‘Pay for delay’ deals will face review by SCOTUS

The nation’s highest court has agreed to hear three cases stemming from the longstanding but controversial practice by which branded and generic drug makers agree to delay introduction of a me-too medicine as its brand-name counterpart nears the end of its patent protection. A ruling by the Supreme Court could alter the delicate balance sometimes struck between the two industries as they scramble to either delay or hasten the onset of generic competition for big-selling, patented drugs.

The high court revealed in December it would take up the cases, which stem from court challenges filed by the Federal Trade Commission and some pharmacy chains over the practice of so-called reverse payments. Critics deride the settlements, by which a generic manufacturer will agree to delay introduction of a cheaper alternative to a branded drug facing the end of its patent life, in return for monetary or other compensation.

Such “pay for delay” settlements, challengers assert, illegally reduce competition and cost U.S. consumers and health plan payers $3.5 billion a year in higher-than-necessary drug costs.

Three generic companies — Watson Pharmaceuticals, Par Pharmaceuticals and Solvay Pharmaceuticals — are bundled into the case the high court will take up, possibly in March.

Typically, when a generic drug company wants to be the first to market a generic version of a drug, it will file for Food and Drug Administration approval for it before the branded drug has lost patent protection. This usually prompts a patent-infringement lawsuit from the branded drug company, and while the suits often go to trial, in many cases, they will result in a settlement that allows the generic drug maker to launch at a later date.

While the “pay” part of the deal may be monetary, it frequently consists of a promise on the part of the branded drug maker not to market an authorized generic — essentially the branded drug marketed at a discount under its generic name, usually by a third-party company — during the 180-day market exclusivity period to which generic companies are entitled if they are the first to win approval for a generic, when they have the sole right to compete against the branded version.

Among critics of the practice: FTC chairman Jon Leibowitz, who said the agreements “leave American consumers footing the bill.” Both branded and generic drug groups, however, counter that reverse payments get drugs into the hands of consumers faster than they would if the patent-infringement suits went to court.