Limited win for both sides in “pay-for-delay” judgement

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The US Supreme Court’s ruling that it might be illegal for big pharma to pay generics makers to delay launch of competing products will not resolve the issue quickly, but it will probably act as a new hurdle to signing such deals.

America’s top judges stopped well short of saying that all such arrangements break antitrust laws, as federal regulators have been asking, but did open the door to court challenges by government agencies and other parties claiming that the deals keep prices artificially high. The decision should raise concerns over whether the Federal Trade Commission will retroactively challenge such arrangements to delay generic launch – such as those covering Lipitor and Nexium – as well as how big upcoming patent expiries such as Alimta and Gleevec will be handled.

Supreme referee

After years of conflicting decisions in the lower courts, the justices agreed to hear the case of FTC v Actavis, a legacy of a Watson Pharmaceuticals deal with the former Solvay, now AbbVie, over generic launch of a hypogonadism drug, AndroGel.

The government agency sued Watson in 2009, claiming that the AbbVie predecessor had paid it an estimated $19-$30m a year to keep its competitior off the market until 2015; lower courts, including the Atlanta-based 11th Circuit Court of Appeals, had rejected the government’s argument that the parties had unfairly impeded generic competition.

The opening for the Supreme Court to hear appeals was a contradictory ruling of the Third Circuit, which hears a large share of commercial law cases as it has jurisdiction over Delaware, where most US companies incorporate (Supreme Court could be next up in "pay for delay" saga, September 28, 2013). The highest court needed to get involved to resolve the regional differences in case law.

While not deeming such pacts “presumptively unlawful”, justices decided that in determining whether they were anticompetitive the “rule of reason” should prevail; this legal doctrine holds that existence of a monopoly is not automatically illegal, but rather only those companies that are unreasonably restraining commerce are in violation. The pharmaceutical industry has long argued that many reverse payment arrangements actually speed generic products to market.

In determining whether commerce is being limited by misuse of launch agreements, justices stated that courts needed to examine the size of and justification for any payments between the patent holder and generic competitor, as well as whether there were other means to settle besides a payment.

Thus, the FTC and its backers, such as consumer and physician groups, claimed victory by pointing to the legal standing to challenge reverse payment settlements, while the pharma industry expressed relief the ruling did not declare them presumptively illegal.

Drawing attention

Reacting to the case, Kevin Noonan, a patent attorney for the Chicago law firm McDonnell, Boehnen, Hulbert & Berghoff, wrote that the decision had effectively ended the practice.

Branded pharma manufacturers will argue every generic challenge to its conclusion because paying generic competitors will risk drawing antitrust scrutiny; without the ability to pay, the branded manufacturers will have no leverage to settle before a court judgement, Mr Noonan argued.

Tim Anderson, an analyst with Bernstein Research, argues that the bar has been raised, but says reverse payment deals probably will continue; the FTC will review them and sue in cases in which they appear to be anticompetitive. This has near-term implications for expiry of patents on two cancer drugs, Eli Lilly’s Alimta and Novartis’s Gleevec, Mr Anderson writes.

The two drugs have strong composition of matter patents expiring in 2016 and 2015 respectively, but each has additional patents that while not as strong still appear enforceable. These scenarios could see the brand companies offering to allow early entry before the second patent expires in return for dropping legal challenges and some financial compensation.

With challenges nearing, both companies might need to reconsider their legal strategies knowing that a payment will draw greater scrutiny – something the entire industry must now be thinking about.

To contact the writer of this story email Jonathan Gardner in London at jonathang@epvantage.com or follow @JonEPVantage on Twitter

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