• by Thom Forbes  @tforbes, June 18, 2013

Competition in the pharmaceutical business should intensify as a result of the U.S. Supreme Court’s 5-3 decision yesterday that allows the Federal Trade Commission to file antitrust suits against manufacturers who pay off would-be rivals to keep their generic knock-offs off the market for a period of time. 

“Solvay Pharmaceuticals, the maker of AndroGel, had agreed to pay the generic-drug maker Actavis an estimated $19 million to $30 million annually for nine years to temporarily block it from bringing a generic version of the drug to market,” Dina ElBoghdady reports in the Washington Post. “It planned to pay millions of dollars more to two other generic-drug firms that challenged its AndroGel patent.”

The other two generic makers were Paddock Laboratories, now part of Perrigo, and Par Pharmaceutical,” according to Leigh Page in Medscape News.

Justice Anthony Kennedy joined the court’s liberal wing -- Stephen Breyer, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan in the majority decision, reportsPharmacy Times’ Daniel Weiss in a concise history of the case. Three members of the conservative wing -- chief justice John Roberts and Antonin Scalia and Clarence Thomas – dissented. Conservative Samuel Alito recused himself.

The FTC challenged the “pay-for-delay” tactic, as it calls it, in 2009 but a district court dismissed the lawsuit and the U.S. Court of Appeals for the 11th Circuit affirmed the decision, finding that such “deals are lawful, with very narrow exceptions, as long as the rival companies agreed to allow the generic drugs to reach the market before the patent for the brand-name drug expired,’ according to ElBoghdady.

“The verdict was a victory for the federal government, which had contended that arrangements keeping generic drugs off the market benefited companies at the expense of consumers,” writes Richard Wolf in USA Today. But, as he points out, the decision does not “automatically strike down such deals between drug companies. It ruled that the government must apply a ‘rule of reason’ and challenge each deal individually.”

Actavis president and CEO Paul Bisaro says in a statement that the company is “pleased” that the court “has established that the ‘rule of reason’ be applied, and left it to the lower courts to determine if the benefits of the settlement outweigh harm to consumers.” Nonetheless, the ruling “does place an additional and unnecessary administrative burden on our industry,” he maintains.

Consumer groups claimed victory.

Beth Finkel, state director for AARP in New York, says in a statement: “This practice denies consumers across the nation access to lower-cost treatment options as soon as possible, leaving some to choose between filling their grocery cart and filling a prescription. These agreements also artificially inflate health care costs across the board; the Federal Trade Commission estimates these agreements cost consumers and taxpayers $3.5 billion per year.”  

And congressman Henry Waxman, D-Calif., “one of the fathers of the 1984 law that greatly increased the use of generic drugs,” also hailed the decision, David Sell blogs on Philly.com.

“The Court echoed what I, along with many other members of Congress, have repeatedly said: the over-arching goal of Waxman-Hatch is to foster competition in the pharmaceutical industry,” according to Waxman. “The type of collusive agreement at issue in this case represents a total perversion of the spirit of this law.”

“The decision is likely to create considerable uncertainty in the drug business and shift an important balance of power to the generic companies, industry analysts said,” writes Edward Wyatt in the New York Times. “Drug developers may now find it harder to ward off generics, which typically cost about 15% of the brand-name’s price and cause the original to quickly lose up to 90% of its market share.”

Wyatt cites IMF Health data used by regulators in their argument that show that brand-name drugs accounted for 18% of the total prescriptions written by doctors in 2011 but 73% of consumer spending. “No other decision this term will have as much impact on consumers’ pocketbooks,” David A. Balto, an antitrust lawyer and a former Federal Trade Commission policy director, tells Wyatt.

But Steve Reed, a lawyer at Morgan, Lewis & Bockius LLP, took a different position about the potential benefit to consumers. He feels the “decision could delay the entry of cheaper generics into the market,” according to the AP’s Jesse J. Holland in the Huffington Post.

“The upshot of the decision is that, with the exception of settlements limited to compromises on the patent term itself –- with modest payments to avoid the cost of litigation –- there will be increased uncertainty about whether particular settlements will pass antitrust scrutiny,” Reed said. “This may have a chilling effect on parties’ willingness to settle, and thus forego guaranteed early entry by generics.”