Court gives new hope for bans on pay for delay deals

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A US appeals court opinion announced yesterday may have opened a new path to outlawing legal settlements between generic drugmakers and branded pharmaceutical manufacturers whose patents are expiring. The court invited a new review of a key 2005 court decision involving generic tamoxifen that has restricted the ability of consumers and government agencies to challenge the so-called “pay for delay” deals.

In inviting a group of payers, wholesalers and pharmacy benefit managers to seek a full-court review of the tamoxifen ruling, a three-court panel of the US Court of Appeals for the Second Circuit in New York City cited the “exceptional importance” of the antitrust implications of out-of-court patent settlements. Such deals are likely to grow in significance as a business strategy for branded manufacturers who will want to hold on to sales with the approaching patent expiries of key products such as Lipitor, Plavix and Actos (Takeda to gain from Actos patent victories, April 29, 2010).

Cipro deal

The decision to review the cases centres on a 1997 deal to delay generic entry of ciprofloxacin between Bayer, Barr Laboratories and the Rugby Group, a generic division of Hoechst Marion Roussel that was purchased by Watson Pharmaceuticals that was challenged in the courts by payers in 2000. Yesterday, in affirming a lower court decision that the ciprofloxacin deal was legal under US antitrust law, the appeals court panel said it was bound by an earlier decision of the same appellate court in 2005 involving generic tamoxifen that held such deals to be legal.

The tamoxifen decision has been cited on numerous occasions to defend patent settlements against challenges from consumers and payers.

In its opinion on the ciprofloxacin case, however, the panel said the judgement in the tamoxifen case was based on an “erroneous” interpretation of the Hatch-Waxman law, which governs generic drugs. Although the precedent in the tamoxifen case required the panel to affirm that the Bayer-Barr-Rugby deal was legal, it invited the plaintiffs to petition for a rehearing before the entire panel of circuit court judges.

Government backing

In its ciprofloxacin opinion, the court also acknowledged that the US Justice Department, which has an indirect interest in the case, argues that the precedent from tamoxifen fails to subject the settlements to proper antitrust scrutiny, suggesting that the government has not given up on outlawing pay for delay deals. The Federal Trade Commission (FTC), an antitrust agency which has tracked such deals, praised the 2nd Circuit’s cirprofloxacin decision to review the case. The FTC said the deals cost consumers $3.5bn a year.

So far, the legislative avenue has been closed. Lawmakers tried to include a ban on patent settlements in health care reform legislation enacted last month, but opposition from the Generic Pharmaceutical Association and the silence of the Pharmaceutical Research and Manufacturers of America, the branded drugmaker trade group, ensured that the provision was dropped from the law signed by President Barack Obama (US health reform passes and market barely pauses, March 22, 2010).

Murky precedent

The legal situation remains murky for now, however, and the judicial route may take a long time to filter out into national policy on patent settlements. Two other appellate courts have ruled against the FTC in challenges of patent settlements, so even a full reversal of the 2nd Circuit’s tamoxifen decision might not have nationwide applicability.

Mr Obama has supported pay-for-delay bans, however, and legislative interest remains high. Indeed, both of the authors of the Hatch-Waxman law, Sen. Orrin Hatch of Utah and Rep. Henry Waxman of California, have spoken out against them. Standalone legislation, meanwhile, has had positive committee votes in both the House and Senate.

What seems to be lacking is a strong consumer voice outside of government pushing for the ban. If such a voice emerges, it seems likely that the legislative route will be the more successful one.

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