to $30 million, and Watson also agreed to help sell the brand-name drug Androgel, according to published reports.

E-mail to: tomz@njbiz.com
On Twitter: @biztzanki

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