Justices review deals to keep cheaper drugs off market

Solicitor General Donald Verrilli calls payments to stop sales of generics unlawful.
Evan Vucci/Associated Press/File 2008
Solicitor General Donald Verrilli calls payments to stop sales of generics unlawful.

WASHINGTON — Federal regulators are pressing the Supreme Court to stop big pharmaceutical corporations from paying generic drug competitors to delay releasing their cheaper versions of brand-name drugs. They argue that these deals deny consumers, usually for years, steep price declines that can exceed 90 percent.

The Obama administration, backed by consumer groups and the American Medical Association, says these so-called ‘‘pay for delay’’ deals profit the drug companies but harm consumers by adding $3.5 billion annually to their drug bills.

Pharmaceutical companies counter that they need to preserve longer the billions of dollars in revenue from their patented products in order to recover the billions they spend developing new drugs. Both the large companies and the generic makers say the marketing of generics often is hastened by these deals.


The justices will hear the argument Monday.

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Such pay-for-delay deals arise when generic companies file a challenge at the Food and Drug Administration to the patents that give brand-name drugs a 20-year monopoly. The generic drug makers aim to prove the patent is flawed or otherwise invalid, so they can launch a generic version well before the patent ends.

Brand-name drug makers then usually sue the generic companies, which sets up what can be years of expensive litigation. When the two sides are not certain who will win, they often reach a compromise deal that allows the generic company to sell its cheaper copycat drug in a few years — but years before the drug’s patent would expire. Often, that settlement comes with a sizable payment from the brand-name company to the generic drug maker.

Numerous brand-name and generic drug makers and their respective trade groups say the settlements protect their interests but also benefit consumers by bringing inexpensive copycat medicines to market years earlier than they would arrive in any case generic drug makers took to trial and lost. But federal officials counter that such deals add billions to the drug bills of American patients and taxpayers, compared to what would happen if the generic companies won the lawsuits and could begin marketing right away.

Generic drugs account for about 80 percent of all American prescriptions for medicines and vaccines, but a far smaller percentage of the $325 billion spent by US consumers on drugs each year. Generics saved American patients, taxpayers and the health care system an estimated $193 billion in 2011 alone, according to health data firm IMS Health.


But government officials believe the number of potentially anticompetitive patent settlements is increasing.

The Obama administration argues the agreements are illegal if they are based solely on keeping the generic drug off the market. Solicitor General Donald Verrilli, speaking at Georgetown Law School recently, noted that once a generic drug gets on the market and competes with a brand-name drug, ‘‘the price drops 85 percent.’’ That quickly decimates sales of the brand-name medicine.

‘‘These agreements should actually be considered presumptively unlawful because of the potential effects on consumers,’’ Verrilli said.

In the case before the court, Brussels-based Solvay — now part of a new company called AbbVie Inc. — reached a deal with generic drug maker Watson Pharmaceuticals allowing it to launch a cheaper version of Solvay’s male hormone drug AndroGel in August 2015. Solvay agreed to pay Watson an estimated $19 million to $30 million annually, government officials said. The patent runs until August 2020. Watson agreed to also help sell the brand-name version, AndroGel.

AndroGel, which brought in $1.2 billion last year for Abb­Vie, is a gel applied to the skin daily to treat low testosterone in men. Low testosterone can affect sex drive, energy level, mood, muscle mass, and bone strength.


The FTC called the deal anticompetitive and sued Watson, now called Actavis Inc.

The Court of Appeals for the 11th Circuit in Atlanta rejected the government’s objections, and the FTC appealed to the Supreme Court.

‘‘By doing what the FTC wants, you’re going to hurt consumers rather than help them,’’ said Paul Bisaro, Actavis’s CEO.

The American Medical Association, the giant doctors’ group, believes pay-for-delay agreements undermine the balance between spurring innovation through patents and fostering competition through generics, said the AMA’s president, Dr. Jeremy A., Lazarus. ‘‘Pay for delay must stop to ensure the most cost-effective treatment options are available to patients.’’