New Jersey drug companies are in a legal holding pattern after a July court ruling that called into question the legality of certain settlements once deemed business-as-usual practices.
At issue are so-called reverse payments, or "pay-for-delay" pacts, in which brand-name drug companies pay would-be generic rivals to keep their products off the market for a set amount of time.
Federal patent law gives drug developers market exclusivity for 20 years from the date they file the patent, but generic companies often challenge those patents in court, or file applications to market generic forms of patented drugs, thus inciting patent-infringement lawsuits. And the federal government encourages such litigation by giving a reward of six months' market exclusivity to the first generic firm to successfully challenge a given patent.
Brand-name drugmakers, however, can spend upwards of $1 billion to develop a drug, so it's in their interest to maintain their monopoly as long as possible.
Cash settlements with generic challengers are one way to achieve that goal.
Until now, courts have approved of such deals, since patents are presumed in U.S. law to be valid, and since the agreements don't extend the branded company's monopoly beyond the patent's life.
Michael Carrier, a law professor at the Rutgers School of Law, in Camden, said the July ruling, by the Third Circuit Court of Appeals, was the first time in nearly a decade that such deals have been given what Carrier believes is appropriate scrutiny.
Such deals have long drawn the ire of the Federal Trade Commission, which says the agreements are responsible for $3.5 billion in higher health care costs each year. But the agency has had little success stopping the deals, in part because they often are structured in such a way as to obscure any pay-for-delay scheme.
In a famous 2009 case regarding the testosterone-replacement drug AndroGel, Solvay Pharmaceuticals Inc. reached settlements under which Solvay paid generic challengers "co-promotion" and "backup supply" fees in exchange for the generic firms dropping plans to launch low-priced competitors. The FTC sued, calling the settlements thinly veiled pay-for-delay bribes, but the drug companies ultimately won in court.
In July, however, the Third Circuit ruled "pay-for-delay" settlements are prima facie, or presumed, anticompetitive. The case involved payments made by Schering-Plough — which was bought by Merck & Co. in 2009 — to two generic firms to keep generic forms of a treatment for low potassium, called K-Dur, off the market.
The K-Dur ruling placed the burden on dealmakers to prove their agreements aren't anticompetitive, thus lifting the burden of proof off the government.
The ruling was quickly denounced by drug companies, including generics. Ralph G. Neas, president and CEO of the Generic Pharmaceutical Association, noted in a statement that the FTC already has the authority to block settlements deemed anticompetitive, though courts generally have rebuffed the FTC when it uses that authority.
"Ending egregious settlements that hurt consumers and delay market entry of affordable medicine is a good public policy goal," he said. "But federal regulators and the courts already have the tools to do that."
Neas said settlements present cheaper, faster resolutions to patent cases, and he said they often result in generic companies winning the right to market their versions before the patents expire.
"What has been lost in the debate thus far is that the great majority of settlements are good and do result in significant savings to customers and earlier access to affordable medicine," Neas said.
But Carrier said it's in the public's interest to have bad patents invalidated.
The agreements "are a concern, because the brand firm can pay the generic not to challenge its weak patent," he said. "This could prevent invalid patents from being overturned, which would affect prices and access to needed medicines."
Indeed, the Third Circuit cited studies showing generic companies prevail about 70 percent of the time when they challenge patents. That's despite the fact that the burden of proof is on patent challengers, rather than patent holders.
The Third Circuit ruling is particularly important because the circuit comprises much of the industry's historical home base — New Jersey, Pennsylvania and Delaware. Gerard P. Norton, chair of the intellectual property department at Fox Rothschild LLP, in Lawrenceville, said the Third Circuit ruling is now the law within those states.
"Any of these pay-for-delay cases that are pending, if there are any rulings, the district courts will follow the Third Circuit," he said.
In other circuits, the district courts will follow other their own circuit court's rulings, which generally OK such agreements. However, the conflicting opinions may not stand: Merck has asked the Supreme Court to review the case.
"If I'm a judge, I'm just going to hold off a decision, because I want to see" whether the Supreme Court agrees to hear the case, he said. "My gut is ... this will be heard, because you can't have disunity in judicial opinions in the United States."
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